Accounting for leaders
Jdr
Hilton_11e_Chap009PPT.pptFinancial Planning and Analysis: The Master Budget
Chapter 9
Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Helen (H) - CHAPTER 9: CORRECTION REQUIRED Note that not all slides include slide numbers.
Helen (H) - Slide 12 Note that I deleted the previous Slide 12 because the slides was blank.
Chapter 9: Financial Planning and Analysis: The Master Budget
Learning Objective 9-1 – Explain the relationship between financial planning and analysis and the master budget.
9-*
Learning Objective 9-1. Explain the relationship between financial planning and analysis and the master budget.
Financial Planning and
Analysis (FP&A) Systems
A financial planning and analysis (FP&A) system helps managers assess the company’s future and know if they are reaching their performance goals. A complete FP&A system includes subsystems for (1) planning, (2) measuring and recording results, and (3) evaluating performance.
The planning component of the FP&A system is called the master budget. It is intended to help ensure that plans are consistent and yield a result that makes sense for the organization.
9-*
A financial planning and analysis (FP&A) system helps managers assess the company’s future and know if they are reaching their performance goals. A complete FP&A system includes subsystems for (1) planning, (2) measuring and recording results, and (3) evaluating performance.
The planning component of the FP&A system is called the master budget. It is intended to help ensure that plans are consistent and yield a result that makes sense for the organization. (LO 9-1)
Learning Objective 9-2 – List and explain five purposes of budgeting.
9-*
Learning Objective 9-2. List and explain five purposes of 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
- Allocating Resources
- Controlling Profit and Operations
- Evaluating Performance and Providing Incentives
9-*
A budget is a detailed plan, expressed in quantitative terms, that specifies how resources will be acquired and used during a specified period of time. The procedures used to develop a budget constitute a budgeting system. Budgeting systems have five primary purposes: (1) planning, (2) facilitating communication and coordination, (3) allocating resources, (4) controlling profit and operations and (5) evaluating performance and providing incentives. (LO 9-2)
Types of Budgets
Detail
Budget
Detail
Budget
Detail
Budget
Master
Budget
Covering all
phases of
a company’s
operations.
Sales
Production
Materials
9-*
Different types of budgets serve different purposes. A master budget, or profit plan, is a comprehensive set of detailed budgets covering all phases of an organization’s operations for a specified period of time. (LO 9-2)
Types of Budgets
Budgeted Financial
Statements
Balance Sheet
Income Statement
Statement of Cash Flows
9-*
Budgeted financial statements, often called pro forma financial statements, show how the organization’s financial statements will appear at a specified time if operations proceed according to plan. Budgeted financial statements include a budgeted income statement, a budgeted balance sheet, and a budgeted statement of cash flows. (LO 9-2)
Types of Budgets
2014
2015
2016
2017
Continuous or
Rolling Budget
This budget is usually a twelve-month
budget that rolls forward one month
as the current month is completed.
L o n g R a n g e B u d g e t s
Capital budgets with acquisitions
that normally cover several years.
Financial budgets with financial resource acquisitions.
9-*
Helen (H) - Slide 8 CORRECTION REQUIRED The years on the timeline should be updated.
Helen (H) - Slide 8 Reduced the font size for the words 'Continuous or Rolling Budget.'
A capital budget is a plan for the acquisition of capital assets, such as buildings and equipment. A financial budget is a plan that shows how the organization will acquire its financial resources, such as through the issuance of stock or incurrence of debt. Budgets are developed for specific time periods. Short-range budgets cover a year, a quarter, or a month, whereas long-range budgets cover periods longer than a year. Rolling budgets are continually updated by periodically adding a new incremental time period, such as a quarter, and dropping the period just completed. Rolling budgets are also called revolving budgets or continuous budgets. (LO 9-2)
Learning Objective 9-3 – Describe the similarities and differences in the operational budgets prepared by manufacturers, service-industry firms, merchandisers, and non-profit organizations.
9-*
Learning Objective 9-3. Describe the similarities and differences in the operational budgets prepared by manufacturers, service-industry firms, merchandisers, and nonprofit organizations.
Budgeted Income Statement
Cash Budget
Sales of Services or Goods
Ending
Inventory
Budget
Work in Process
and Finished
Goods
Production
Budget
Direct
Materials
Budget
Selling and
Administrative
Budget
Direct
Labor
Budget
Overhead
Budget
Ending
Inventory
Budget
Direct Materials
Budgeted Balance Sheet
Budgeted Statement of Cash Flows
9-*
The master budget comprises many separate budgets, or schedules, that are interdependent. Based on the sales budget, a company develops a set of operational budgets that specify how its operations will be carried out to meet the demand for its goods or services. A manufacturing company develops a production budget, which shows the number of product units to be manufactured and ending inventory budgets. From the production budget, a manufacturer develops budgets for the direct materials, direct labor, and overhead that will be required in the production process. A budget for selling and administrative expenses also is prepared. The operational portion of the master budget is similar in a merchandising firm, but instead of a production budget for goods, a merchandiser develops a budget for merchandise purchases. A merchandising firm will not have a budget for direct materials. Based on the sales budget for its services, a service industry firm develops a set of budgets that show how the demand for those services will be met. Every business prepares a cash budget. This budget shows expected cash receipts, as a result of selling goods or services, and planned cash disbursements, to pay the bills incurred by the firm. The final portion of the master budget includes a budgeted income statement, a budgeted balance sheet, and a budgeted statement of cash flows. (LO 9-3)
Financing Budgets
Cash Receipts Budget
Provides information about cash inflows. Considers things such as the timing of sales and collections, collection patterns, and sales that will never be collected.
Helen (H) - Slide 11 NN Last sentence: Changed the word 'patters' to read 'patterns.'
After developing its sales and operational budgets, a company knows where its money will be coming from and where it will go. But several timing issues affect when they can collect the cash. To plan for this, companies develop a set of financing budgets including a cash receipts budget, a cash disbursements or payments budget, and an overall cash budget.
A cash receipts budget considers the timing of sales and collections, collection patterns, and even the sales that may never be collected. (LO 9-3)
Financing Budgets
Cash Disbursements Budget
Portrays spending plans based other budgets prepared
Helen (H) - Slide 12 NN First paragraph, last sentence: Changed the words '30 days for more" to read 'for 30 days or more.' Second paragraph, fifth sentence: Changed the word 'an' after the word 'ahead' to read 'and.'
The cash disbursements budget depends on the spending plans outlined in several operational budgets. For example, the company may not pay cash immediately for most of their expenditures. Rather, it will pay its suppliers according to standard commercial arrangements, often delaying payments for 30 days or more past the delivery date.
Finally, the cash budget can be prepared. The cash budget plays a critical role in planning the firm’s cash needs. It summarizes the various cash inflows and outflows and incorporates nonoperational cash flows as well. It also addresses financing issues. By predicting the company’s net cash position at frequent points, the firm can plan ahead and can arrange sources of short term borrowings and make short term investments as the cash positions allow. The ability to foresee and avoid cash emergencies makes the cash budget a very important and powerful tool. (LO 9-3)
Learning Objective 9-4 – Explain the concept of activity-based budgeting and the logic it brings to the budgeting process.
9-*
Learning Objective 9-4. Explain the concept of activity-based budgeting and the logic it brings to the budgeting process.
Activity-Based Costing versus Activity-Based Activity Based Budgeting (ABB)
Resources
Cost objects:
products and services
produced, and
customers served.
