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Cash, Short-term Investments and Accounts Receivable

Cash, Short-term Investments and Accounts Receivable. Chapter 4. Chapter 13. The Master Budget. Learning Objectives Chapter 13. Assess the importance of budgeting. Prepare a master budget. Discuss the uses of a rolling budget.

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Cash, Short-term Investments and Accounts Receivable

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  1. Cash, Short-term Investmentsand Accounts Receivable Chapter 4 Chapter 4

  2. Chapter 13 The Master Budget

  3. Learning Objectives Chapter 13 • Assess the importance of budgeting. • Prepare a master budget. • Discuss the uses of a rolling budget. • Explain how standard costs are used in preparing budgets and assessing responsibility. • Calculate material and labor variances for purposes of control and performance evaluation. Chapter 13

  4. Budgeting The process of budgeting is the interpretation of future plans into monetary amounts so that progress toward organizational goals can be determined. A budget is a financial plan for the future . Chapter 13

  5. Ways of Budgeting Top Down Participatory Chapter 13

  6. Master Budget Cash Budget Cash Collections from Sales Cash Payments for Purchases Operating Budgets Sales Budget Production Budget Purchases Budget Direct Labor Budget Overhead Budget Capital Budget Budgeted Financial Statements Cost of Goods Manufactured Income Statement Balance Sheet Statement of Cash Flows Chapter 13

  7. Flow of Budgeted Information through the Master Budget Chapter 13

  8. Fast-Food Funthings Projected Balance Sheet December 31, 2009 In order to prepare the master budget for the first quarter of 2010, we need the December 31, 2009 balance sheet. Chapter 13

  9. Sales Budget The sales budget is prepared in both units and dollars. Chapter 13

  10. Review Best Company sells a product for $60. Best reports finished goods on hand on January 1, 2010, of 32,000 units and desires a Dec. 31, 2010 inventory of 25,000. Best plans to sell 85,000 units during 2010. Best will budget total sales for 2010 at: • $5,600,000 • $5,100,000 • $6,200,000 • $4,300,000 Chapter 13

  11. Review Best Company sells a product for $60. Best reports finished goods on hand on January 1, 2010, of 32,000 units and desires a Dec. 31, 2010 inventory of 25,000. Best plans to sell 85,000 units during 2010. Best will budget total sales for 2010 at: • $5,600,000 • $5,100,000 • $6,200,000 • $4,300,000 Chapter 13

  12. Production Budget The production budget is used to calculate how many items need to be manufactured in a particular period. Chapter 13

  13. Review Best Company sells a product for $20. Best reports finished goods on hand on January 1, 2010, of 32,000 units and desires a Dec. 31, 2010 inventory of 25,000. Best plans to sell 85,000 units during 2010. Budget production for 2010 amounts to: • 85,000 units. • 92,000 units. • 78,000 units. • 57,000 units. Chapter 13

  14. Review Best Company sells a product for $20. Best reports finished goods on hand on January 1, 2010, of 32,000 units and desires a Dec. 31, 2010 inventory of 25,000. Best plans to sell 85,000 units during 2010. Budget production for 2010 amounts to: • 85,000 units. • 92,000 units. • 78,000 units. • 57,000 units. Chapter 13

  15. Purchases Budget The purchases budget is prepared to determine quantities of raw material to buy to complete the budgeted production, given the quantities of material in the beginning and ending Direct Material Inventory. Chapter 13

  16. Direct Labor Budget Given expected production, direct labor requirements are calculated on the direct labor budget. Chapter 13

  17. Review Best Company sells a product for $20. Best reports finished goods on hand on January 1, 2010, of 32,000 units and desires a Dec. 31, 2010 inventory of 25,000. Best plans to sell 85,000 units during 2010. Assuming each unit requires 1.5 hours of direct labor and labor costs $20 per hour, the total direct labor budget for 2010 amounts to: • $2,340,000. • $2,550,000. • $2,760,000. • $1,710,000. Chapter 13

  18. Review Best Company sells a product for $20. Best reports finished goods on hand on January 1, 2010, of 32,000 units and desires a Dec. 31, 2010 inventory of 25,000. Best plans to sell 85,000 units during 2010. Assuming each unit requires 1.5 hours of direct labor and labor costs $20 per hour, the total direct labor budget for 2010 amounts to: • $2,340,000. • $2,550,000. • $2,760,000. • $1,710,000. Chapter 13

  19. Overhead Budget The overhead budget is used to compute overhead costs for budgeted production levels. Fast-Food Funthings has chosen to combine its production overhead budget and its selling and adm. budget into a single overhead budget. Chapter 13

