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Chapter 9

Chapter 9. PROFIT PLANNING- BUDGETING. WHY BUDGET?. Read pg 376 Organize your business Determine when you need cash Baseline to judge how you are doing RoseBowl article. who. Everyone needs to be involved. Should be created from the bottom up not from the top down

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Chapter 9

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  1. Chapter 9 PROFIT PLANNING- BUDGETING

  2. WHY BUDGET? • Read pg 376 • Organize your business • Determine when you need cash • Baseline to judge how you are doing • RoseBowl article

  3. who • Everyone needs to be involved. • Should be created from the bottom up not from the top down • Handout about fraud

  4. HOW • 10 Budgets – page 375 Exhibit 9-2 • First – Sales – everything based on these # • Last – Balance Sheet

  5. 12 BUDGETS • 1)Sales and 2)Cash Receipts • 3)Production • Cost of a product: 4)DM ,5)Cash Disb, 6)DL, 7)OH • 8)Cost of Goods Manufactured: Unit Product Cost -Book has Ending Finishing Goods Inventory – • 9)Selling and Administrative • 10)Cash • 11)Income Statement • 12)Balance Sheet

  6. 1)Sales budget pg 378 • *Sales in Units – determine by quarter • *x Sales Price • = Total Sales • Information that will cause the change in the entire budget • * information you must enter • Other numbers are calculated

  7. 2)Cash receipts budget pg 378 • 1st qtr 2nd qtr 3rd qtr 4th qtr TOTAL Sales • 1st qtr Sales 70% 30% • 2nd qtr Sales 70% 30% • 3rd qtr Sales 70% 30% • 4th qtr Sales 70% • TOTAl CASH Rec

  8. 3)Production budget pg 381 • Sales in Units • +*Ending Inventory-FG (% of next quarter) • Total Needs • - Less Beginning FG – last months ending • Required production

  9. 4)Direct mAterials budget pg 381 • Production in Units • *x Raw materials per unit • = Production Needs • * +Production for E.I. --% of next quarter • Total Needs • -Less Beginning Raw Materials – from last quarter • * X cost per pound • Cost of Raw Materials to be purchased

  10. 5)Cash disbursements for mtls pg 381 • 1st qtr 2nd qtr 3rd qtr 4th qtr TOTAL purch • 1st qtr Pur 50% 50% • 2nd qtr Pur 50% 50% • 3rd qtr Pur 50% 50% • 4th qtr Pur 50% • TOTAl CASH Dis

  11. 6)DIRECT LABOR BUDGET pg 303 • Production in Units • X hours per unit • = DL Hours required • X average rate • =DL $ • Use these numbers for overhead driver

  12. 7)OVERHEAD BUDGET pg 384 • Variable Costs (per unit) • Fixed Costs ( same amount each month) • Estimated OH cost/estimated driver =Predetermined overhead rate • Selling and G&A same structure

  13. 8)COST OF GOODS MANUFACTURED • Combines all three product costs • Direct Materials Budget • +Direct Labor Budget • +Overhead Budget • =Total Manufacturing Cost • + Beginning WIP • -Ending WIP • =Cost of Goods Mfg • DON’T USE PAGE 383 IN THE TEXTBOOK.

  14. 9) Selling and administrative PG 386 • Variable Costs (per unit) • Fixed Costs ( same amount each month)

  15. 10) Cash PG 388 • Beginning Cash • +Cash Receipts Budget • = Total Cash incoming • Cash Disbursement Budget • +Direct Labor Budget • +Overhead Budget • +S G&A Budget • = Total Cash outgoing • Cash incoming – Cash outgoing = Cash excess • -Minimum required balance • = Cash Available

  16. 11) Income statement pg 390 • Sales Budget • -COGS • Beginning FG • +COGM Budget • -Ending FG • Gross Profit • - Selling G&A Budget • = Net Income

  17. 12) Balance sheet pg 392 • Cash Budget • A/R (Leftovers from Cash Receipts) • Inventory (ending FG) • Net Property,Plant & Equipment (estimate) • =Total Assets • A/P (leftovers from DM budget) • Long Term Liabilities (estimate) • =Total Liabilities • Common Stock (estimate) • Retained Earning (estimated) • +Net Income from Income Statement • = Stockholder’s Equity • =Total Liabilities and Stockholder’s Equity

  18. Excel spreadsheet • See Manufacturing project instructions to create your groups fluid spreadsheet.

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