Activities
Resources
Forecast of products
and services to be
produced and
customers served.
Activities
9-*
Activity-Based
Costing (ABC)
Activity-Based
Budgeting (ABB)
Applying ABC concepts to the budgeting process yields activity-based budgeting or ABB. Under ABB, the first step is to specify the products or services to be produced and the customers to be served. Then the activities that are necessary to produce these products and services are determined. Finally, the resources necessary to perform the specified activities are quantified. Conceptually, ABB takes the ABC model and reverses the flow of the analysis. ABC assigns resource costs to activities, and then it assigns activity costs to products and services produced and customers served. ABB, on the other hand, begins by forecasting the demand for products and services as well as the customers to be served. These forecasts then are used to plan the activities for the budget period and to allocate the resources necessary to carry out the activities. (LO 9-4)
Learning Objectives 9-5 & 9-6– Prepare each of the budget schedules that make up the master budget in a non-manufacturing firm, and that exist in manufacturing budgets as well (LO 9-5) . Prepare the additional master budget schedules required by a manufacturing firm (LO 9-6).
9-*
Helen (H) - Slide 15 Changed the colon after the word 'well' to a period. Added the learning objective after the first and second sentences.
The next series of steps cover the development of the master budget. This section will look at two learning objectives simultaneously.
Learning Objective 9-5. Prepare each of the budget schedules that make up the master budget in a non-manufacturing firm, and that exist in manufacturing budgets as well.
And
Learning Objective 9-6. Prepare the additional master budget schedules required by a manufacturing firm.
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.
9-*
We will prepare each type of budget that make up the master budget.
Breakers, Inc. is preparing budgets for the quarter ending June 30. The unit sales are projected for the months of April through August. The selling price per unit is budgeted at $10. (LO 9-5)
Sales Budget
9-*
Helen (H) - Slide 17 NN Added a comma after the word 'June.'
The projected units are multiplied by $10 for each month to determine the budgeted revenue for the months of April, May, June, and the quarter. (LO 9-5)
Sales
| April | May | June | Quarter | |||||
| Budgeted sales (units) | 20,000 | 50,000 | 30,000 | 100,000 | ||||
| Selling price per unit | $ 10 | $ 10 | $ 10 | $ 10 | ||||
| Total Revenue | $ 200,000 | $ 500,000 | $ 300,000 | $ 1,000,000 |
Production
| April | May | June | July | |||||
| Sales in units | 20,000 | 50,000 | 30,000 | 25,000 | ||||
| Add: desired ending inventory | 10,000 | 6,000 | 5,000 | 3,000 | ||||
| Total needed | 30,000 | 56,000 | 35,000 | 28,000 | ||||
| Less: begin-ning inventory | 4,000 | 10,000 | 6,000 | 5,000 | ||||
| Production in units | 26,000 | 46,000 | 29,000 | 23,000 | ||||
| May sales (sales budget) | 50,000 | |||||||
| Percent of inventory desired | 20% | |||||||
| Desired ending inventory | 10,000 |
Materials
| April | May | June | Quarter | |||||
| Production in units | 26,000 | 46,000 | 29,000 | 101,000 | ||||
| Materials per unit | 5 | 5 | 5 | 5 | ||||
| Production needs | 130,000 | 230,000 | 145,000 | 505,000 | ||||
| Add: desired ending inventory | 23,000 | 14,500 | 11,500 | 11,500 | ||||
| Total needed | 153,000 | 244,500 | 156,500 | 516,500 | ||||
| Less: beginning inventory | 13,000 | 23,000 | 14,500 | 13,000 | ||||
| Materials to be purchased | 140,000 | 221,500 | 142,000 | 503,500 |
Labor
| April | May | June | Quarter | |||||
| Production in units | 26,000 | 46,000 | 29,000 | 101,000 | ||||
| Direct labor hours | 0.05 | 0.05 | 0.05 | 0.05 | ||||
| Labor hours required | 1,300 | 2,300 | 1,450 | 5,050 | ||||
| Guaranteed labor hours | 1,500 | 1,500 | 1,500 | |||||
| Labor hours paid | 1,500 | 2,300 | 1,500 | 5,300 | ||||
| Wage rate | $ 10 | $ 10 | $ 10 | $ 10 | ||||
| total direct labot cost | $ 15,000 | $ 23,000 | $ 15,000 | $ 53,000 |
Overhead
| April | May | June | Quarter | |||||
| Production in units | 26,000 | 46,000 | 29,000 | 101,000 | ||||
| Variable mfg. OH rate | $ 1 | $ 1 | $ 1 | $ 1 | ||||
| Variable mfg. OH costs | $ 26,000 | $ 46,000 | $ 29,000 | $ 101,000 | ||||
| Fixed mfg. OH costs | 50,000 | 50,000 | 50,000 | 150,000 | ||||
| Total mfg. OH costs | $ 76,000 | $ 96,000 | $ 79,000 | $ 251,000 | ||||
| Less: noncash costs | 20,000 | 20,000 | 20,000 | 60,000 | ||||
| Cash disbursements for manufacturing OH | $ 56,000 | $ 76,000 | $ 59,000 | $ 191,000 |
Eding Inv.
