1 / 40

Budgeting

Budgeting. ACG 2071 Chapter 21 Module 9 Fall 2007. Budgets. Charts a course for a business by outlining the plans of the business in financial terms. Budgets. Objectives Establishing specific goals Executing plans to achieve goals Periodically comparing actual results with goals.

cecily
Download Presentation

Budgeting

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Budgeting ACG 2071 Chapter 21 Module 9 Fall 2007

  2. Budgets • Charts a course for a business by outlining the plans of the business in financial terms

  3. Budgets • Objectives • Establishing specific goals • Executing plans to achieve goals • Periodically comparing actual results with goals

  4. Management meets objectives • Planning • Directing • Controlling

  5. Budgeting Systems • Continuous Budget • Static budget • Flexible budget • Zero Based Budgeting

  6. Master Budget • Manufacturing Company • Parts • Budgeted income statement • Sales budget • Cost of goods sold budget • Production budget • Direct materials purchases budget • Direct labor cost budget • Factory overhead cost budget • Selling and administrative expense budget • Budgeted balance sheet • Cash budget • Capital Expenditure Budget

  7. Sales Budget • Indicates for each product the quantity of sales and expected selling price • Example 1: Brite Lite sells two products in United States and Canada. Product A is estimated to sell 5,000 units in the United States and 10,000 units in Canada at $100 per unit. Product B sells 20,000 units in United States and 6,000 units in Canada at $50 per unit

  8. Sales Budget Brite Lite Sales Budget For year 2008

  9. Production Budget • Coordinates with sales budget to ensure that production and sales are kept in balance during the period • Number of units manufactured to meet budgeted sales and inventory needs for each product is set forth in the production budget.

  10. Production Budget Formula Expected units to be sold + Desired Ending Inventory -Estimated Beginning Inventory Total units to be produced

  11. Production budget • Brite Lite expects to have beginning inventory of 3,000 units of Product A and 5,000 units of Product B. The company would like its ending inventory to be 10% of estimated sales

  12. Production Budget Brite Lite Production Budget For year 2008

  13. Example 2 Class problem • Geo produces three products X, Y, and Z. • Sales: • 10,000 units to X, • 15,000 units to Y • 25,000 to Z. B • Beginning inventory is estimated at • 3,000 to X, • 5000 to Y, • 2,500 to Z. • Ending inventory is estimated at • 1,500 to X, • 4,000 to Y • 4,000 to Z. Complete production budget.

  14. Direct Materials Budget • The production budget is the starting point for determining the estimated quantities of direct materials to be purchased. • Estimates purchase levels for the next year and costs. • Formula:

  15. Direct Materials Budget Formula Materials required for production +Desired Ending Materials Inventory -Estimated Beginning Materials Inventory Direct materials to be purchased X Cost per unit Total Direct Materials Cost

  16. Direct Materials Purchases Budget • Estimates purchase levels for the next year and costs • Materials required for production plus ending inventory minus beginning inventory

  17. Direct Materials • Product A uses 2 lbs. of plastic and 3 lbs. of aluminum. Product B uses ½ lb. of plastic, 1 lb. of aluminum, and 2 lbs. of paper. Aluminum sells for $5 per lb. Plastic sells for $10 per lbs, and paper sells for $2 per lbs.

  18. Direct Labor Budget • Production budget also provides the starting point for preparing the direct labor cost budget. • Example: Department 1 has a labor cost of $10 per hour. Product A uses 6 hours in Department 1 and Product B uses 4 hours. Department 2 has a labor cost of $7 per hours. Production A uses 2 hours of Department 2’s labor and Product B uses ½ hour. Prepare a direct labor budget.

  19. Example

  20. Factory Overhead Budget Indirect labor $25,000, utilities $45,000, maintenance $40,000 and insurance $60,000

  21. Cost of goods sold budget: • Is composed of the budgets for production, direct materials, direct labor and factory overhead

  22. Selling and Administrative Budget: • Sales budget is often used as the starting point for estimating the selling and administrative expenses.

  23. Budgeted Income Statement:

  24. Balance Sheet Budgets • Cash Budget • Capital Expenditure Budget

  25. Capital Expenditures Budget • Lists dollar amounts to be both received from plant asset disposals and spent to purchase additional plant assets to carry out the budgeted business activities

  26. Cash Budget • Is one of the most important elements of budgets • Presents the expected receipts and payments of cash for a period of time • Three parts of the budget” • Cash receipts • Cash payments • Other items • We prepare a schedule for cash receipts and cash payments

  27. Schedule of Cash Receipts • : Magna Corporation has estimated sales of January $1,080,000, February $1,240,000, and March $970,000. Accounts receivable has a balance on January 1 of $370,000. The company expects that 10% of its sales will be in cash and the remainder in credit. Of the credit sales, 60% will be collected in the next month and the remainder the following month. • Required: Prepare a schedule of cash receipts..

  28. Calculations * 60% of Credit sales = $972,000 x 60%

  29. Calculations

  30. Calculations

  31. Schedule of Cash Receipts

  32. Schedule of Cash Payments • Reduction in cash from manufacturing, selling and administrative, capital expenditure, and other expenses • Example: Magna Company has manufacturing costs of $840,000 in January, $780,000 in February, and $812,000 for March. The beginning balance in accounts payable is $190,000. Depreciation expense is $24,000 per month which is included in manufacturing costs. Manufacturing costs payments are allocated at 75% in month incurred and remainder the next month.

  33. Schedule of Cash Payments

  34. Completing the Cash Budget • After preparing the schedule of cash receipts and the schedule of cash payments, we review additional items and prepare the formal cash budget.

  35. Completing the Budget • Cash balance on January 1 - $280,000 • Quarterly tax due on March 31 - $150,000 • Quarterly interest paid to creditors on January 10 - $22,500 • Selling and administrative expenses: • January $160,000 • February $165,000 • March $145,000 • Interest revenue to be received on March 21 - $24,500 • Capital expenditures on equipment payable on February 28 - $274,000 • Minimum cash balance of $340,000 is required by the corporation’s Board of Directors

  36. Cash Budget

More Related