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Chapter 9

Chapter 9. Profit Planning and Activity-Based Budgeting. Purposes of Budgeting Systems. Budget a detailed plan, expressed in quantitative terms, that specifies how resources will be acquired and used during a specified period of time. Planning Facilitating Communication and Coordination

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Chapter 9

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  1. Chapter 9 Profit Planning andActivity-Based Budgeting

  2. Purposes of Budgeting Systems Budget a detailed plan, expressed in quantitative terms, that specifies how resources will be acquired and used during a specified period of time. Planning Facilitating Communication and Coordination Allocating Resources Controlling Profit and Operations Evaluating Performance and Providing Incentives

  3. Types of Budgets Detail Budget Detail Budget Detail Budget Materials Master Budget Covering all phases of a company’s operations. Production Sales

  4. Sales of Services or Goods Ending Inventory BudgetWork in Process and Finished Goods Production Budget Ending Inventory BudgetDirect Materials Direct Materials Budget Direct LaborBudget Overhead Budget Selling and Administrative Budget Cash Budget Budgeted Income Statement Budgeted Balance Sheet Budgeted Statement of Cash Flows

  5. Activity-BasedCosting (ABC) Activity-BasedBudgeting (ABB) Activity-Based Costing versus Activity-Based Budgeting Resources Resources Activities Activities Cost objects:products and servicesproduced, andcustomers served. Forecast of productsand services to beproduced andcustomers served.

  6. Sales Budget • Breakers, Inc. is preparing budgets for the quarter ending June 30. • Budgeted sales for the next five months are: • April 20,000 units • May 50,000 units • June 30,000 units • July 25,000 units • August 15,000 units. • The selling price is $10 per unit.

  7. Sales Budget

  8. Production Budget The management of Breakers, Inc. wants ending inventory to be equal to 20% of the following month’s budgeted sales in units. On March 31, 4,000 units were on hand. • Let’s prepare the production budget.

  9. Production Budget From sales budget Ending inventory becomes beginning inventory the next month March 31 ending inventory

  10. Direct-Material Budget • At Breakers, five pounds of material are required per unit of product. • Management wants materials on hand at the end of each month equal to 10% of the following month’s production. • On March 31, 13,000 pounds of material are on hand. Material cost $.40 per pound. • Let’s prepare the direct materials budget.

  11. Direct-Material Budget From ourproduction budget March 31 inventory 10% of the following month’s production

  12. Direct-Material Budget

  13. Direct-Labor Budget • At Breakers, each unit of product requires 0.1 hours of direct labor. • The Company has a “no layoff” policy so all employees will be paid for 40 hours of work each week. • In exchange for the “no layoff” policy, workers agreed to a wage rate of $8 per hour regardless of the hours worked (No overtime pay). • For the next three months, the direct labor workforce will be paid for a minimum of 3,000 hours per month. • Let’s prepare the direct labor budget.

  14. Direct-Labor Budget From our production budget This is the greater of labor hours required or labor hours guaranteed.

  15. Overhead Budget Here is Breakers’ Overhead Budget for the quarter.

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