| Production costs per unit | Quantity | Cost | Total | |||||
| Direct materials | 5.00 | lbs. | $ 0.40 | $ 2.00 | ||||
| Direct labor | 0.05 | hrs. | $ 10.00 | $ 0.50 | ||||
| Manufacturing overhead | 0.05 | hrs. | $ 49.70 | $ 2.49 | ||||
| $ 4.99 | ||||||||
| Budgeted finished goods inventory | ||||||||
| Ending inventory in units | 3,000 | |||||||
| Unit product cost | $ 4.99 | |||||||
| Ending finished goods inventory | $ 14,970 |
Selling
| April | May | June | Quarter | |||||
| Sales in units | 20,000 | 50,000 | 30,000 | 100,000 | ||||
| Variable selling and admin. rate | $ 0.50 | $ 0.50 | $ 0.50 | $ 0.50 | ||||
| Variable expense | $ 10,000 | $ 25,000 | $ 15,000 | $ 50,000 | ||||
| Fixed selling and admin. expense | 70,000 | 70,000 | 70,000 | 210,000 | ||||
| Total expense | 80,000 | 95,000 | 85,000 | 260,000 | ||||
| Less: noncash expenses | 10,000 | 10,000 | 10,000 | 30,000 | ||||
| Cash disburse-ments for selling & admin. | $ 70,000 | $ 85,000 | $ 75,000 | $ 230,000 |
Cash in
| April | May | June | Quarter | |||||
| Accounts rec. - March 31 | $ 30,000 | $ 30,000 | ||||||
| April sales | ||||||||
| 70% x $200,000 | 140,000 | 140,000 | ||||||
| 25% x $200,000 | $ 50,000 | 50,000 | ||||||
| May sales | ||||||||
| 70% x $500,000 | 350,000 | 350,000 | ||||||
| 25% x $500,000 | $ 125,000 | 125,000 | ||||||
| June sales | ||||||||
| 70% x $300,000 | 210,000 | 210,000 | ||||||
| Total cash collections | $ 170,000 | $ 400,000 | $ 335,000 | $ 905,000 |
Cash Materials
| April | May | June | Quarter | |||||
| Accounts pay. March 31 | $ 12,000 | $ 12,000 | ||||||
| April purchases | ||||||||
| 50% x $56000 | 28,000 | 28,000 | ||||||
| 50% x $56000 | $ 28,000 | 28,000 | ||||||
| May purchases | ||||||||
| 50% x $88,600 | 44,300 | 44,300 | ||||||
| 50% x $88600 | $ 44,300 | 44,300 | ||||||
| June purchases | ||||||||
| 50% x $56,800 | 28,400 | 28,400 | ||||||
| Total cash payments for materials | $ 40,000 | $ 72,300 | $ 72,700 | $ 185,000 |
Cash
| April | May | June | Quarter | |||||
| Beginning cash balance | $ 40,000 | $ 30,000 | $ 30,000 | $ 40,000 | ||||
| Add: cash collections | 170,000 | 400,000 | 325,000 | 905,000 | ||||
| Total cash available | 210,000 | 430,000 | 355,000 | 945,000 | ||||
| Less: disbursements | ||||||||
| Materials | 40,000 | 72,300 | 72,700 | 185,000 | ||||
| Direct labor | 15,000 | 23,000 | 15,000 | 53,000 | ||||
| Mfg. overhead | 56,000 | 76,000 | 59,000 | 191,000 | ||||
| Selling and admin. | 70,000 | 85,000 | 75,000 | 230,000 | ||||
| Equipment purchase | - 0 | 143,700 | 48,300 | 192,000 | ||||
| Dividends | 49,000 | - 0 | - 0 | 49,000 | ||||
| 230,000 | 400,000 | 270,000 | 900,000 | |||||
| Excess (deficiency) of Cash available over disbursements | (20,000) | 30,000 | 85,000 | 45,000 |
Sheet11
| April | May | June | Quarter | |||||
| Excess (deficiency) of Cash available over disbursements | $ (20,000) | $ 30,000 | $ 95,000 | $ 45,000 | ||||
| Financing: | ||||||||
| Borrowing | 50,000 | - 0 | - 0 | 50,000 | ||||
| Repayments | - 0 | - 0 | (50,000) | (50,000) | ||||
| Interest | - 0 | - 0 | (2,000) | (2,000) | ||||
| Total financing | 50,000 | - 0 | (52,000) | (2,000) | ||||
| Ending cash balance | $ 30,000 | $ 30,000 | 43,000 | $ 43,000 |
Sheet12
Sheet13
Sheet14
Sheet15
Sheet16
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-*
Now that the sales budget is complete, the production budget can be prepared. The purpose of the production budget is to ensure that production meets budgeted sales and provides sufficient ending inventory. Production must be adequate to meet budgeted sales and provide for sufficient ending inventory.
Management has determined that the ending inventory should be equal to 20% of the sales for the following month. At the end of March, there were 4,000 units on hand. (LO 9-6)
Production Budget
From sales
budget
March 31
ending inventory
Ending inventory becomes beginning inventory the next month
9-*
Helen (H) - Slide 19 NN Fourth paragraph, second sentence: Changed the word 'budget' to read 'budgets.' Fifth paragraph, first sentence: Added a comma after the word 'May,'
The number of units projected to be sold in the first month is obtained from the sales budget.
The desired ending inventory is calculated by multiplying the projected sales for the next month, May, by 20%. This is added to the projected sales to determine the units needed for April.
The ending inventory for the previous month, March, is deducted from the amount needed to determine the number of units that must be produced.
The ending inventory for the first month, April, becomes the beginning inventory for the second month. The May and June production budgets are prepared in the same manner as April.
Sales in units for the quarter is the sum of April, May, and June sales. Since the end of June is also the end of the quarter, the ending inventory for the quarter is the same as the ending inventory for June. Since the beginning of April is also the beginning of the quarter, the beginning inventory for the quarter is the same as April’s beginning inventory. Total units needed for the quarter is the sum of the sales units and the ending inventory. The beginning inventory is subtracted from the total units needed to arrive at the units to be produced for the quarter. (LO 9-6)
Production
| April | May | June | Quarter | |||||
| Sales in units | 20,000 | 50,000 | 30,000 | 100,000 | ||||
| Add: desired end. inventory | 10,000 | 6,000 | 5,000 | 5,000 | ||||
| Total needed | 30,000 | 56,000 | 35,000 | 105,000 | ||||
| Less: beg. inventory | 4,000 | 10,000 | 6,000 | 4,000 | ||||
| Units to be produced | 26,000 | 46,000 | 29,000 | 101,000 | ||||
| May sales (sales budget) | 50,000 | |||||||
| Percent of inventory desired | 20% | |||||||
| Desired ending inventory | 10,000 |
Sheet1
| May sales | 50,000 | units | |||
| Desired percent | 20% | ||||
| Desired inventory | 10,000 | units |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Sheet7
Sheet8
Sheet9
Sheet10
Sheet11
Sheet12
Sheet13
Sheet14
Sheet15
Sheet16
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.
9-*
Helen (H) - Slide 20 NN First sentence: Changed the word 'for' after the word 'pounds' to read 'of.'
Five pounds of materials are required to produce one unit. Management has determined that direct materials ending inventory should be 10% of the next month’s production. There are 31,000 pounds of direct materials in March’s ending inventory. The cost is 40 cents per pound. (LO 9-6)
Direct-Material Budget
From our
production
budget
10% of the following
month’s production
March 31
inventory
9-*
The first row in the direct materials budget is the units to be produced each month and for the quarter. This information is obtained from the production budget.
For each month, the units to be produced needs to be multiplied by 5 pounds to determine the amount of direct materials needed in each month. The ending inventory for April is 10% of May’s direct material needs. The desired ending inventory for April is added to the production needs for April.
The beginning inventory is subtracted from the total direct material needed for the month to arrive at the materials to be purchased.
The calculations are the same for each month. As in the production budget, the ending inventory for the quarter is the same as the ending inventory for June and the beginning inventory for the quarter is the same as the beginning inventory in April. (LO 9-6)
Materials
| April | May | June | Quarter | |||||
| Production in units | 26,000 | 46,000 | 29,000 | 101,000 | ||||
| Materials per unit | 5 | 5 | 5 | 5 | ||||
| Production needs | 130,000 | 230,000 | 145,000 | 505,000 | ||||
| Add: desired ending inventory | 23,000 | 14,500 | 11,500 | 11,500 | ||||
| Total needed | 153,000 | 244,500 | 156,500 | 516,500 | ||||
| Less: beginning inventory | 13,000 | 23,000 | 14,500 | 13,000 | ||||
| Materials to be purchased | 140,000 | 221,500 | 142,000 | 503,500 |
Direct-Material Budget
9-*
The ending direct material inventory for June requires a bit more explanation. The projections for July must be expanded to determine the production budget for July, which will provide the information necessary to calculate the materials needed for June’s ending inventory. (LO 9-6)
Materials
| April | May | June | Quarter | |||||
| Production in units | 26,000 | 46,000 | 29,000 | 101,000 | ||||
| Materials per unit | 5 | 5 | 5 | 5 | ||||
| Production needs | 130,000 | 230,000 | 145,000 | 505,000 | ||||
| Add: desired ending inventory | 23,000 | 14,500 | 11,500 | 11,500 | ||||
| Total needed | 153,000 | 244,500 | 156,500 | 516,500 | ||||
| Less: beginning inventory | 13,000 | 23,000 | 14,500 | 13,000 | ||||
| Materials to be purchased | 140,000 | 221,500 | 142,000 | 503,500 |
Sheet1
| June Ending Inventory | |||
| July production in units | 23,000 | ||
| Materials per unit | 5 | ||
| Total units needed | 115,000 | ||
| Inventory percentage | 10% | ||
| June desired ending inventory | 11,500 |
Sheet1
| July Production | |||
| Sales in units | 25,000 | ||
| Add: desired ending inventory | 3,000 | ||
| Total units needed | 28,000 | ||
| Less: beginning inventory | 5,000 | ||
| Production in units | 23,000 |
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.