  20. Capital Budget If the company plans to make any purchases of plant assets during the master budget period, those amounts are included in a capital budget. Chapter 13

  21. Information for the Cash Budget After all the preceding budgets have been developed, a cash budget can be constructed. However, the sales and purchases budgets must first be converted to a cash basis before the cash budget can be prepared. We need to prepare two schedules: • Schedule of Cash Collections from Sales • Schedule of Cash Payments for Purchases These schedules are shown on the following slides. Chapter 13

  22. Schedule of Cash Collections from Sales Chapter 13

  23. Review Best Company began operations on January 1, 2010. Best anticipates credit sales to be collected as follows: 50% in the month of sale, 30% in month after sale, and 20% in the following month. Credit sales are as follows: January, $200,000; February, $225,000; and March, $285,000. The cash collected in March from January credit sales amounts to: • $60,000. • $40,000. • $127,500. • $85,000. Chapter 13

  24. Review Best Company began operations on January 1, 2010. Best anticipates credit sales to be collected as follows: 50% in the month of sale, 30% in month after sale, and 20% in the following month. Credit sales are as follows: January, $200,000; February, $225,000; and March, $285,000. The cash collected in March from January credit sales amounts to: • $60,000. • $40,000. • $127,500. • $85,000. Chapter 13

  25. Review Best Company began operations on January 1, 2010. Best anticipates credit sales to be collected as follows: 50% in the month of sale, 30% in month after sale, and 20% in the following month. Credit sales are as follows: January, $200,000; February, $225,000; and March, $285,000. The total cash collected in February from credit sales amounts to: • $212,500. • $152,500. • $167,500. • $172,500. Chapter 13

  26. Review Best Company began operations on January 1, 2010. Best anticipates credit sales to be collected as follows: 50% in the month of sale, 30% in month after sale, and 20% in the following month. Credit sales are as follows: January, $200,000; February, $225,000; and March, $285,000. The total cash collected in February from credit sales amounts to: • $212,500. • $152,500. • $167,500. • $172,500. Chapter 13

  27. Schedule of Cash Payments for Purchases Chapter 13

  28. Cash Budget Chapter 13

  29. Budgeted Financial Statements The last component of the master budget is the preparation of pro forma financial statements for the period. Fast-Food Funthings prepares the following budgeted financial statements: • Pro Forma Cost of Goods Manufactured Schedule • Pro Forma Income Statement • Pro Forma Balance Sheet • Pro Forma Statement of Cash Flows Chapter 13

  30. Pro Forma Cost of Goods Manufactured Schedule Chapter 13

  31. Pro Forma Income Statement Chapter 13

  32. Pro Forma Balance Sheet Chapter 13

  33. Pro Forma Statement of Cash Flows Chapter 13

  34. Variance Analysis A standard is simply a norm or average. A standard cost is the budgeted cost to make one unit of product (or perform one unit of service). Variance analysis is the process of determining the standard-to-actual differences and assessing whether that difference is favorable or unfavorable. Chapter 13

  35. Material Variances Material variances indicate how close actual material usage and cost were to standard material usage and cost. • We will calculate two variances for direct materials: • MATERIAL PRICE VARIANCE • MATERIAL QUANTITY VARIANCE To calculate material variances, three costs are needed: Chapter 13

  36. Material Variances Material variances indicate how close actual material usage and cost were to standard material usage and cost. • We will calculate two variances for direct materials: • MATERIAL PRICE VARIANCE • MATERIAL QUANTITY VARIANCE To calculate material variances, three costs are needed: Chapter 13

  37. Material Variance Calculations Chapter 13

  38. Material Variances for Fast-Food Funthings Chapter 13

  39. Labor Variance Calculations Chapter 13

  40. Labor Variances for Fast-Food Funthings Labor variances are analyzed in a similar manner to materials variances. • We will calculate two variances for direct labor: • LABOR RATE VARIANCE • LABOR EFFICIENCY VARIANCE Chapter 13

  41. Problem Review June Company reports the following information for the first quarter of 2010: Calculate all variances for materials and labor for June Co. Chapter 13

  42. Problem Review Solution MPV = ($8.80 - $8.50) X 60,000 = $18,000 U MQV = $8.50 X (60,000 lbs. – 61,500 lbs) = $12,750 F LRV = ($10.25 - $10.15) X 49,000 hours = $4,900 U LEV = $10.15 X (49,000 hours – 49,200 hours) = $2,030 F Chapter 13

  43. THE END! Chapter 13 43

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