9-*
Each unit can be produced in one tenth of an hour. Breaker’s pays employees for 40 hours each week. The wage rate is $8 per hour and there is no overtime pay. Management has projected that direct laborers will be paid for a minimum of 3,000 hours per month for the next three months. (LO 9-5)
Direct-Labor Budget
From our
production
budget
This is the greater of
labor hours required or
labor hours guaranteed.
9-*
The direct labor budget starts with the units to be produced from the production budget.
The production for each month and the quarter is multiplied by one tenth of an hour to determine the labor hours required.
The labor hours required is compared to the number of guaranteed labor hours. The labor hours to be paid is the greater of the two for each month. The labor hours to be paid for the quarter is the sum of the labor hours paid for the three months.
The labor hours paid is multiplied by the $8 wage rate to determine the total direct labor cost. (LO 9-5)
Labor
| April | May | June | Quarter | |||||
| Production in units | 26,000 | 46,000 | 29,000 | 101,000 | ||||
| Direct labor hours | 0.10 | 0.10 | 0.10 | 0.10 | ||||
| Labor hours required | 2,600 | 4,600 | 2,900 | 10,100 | ||||
| Guaranteed labor hours | 3,000 | 3,000 | 3,000 | |||||
| Labor hours paid | 3,000 | 4,600 | 3,000 | 10,600 | ||||
| Wage rate | $ 8 | $ 8 | $ 8 | $ 8 | ||||
| Total direct labot cost | $ 24,000 | $ 36,800 | $ 24,000 | $ 84,800 |
Overhead Budget
Here is Breakers’ Overhead Budget for the quarter.
9-*
The manufacturing-overhead budget shows the cost of overhead expected to be incurred in the production process during the budget period. Breaker’s manufacturing overhead budget lists the expected cost of each overhead item by month. At the bottom of the schedule, the total budgeted overhead for each month is shown. (LO 9-5)
Sheet1
| April | May | June | Quarter | ||||||
| Indirect labor | $ 17,500 | $ 26,500 | $ 17,900 | $ 61,900 | |||||
| Indirect material | 7,000 | 12,600 | 8,600 | 28,200 | |||||
| Utilities | 4,200 | 8,400 | 5,200 | 17,800 | |||||
| Rent | 13,300 | 13,300 | 13,300 | 39,900 | |||||
| Insurance | 5,800 | 5,800 | 5,800 | 17,400 | |||||
| Maintenance | 8,200 | 9,400 | 8,200 | 25,800 | |||||
| $ 56,000 | $ 76,000 | $ 59,000 | $ 191,000 |
Sheet2
Sheet3
Selling and Administrative Expense Budget
At Breakers, variable selling and administrative expenses are $0.50 per unit sold.
Fixed selling and administrative expenses are $70,000 per month.
The $70,000 fixed expenses include $10,000 in depreciation expense that does not require a cash outflow for the month.
9-*
Management at Breaker’s has projected the variable selling and administrative expenses to by 50 cents per unit sold. The fixed selling and administrative costs are projected to be $70,000 per month. Each month, $10,000 of the fixed expenses is for depreciation, which does not require a cash outflow. This information will be important when the cash disbursements budget is prepared. (LO 9-5)
Selling and Administrative Expense Budget
From our
Sales budget
9-*
Once again, we start with the unit sales for each month and the quarter from the sales budget.
The sales for each month and the quarter are multiplied by the variable selling and administrative cost rate of 50 cents per unit to determine the variable S&A costs. This is added to the fixed S&A costs of $70,000 for each month to arrive at the total S&A expenses for each month. Don’t forget that the fixed S&A expenses for the quarter is the sum of fixed S&A expenses for the three months.
The noncash expenses are deducted from the total expenses to determine the amount of cash disbursements required for each month and the quarter for selling and administrative expenses. (LO 9-5)
Selling
| April | May | June | Quarter | |||||
| Sales in units | 20,000 | 50,000 | 30,000 | 100,000 | ||||
| Variable S&A rate | $ 0.50 | $ 0.50 | $ 0.50 | $ 0.50 | ||||
| Variable expense | $ 10,000 | $ 25,000 | $ 15,000 | $ 50,000 | ||||
| Fixed S&A expense | 70,000 | 70,000 | 70,000 | 210,000 | ||||
| Total expense | 80,000 | 95,000 | 85,000 | 260,000 | ||||
| Less: noncash expenses | 10,000 | 10,000 | 10,000 | 30,000 | ||||
| Cash disbursements | $ 70,000 | $ 85,000 | $ 75,000 | $ 230,000 |
Cash Receipts Budget
At Breakers, all sales are on account.
The company’s collection pattern is:
70% collected in the month of sale,
25% collected in the month following the sale,
5% is uncollected.
The March 31 accounts receivable balance of $30,000 will be collected in full.
9-*
All sales at Breakers are on account. The company has experienced the following collection pattern: 70% collected in the month of the sale, 25% is collected in the month following the sale, 5% becomes uncollectible. The accounts receivable balance at the end of March is $30,000 and is expected to be collected in full in April. (LO 9-5)
Cash Receipts Budget
9-*
During April, the remainder of March’s sales will be collected, which is the $30,000 accounts receivable balance on March 31. 70% of April’s sales are also expected to be collected in April. Therefore, the total collections expected in April is $170,000.
May’s collections will be 25% of April’s sales and 70% of May’s sales. June’s collections will be 25% of May’s sales and 70% of June’s sales. The collections for the quarter is the sum of the collections for the three months. (LO 9-5)
Cash in
| April | May | June | Quarter | |||||
| Accounts rec. - 3/31 | $ 30,000 | $ 30,000 | ||||||
| April sales | ||||||||
| 70% x $200,000 | 140,000 | 140,000 | ||||||
| 25% x $200,000 | $ 50,000 | 50,000 | ||||||
| May sales | ||||||||
| 70% x $500,000 | 350,000 | 350,000 | ||||||
| 25% x $500,000 | $ 125,000 | 125,000 | ||||||
| June sales | ||||||||
| 70% x $300,000 | 210,000 | 210,000 | ||||||
| Total cash collections | $ 170,000 | $ 400,000 | $ 335,000 | $ 905,000 |
Cash Disbursement Budget
Breakers pays $0.40 per pound for its materials.
One-half of a month’s purchases are paid for in the month of purchase; the other half is paid in the following month.
No discounts are available.
The March 31 accounts payable balance is $12,000.
9-*
Breakers pays 40 cents per pound for its materials. The company pays for half of its materials purchases in the month of the purchase and the remaining half is paid for in the following month. There are no discounts available to Breakers. The balance in accounts payable is $12,000 at the end of March. (LO 9-5)
Cash Disbursement Budget
140,000 lbs. × $.40/lb. = $56,000
9-*
The purchases for each month is multiplied by 40 cents per pound to determine the cost of materials purchased for the month. This cost is then multiplied by 50%. 50% of April’s materials purchases will be paid for in April, the remaining 50% will be paid in May. This pattern is followed in May and June to determine the cash disbursements for materials for each month.
The cash disbursements for each month are added together to determine the cash disbursements for the quarter. (LO 9-5)
Sheet: 慃桳䴠瑡牥慩獬
12000.0
12000.0
28000.0
28000.0
28000.0
28000.0
44300.0
44300.0
44300.0
44300.0
28400.0
28400.0
40000.0
72300.0
72700.0
185000.0
Cash Disbursement Budget
Breakers:
Maintains a 12% open line of credit for $75,000.
Maintains a minimum cash balance of $30,000.
Borrows and repays loans on the last day of the month.
Pays a cash dividend of $25,000 in April.
Purchases $143,700 of equipment in May and $48,300 in June paid in cash.
Has an April 1 cash balance of $40,000.
9-*
Breakers will also make cash disbursements for payments on an open line of credit, loans, a cash dividend, and equipment purchases. All borrowings and repayments occur on the last day of each month. (LO 9-5)
To maintain a cash
balance of $30,000,
Breakers must borrow
$35,000 on its line of credit.
Cash Budget
(Collections and Disbursements)
From our Cash
Receipts Budget
From our Cash Disbursements
Budget
From our Direct Labor Budget
From our Overhead Budget
From our Selling and Administrative Expense Budget
9-*
The cash budget is a combination of the cash receipts budget, the cash disbursements for materials budget and other cash disbursements required, such as for direct labor and overhead. The cash budget starts with the beginning cash balance for April. This is also the beginning cash balance for the quarter. The cash collections for the month are found on the cash receipts budget and added to the beginning cash balance to arrive at the total cash available.
The cash outflow for materials is found on the cash disbursements budget.
The cash outflow for wages can be found on the direct labor budget.
Cash outflow requirements for manufacturing overhead can be found on the overhead budget.
Cash outflow for S&A costs can be found on the selling and administrative expense budget.
There are no equipment purchases made in April, but dividends are paid. The disbursements are totaled and them subtracted from the total cash available for the month. In April, there is a cash deficit. (LO 9-5)
Cash Budget
(Collections and Disbursements)
Breakers must
borrow an
addition $13,800
to maintain a
cash balance
of $30,000.
9-*
Cash collections and disbursements are determined in the same manner for the month of May. Although there is not a cash deficit at the end of May, the $16,200 available is still below the $30,000 minimum balance requirement by $13,800. (LO 9-5)
At the end of June, Breakers has enough cash to repay
the $48,800 loan plus interest at 12%.
Cash Budget
(Collections and Disbursements)
9-*
June’s collections and disbursements budget follows the same format. There will be enough cash at the end of June to repay the amounts borrowed in April and May plus the 12% interest. (LO 9-5)
Cash
| April | May | June | Quarter | |||||
| Beginning cash balance | $ 40,000 | $ 30,000 | $ 30,000 | |||||
| Add: cash collections | 170,000 | 400,000 | 335,000 | |||||
| Total cash available | 210,000 | 430,000 | 365,000 | |||||
| Less: disbursements | ||||||||
| Materials | 40,000 | 72,300 | 72,700 | |||||
| Direct labor | 24,000 | 36,800 | 24,000 | |||||
| Mfg. overhead | 56,000 | 76,000 | 59,000 | |||||
| Selling and admin. | 70,000 | 85,000 | 75,000 | |||||
| Equipment purchase | - 0 | 143,700 | 48,300 | |||||
| Dividends | 25,000 | - 0 | - 0 | |||||
| Total disbursements | 215,000 | 413,800 | 279,000 | |||||
| Excess (deficiency) of Cash available over disbursements | $ (5,000) | $ 16,200 | $ 86,000 |
Cash Budget
(Collections and Disbursements)
9-*
The beginning cash balance for the quarter is April’s beginning cash balance. The cash collections for the quarter are added to determine the total cash available for the quarter. Each item’s cash disbursements are totaled for the quarter and then added together to determine the total cash disbursements for the quarter. The disbursements for the quarter are then deducted from the collections for the quarter. There is a $37,200 cash surplus for the quarter. (LO 9-5)
Sheet: 慃桳
40000.0
30000.0
30000.0
40000.0
170000.0
400000.0
335000.0
905000.0
210000.0
430000.0
365000.0
945000.0
40000.0
72300.0
72700.0
185000.0
24000.0
36800.0
24000.0
84800.0
56000.0
76000.0
59000.0
191000.0
70000.0
85000.0
75000.0
230000.0
0.0
143700.0
48300.0
192000.0
25000.0
0.0
0.0
25000.0
215000.0
413800.0
279000.0
907800.0
-5000.0
16200.0
86000.0
37200.0
Cash Budget
(Financing and Repayment)
Ending cash balance for April
is the beginning May balance.
9-*
Now let’s discuss the financing and repayment needs.
Because there is a cash deficit in April, Breakers must borrow $35,000 to maintain the $30,000 minimum balance required. The ending cash balance for April becomes the beginning cash balance for May.
Cash collections and disbursements are determined in the same manner for the month of May. Although there is not a cash deficit at the end of May, the $16,200 available is still below the $30,000 minimum balance requirement by $13,800; therefore, Breakers must borrow an additional $13,800 at the end of May to have a $30,000 cash balance for the beginning of June.
The $35,000 borrowed at the end of April requires a $700 interest payment and the $13,800 borrowed at the end of May requires an interest payment of $138. The total to be repaid for principle and interest is $49,638. The ending cash balance for June is also the ending cash balance for the quarter.
The borrowings for the quarter is the sum of the borrowings in April and May. The repayments and interest for the quarter occurred in June. The ending cash balance for the quarter is the ending cash balance for June since the end of June is also the end of the quarter. (LO 9-5)
Sheet11
| April | May | June | Quarter | |||||
| Excess (deficiency) of Cash available over disbursements | $ (5,000) | $ 16,200 | $ 86,000 | $ 37,200 | ||||
| Financing: | ||||||||
| Borrowing | 35,000 | 13,800 | 48,800 | |||||
| Repayments | - 0 | - 0 | (48,800) | (48,800) | ||||
| Interest | - 0 | - 0 | (838) | (838) | ||||
| Total financing | 35,000 | 13,800 | (49,638) | (838) | ||||
| Ending cash balance | $ 30,000 | $ 30,000 | $ 36,362 | $ 36,362 |
Sheet1
| Interest Rate | Borrowing | Monthly Interest Rate | Months Outstanding | Interest Expense | |||||||
| 12% / 12 = 1% | $35,000 | × | 1% | × | 2 | = | $700 | ||||
| 12% / 12 = 1% | $13,800 | × | 1% | × | 1 | = | 138 | ||||
| $ 838 |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Cost of Goods Manufactured
9-*
The cost of goods manufactured schedule is prepared from the direct materials budget, the direct labor budget and the overhead budget. The ending work-in-process inventory amounts are estimates provided by management. The amounts for direct materials are in dollars, not units. The direct materials beginning inventory, purchases, and ending inventory amounts were taken from the direct materials budget. These amounts were multiplied by the cost of 40 cents per pound to arrive at the dollar amounts. (LO 9-6)
Sheet1
| FC | TC | TR | |
| - 0 | 80,000 | 80,000 | - 0 |
| 100 | 80,000 | 110,000 | 50,000 |
| 200 | 80,000 | 140,000 | 100,000 |
| 300 | 80,000 | 170,000 | 150,000 |
| 400 | 80,000 | 200,000 | 200,000 |
| 500 | 80,000 | 230,000 | 250,000 |
| 600 | 80,000 | 260,000 | 300,000 |
| 700 | 80,000 | 290,000 | 350,000 |
| 800 | 80,000 | 320,000 | 400,000 |
Sheet2
| FC | TC | TR | |||||||||||||||||||||||
| - 0 | 80,000 | 80,000 | - 0 | ||||||||||||||||||||||
| 100 | 80,000 | 110,000 | 50,000 | 100,000 | |||||||||||||||||||||
| 200 | 80,000 | 140,000 | 100,000 | Profit | |||||||||||||||||||||
| 300 | 80,000 | 170,000 | 150,000 | 80,000 | |||||||||||||||||||||
| 400 | 80,000 | 200,000 | 200,000 | ||||||||||||||||||||||
| 500 | 80,000 | 230,000 | 250,000 | 60,000 | |||||||||||||||||||||
| 600 | 80,000 | 260,000 | 300,000 | ||||||||||||||||||||||
| 700 | 80,000 | 290,000 | 350,000 | 40,000 | |||||||||||||||||||||
| 800 | 80,000 | 320,000 | 400,000 | ||||||||||||||||||||||
| 20,000 | |||||||||||||||||||||||||
| 0 | |||||||||||||||||||||||||
| ` | |||||||||||||||||||||||||
| (20,000) | 100 | 200 | 300 | 400 | 500 | 600 | 700 | ||||||||||||||||||
| Units | |||||||||||||||||||||||||
| (40,000) | |||||||||||||||||||||||||
| (60,000) | |||||||||||||||||||||||||
| 450,000 | |||||||||||||||||||||||||
| 400,000 | |||||||||||||||||||||||||
| 350,000 | |||||||||||||||||||||||||
| 300,000 | |||||||||||||||||||||||||
| 250,000 | |||||||||||||||||||||||||
| 200,000 | |||||||||||||||||||||||||
| 150,000 | |||||||||||||||||||||||||
| 100,000 | |||||||||||||||||||||||||
| 50,000 | |||||||||||||||||||||||||
| 100 | 200 | 300 | 400 | 500 | 600 | 700 | 800 | ||||||||||||||||||
| Units |
Sheet3
Sheet4
| A. Traditional Format | |||||
| ACCUTIME COMPANY | |||||
| Income Statement | |||||
| For the Year Ended December 31, 20x1 | |||||
| Sales | $500,000 | ||||
| Less: | 380,000 | ||||
| Gross margin | $120,000 | ||||
| Less: Operating expenses: | |||||
| Selling expenses | $35,000 | ||||
| Administrative expenses | 35,000 | 70,000 | |||
| Net income | $50,000 | ||||
| B. Contribution Format | |||||
| ACCUTIME COMPANY | |||||
| Income Statement | |||||
| For the Year Ended December 31, 20x1 | |||||
| Sales | $500,000 | ||||
| Less: Variable expenses: | |||||
| Variable manufacturing | $280,000 | ||||
| Variable selling | 15,000 | ||||
| Variable administrative | 5,000 | 300,000 | |||
| Contribution margin | $200,000 | ||||
| Less: Fixed expenses: | |||||
| Fixed manufacturing | $100,000 | ||||
| Fixed selling | 20,000 | ||||
| Fixed administrative | 30,000 | 150,000 | |||
| Net income | $50,000 |
Sheet5
| Target | Target | ||
| after-tax | = | before-tax | (1-t) |
| net income | income |
Sheet6
| Direct material (see schedule 3 for details): | ||||
| Raw-material inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,800a | ||||
| Add: Purchases of raw material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,400,000b | ||||
| Raw material available for use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,464,800b | ||||
| Deduct: Raw-material inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,800a | ||||
| Direct material used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,400,000b | ||||
| Direct labor (see schedule 4 for details) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000 | ||||
| Manufacturing overhead (see schedule 5 for details) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400,000 | ||||
| Total manufacturing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,175,000 | ||||
| Add:Work-in-process inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0c | ||||
| Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,175,000 | ||||
| Deduct:Work-in-process inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0c | ||||
| Cost of goods manufactured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,175,000 | ||||
| Add: Finished-goods inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,750d | ||||
| Cost of goods available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,256,750 | ||||
| Deduct: Finished-goods inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,750d | ||||
| Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,175,000 | ||||
| April | May | June | Quarter | |
| Direct material: | ||||
| Beg.material inventory | $ 5,200 | $ 9,200 | $ 5,800 | $ 5,200 |
| Add: Materials purchases | 56,000 | 88,600 | 56,800 | 201,400 |
| Material available for use | 61,200 | 97,800 | 62,600 | 206,600 |
| Deduct: End. material inventory | 9,200 | 5,800 | 4,600 | 4,600 |
| Direct material used | 52,000 | 92,000 | 58,000 | 202,000 |
| Direct labor | 24,000 | 36,800 | 24,000 | 84,800 |
| Manufacturing overhead | 56,000 | 76,000 | 59,000 | 191,000 |
| Total manufacturing costs | 132,000 | 204,800 | 141,000 | 477,800 |
| Add: Beg. Work-in-process inventory | 3,800 | 16,200 | 9,400 | 3,800 |
| Subtotal | 135,800 | 221,000 | 150,400 | 481,600 |
| Deduct: End.Work-in-process inventory | 16,200 | 9,400 | 17,000 | 17,000 |
| Cost of goods manufactured | $ 119,600 | $ 211,600 | $ 133,400 | $ 464,600 |
| Add: Beg. finished-goods inventory | 18,400 | 46,000 | 27,600 | 18,400 |
| Cost of goods available for sale | 138,000 | 257,600 | 161,000 | 483,000 |
| Deduct: End. finished-goods inventory | 46,000 | 27,600 | 23,000 | 23,000 |
| Cost of goods sold | $ 92,000 | $ 230,000 | $ 138,000 | $ 460,000 |
Revenue (100,000 × $10)
1,000,000
$
Cost of goods sold (100,000 × $4.60)
460,000
Gross margin
540,000
Operating expenses:
Selling and admin. Expenses
260,000
$
Interest expense
838
Total operating expenses
260,838
Net income
279,162
$
Breakers, Inc.
Budgeted Income Statement
For the Three Months Ended June 30
Revenue (100,000 × $10)1,000,000$
Cost of goods sold (100,000 × $4.60)460,000
Gross margin540,000
Operating expenses:
Selling and admin. Expenses260,000$
Interest expense838
Total operating expenses260,838
Net income279,162$
Breakers, Inc.
Budgeted Income Statement
For the Three Months Ended June 30
MBD00559E2F.xls
Sheet1
| 191000 | |||||||
| 10600 | |||||||
| Breakers, Inc. | 18.0188679245 | ||||||
| Budgeted Income Statement | |||||||
| For the Three Months Ended June 30 | |||||||
| Revenue (100,000 × $10) | $ 1,000,000 | ||||||
| Cost of goods sold (100,000 × $4.60) | 460,000 | ||||||
| Gross margin | 540,000 | ||||||
| Operating expenses: | |||||||
| Selling and admin. Expenses | $ 260,000 | ||||||
| Interest expense | 838 | ||||||
| Total operating expenses | 260,838 | ||||||
| Net income | $ 279,162 |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Cost of Goods Sold
9-*
The cost of goods sold schedule starts where the cost of goods manufactured left off. The cost of goods manufactured at the beginning of April can be divided by the units manufactured, 26,000, to arrive at a unit cost of $4.60. The 4,000 units in finished goods inventory at the beginning of April is multiplied by the unit cost to determine the beginning inventory cost. The ending inventory for each month is also multiplied by $4.60 to determine the cost of the ending inventory. Remember, the ending inventory for one month becomes the beginning inventory for the following month. The beginning inventory for the quarter is the same as the beginning inventory for April and the ending inventory for the quarter is the same as the ending inventory for June. (LO 9-6)
Sheet1
| FC | TC | TR | |
| - 0 | 80,000 | 80,000 | - 0 |
| 100 | 80,000 | 110,000 | 50,000 |
| 200 | 80,000 | 140,000 | 100,000 |
| 300 | 80,000 | 170,000 | 150,000 |
| 400 | 80,000 | 200,000 | 200,000 |
| 500 | 80,000 | 230,000 | 250,000 |
| 600 | 80,000 | 260,000 | 300,000 |
| 700 | 80,000 | 290,000 | 350,000 |
| 800 | 80,000 | 320,000 | 400,000 |
Sheet2
| FC | TC | TR | |||||||||||||||||||||||
| - 0 | 80,000 | 80,000 | - 0 | ||||||||||||||||||||||
| 100 | 80,000 | 110,000 | 50,000 | 100,000 | |||||||||||||||||||||
| 200 | 80,000 | 140,000 | 100,000 | Profit | |||||||||||||||||||||
| 300 | 80,000 | 170,000 | 150,000 | 80,000 | |||||||||||||||||||||
| 400 | 80,000 | 200,000 | 200,000 | ||||||||||||||||||||||
| 500 | 80,000 | 230,000 | 250,000 | 60,000 | |||||||||||||||||||||
| 600 | 80,000 | 260,000 | 300,000 | ||||||||||||||||||||||
| 700 | 80,000 | 290,000 | 350,000 | 40,000 | |||||||||||||||||||||
| 800 | 80,000 | 320,000 | 400,000 | ||||||||||||||||||||||
| 20,000 | |||||||||||||||||||||||||
| 0 | |||||||||||||||||||||||||
| ` | |||||||||||||||||||||||||
| (20,000) | 100 | 200 | 300 | 400 | 500 | 600 | 700 | ||||||||||||||||||
| Units | |||||||||||||||||||||||||
| (40,000) | |||||||||||||||||||||||||
| (60,000) | |||||||||||||||||||||||||
| 450,000 | |||||||||||||||||||||||||
| 400,000 | |||||||||||||||||||||||||
| 350,000 | |||||||||||||||||||||||||
| 300,000 | |||||||||||||||||||||||||
| 250,000 | |||||||||||||||||||||||||
| 200,000 | |||||||||||||||||||||||||
| 150,000 | |||||||||||||||||||||||||
| 100,000 | |||||||||||||||||||||||||
| 50,000 | |||||||||||||||||||||||||
| 100 | 200 | 300 | 400 | 500 | 600 | 700 | 800 | ||||||||||||||||||
| Units |
Sheet3
Sheet4
| A. Traditional Format | |||||
| ACCUTIME COMPANY | |||||
| Income Statement | |||||
| For the Year Ended December 31, 20x1 | |||||
| Sales | $500,000 | ||||
| Less: | 380,000 | ||||
| Gross margin | $120,000 | ||||
| Less: Operating expenses: | |||||
| Selling expenses | $35,000 | ||||
| Administrative expenses | 35,000 | 70,000 | |||
| Net income | $50,000 | ||||
| B. Contribution Format | |||||
| ACCUTIME COMPANY | |||||
| Income Statement | |||||
| For the Year Ended December 31, 20x1 | |||||
| Sales | $500,000 | ||||
| Less: Variable expenses: | |||||
| Variable manufacturing | $280,000 | ||||
| Variable selling | 15,000 | ||||
| Variable administrative | 5,000 | 300,000 | |||
| Contribution margin | $200,000 | ||||
| Less: Fixed expenses: | |||||
| Fixed manufacturing | $100,000 | ||||
| Fixed selling | 20,000 | ||||
| Fixed administrative | 30,000 | 150,000 | |||
| Net income | $50,000 |
Sheet5
| Target | Target | ||
| after-tax | = | before-tax | (1-t) |
| net income | income |
Sheet6
| Direct material (see schedule 3 for details): | ||||
| Raw-material inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,800a | ||||
| Add: Purchases of raw material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,400,000b | ||||
| Raw material available for use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,464,800b | ||||
| Deduct: Raw-material inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,800a | ||||
| Direct material used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,400,000b | ||||
| Direct labor (see schedule 4 for details) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000 | ||||
| Manufacturing overhead (see schedule 5 for details) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400,000 | ||||
| Total manufacturing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,175,000 | ||||
| Add:Work-in-process inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0c | ||||
| Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,175,000 | ||||
| Deduct:Work-in-process inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0c | ||||
| Cost of goods manufactured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,175,000 | ||||
| Add: Finished-goods inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,750d | ||||
| Cost of goods available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,256,750 | ||||
| Deduct: Finished-goods inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,750d | ||||
| Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,175,000 | ||||
| April | May | June | Quarter | |
| Direct material: | ||||
| Beg.material inventory | $ 5,200 | $ 9,200 | $ 5,800 | $ 5,200 |
| Add: Materials purchases | 56,000 | 88,600 | 56,800 | 201,400 |
| Material available for use | 61,200 | 97,800 | 62,600 | 206,600 |
| Deduct: End. material inventory | 9,200 | 5,800 | 4,600 | 4,600 |
| Direct material used | 52,000 | 92,000 | 58,000 | 202,000 |
| Direct labor | 24,000 | 36,800 | 24,000 | 84,800 |
| Manufacturing overhead | 56,000 | 76,000 | 59,000 | 191,000 |
| Total manufacturing costs | 132,000 | 204,800 | 141,000 | 477,800 |
| Add: Beg. Work-in-process inventory | 3,800 | 16,200 | 9,400 | 3,800 |
| Subtotal | 135,800 | 221,000 | 150,400 | 481,600 |
| Deduct: End.Work-in-process inventory | 16,200 | 9,400 | 17,000 | 17,000 |
| April | May | June | Quarter | |
| Cost of goods manufactured | $ 119,600 | $ 211,600 | $ 133,400 | $ 464,600 |
| Add: Beg. finished-goods inventory | 18,400 | 46,000 | 27,600 | 18,400 |
| Cost of goods available for sale | 138,000 | 257,600 | 161,000 | 483,000 |
| Deduct: End. finished-goods inventory | 46,000 | 27,600 | 23,000 | 23,000 |
| Cost of goods sold | $ 92,000 | $ 230,000 | $ 138,000 | $ 460,000 |
Revenue (100,000 × $10)
1,000,000
$
Cost of goods sold (100,000 × $4.60)
460,000
Gross margin
540,000
Operating expenses:
Selling and admin. Expenses
260,000
$
Interest expense
838
Total operating expenses
260,838
Net income
279,162
$
Breakers, Inc.
Budgeted Income Statement
For the Three Months Ended June 30
Revenue (100,000 × $10)1,000,000$
Cost of goods sold (100,000 × $4.60)460,000
Gross margin540,000
Operating expenses:
Selling and admin. Expenses260,000$
Interest expense838
Total operating expenses260,838
Net income279,162$
Breakers, Inc.
Budgeted Income Statement
For the Three Months Ended June 30
MBD00559E2F.xls
Sheet1
| 191000 | |||||||
| 10600 | |||||||
| Breakers, Inc. | 18.0188679245 | ||||||
| Budgeted Income Statement | |||||||
| For the Three Months Ended June 30 | |||||||
| Revenue (100,000 × $10) | $ 1,000,000 | ||||||
| Cost of goods sold (100,000 × $4.60) | 460,000 | ||||||
| Gross margin | 540,000 | ||||||
| Operating expenses: | |||||||
| Selling and admin. Expenses | $ 260,000 | ||||||
| Interest expense | 838 | ||||||
| Total operating expenses | 260,838 | ||||||
| Net income | $ 279,162 |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Budgeted Income Statement
9-*
Now that the cost of goods manufactured and cost of goods sold schedules are complete, the budgeted income statement can be prepared.
A budgeted income statement for the quarter ending June 30 can now be prepared for Breakers. Revenue is taken from the sales budget. Cost of goods sold is taken from the cost of goods sold schedule. Gross margin is revenue less cost of goods sold. The operating expenses is taken from the selling and administrative expense budget and the cash budget. Net income is gross margin less total operating expenses. (LO 9-5)
Sheet1
| 191000 | |||||||
| 10600 | |||||||
| Breakers, Inc. | 18.0188679245 | ||||||
| Budgeted Income Statement | |||||||
| For the Three Months Ended June 30 | |||||||
| Revenue (100,000 × $10) | $ 1,000,000 | ||||||
| Cost of goods sold | 460,000 | ||||||
| Gross margin | 540,000 | ||||||
| Operating expenses: | |||||||
| Selling and admin. expenses | $ 260,000 | ||||||
| Interest expense | 838 | ||||||
| Total operating expenses | 260,838 | ||||||
| Net income | $ 279,162 |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Budgeted Statement of Cash Flows
9-*
The information for the budgeted statement of cash flows can be taken from the cash budget. (LO 9-5)
Sheet1
| FC | TC | TR | |
| - 0 | 80,000 | 80,000 | - 0 |
| 100 | 80,000 | 110,000 | 50,000 |
| 200 | 80,000 | 140,000 | 100,000 |
| 300 | 80,000 | 170,000 | 150,000 |
| 400 | 80,000 | 200,000 | 200,000 |
| 500 | 80,000 | 230,000 | 250,000 |
| 600 | 80,000 | 260,000 | 300,000 |
| 700 | 80,000 | 290,000 | 350,000 |
| 800 | 80,000 | 320,000 | 400,000 |
Sheet2
| FC | TC | TR | |||||||||||||||||||||||
| - 0 | 80,000 | 80,000 | - 0 | ||||||||||||||||||||||
| 100 | 80,000 | 110,000 | 50,000 | 100,000 | |||||||||||||||||||||
| 200 | 80,000 | 140,000 | 100,000 | Profit | |||||||||||||||||||||
| 300 | 80,000 | 170,000 | 150,000 | 80,000 | |||||||||||||||||||||
| 400 | 80,000 | 200,000 | 200,000 | ||||||||||||||||||||||
| 500 | 80,000 | 230,000 | 250,000 | 60,000 | |||||||||||||||||||||
| 600 | 80,000 | 260,000 | 300,000 | ||||||||||||||||||||||
| 700 | 80,000 | 290,000 | 350,000 | 40,000 | |||||||||||||||||||||
| 800 | 80,000 | 320,000 | 400,000 | ||||||||||||||||||||||
| 20,000 | |||||||||||||||||||||||||
| 0 | |||||||||||||||||||||||||
| ` | |||||||||||||||||||||||||
| (20,000) | 100 | 200 | 300 | 400 | 500 | 600 | 700 | ||||||||||||||||||
| Units | |||||||||||||||||||||||||
| (40,000) | |||||||||||||||||||||||||
| (60,000) | |||||||||||||||||||||||||
| 450,000 | |||||||||||||||||||||||||
| 400,000 | |||||||||||||||||||||||||
| 350,000 | |||||||||||||||||||||||||
| 300,000 | |||||||||||||||||||||||||
| 250,000 | |||||||||||||||||||||||||
| 200,000 | |||||||||||||||||||||||||
| 150,000 | |||||||||||||||||||||||||
| 100,000 | |||||||||||||||||||||||||
| 50,000 | |||||||||||||||||||||||||
| 100 | 200 | 300 | 400 | 500 | 600 | 700 | 800 | ||||||||||||||||||
| Units |
Sheet3
Sheet4
| A. Traditional Format | |||||
| ACCUTIME COMPANY | |||||
| Income Statement | |||||
| For the Year Ended December 31, 20x1 | |||||
| Sales | $500,000 | ||||
| Less: | 380,000 | ||||
| Gross margin | $120,000 | ||||
| Less: Operating expenses: | |||||
| Selling expenses | $35,000 | ||||
| Administrative expenses | 35,000 | 70,000 | |||
| Net income | $50,000 | ||||
| B. Contribution Format | |||||
| ACCUTIME COMPANY | |||||
| Income Statement | |||||
| For the Year Ended December 31, 20x1 | |||||
| Sales | $500,000 | ||||
| Less: Variable expenses: | |||||
| Variable manufacturing | $280,000 | ||||
| Variable selling | 15,000 | ||||
| Variable administrative | 5,000 | 300,000 | |||
| Contribution margin | $200,000 | ||||
| Less: Fixed expenses: | |||||
| Fixed manufacturing | $100,000 | ||||
| Fixed selling | 20,000 | ||||
| Fixed administrative | 30,000 | 150,000 | |||
| Net income | $50,000 |
Sheet5
| Target | Target | ||
| after-tax | = | before-tax | (1-t) |
| net income | income |
Sheet6
| Direct material (see schedule 3 for details): | ||||||
| Raw-material inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,800a | ||||||
| Add: Purchases of raw material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,400,000b | ||||||
| Raw material available for use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,464,800b | ||||||
| Deduct: Raw-material inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,800a | ||||||
| Direct material used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,400,000b | ||||||
| Direct labor (see schedule 4 for details) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000 | ||||||
| Manufacturing overhead (see schedule 5 for details) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400,000 | ||||||
| Total manufacturing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,175,000 | ||||||
| Add:Work-in-process inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0c | ||||||
| Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,175,000 | ||||||
| Deduct:Work-in-process inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0c | ||||||
| Cost of goods manufactured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,175,000 | ||||||
| Add: Finished-goods inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,750d | ||||||
| Cost of goods available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,256,750 | ||||||
| Deduct: Finished-goods inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,750d | ||||||
| Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,175,000 | ||||||
| April | May | June | Quarter | |||
| Direct material: | ||||||
| Beg.material inventory | $ 5,200 | $ 9,200 | $ 5,800 | $ 5,200 | ||
| Add: Materials purchases | 56,000 | 88,600 | 56,800 | 201,400 | ||
| Material available for use | 61,200 | 97,800 | 62,600 | 206,600 | ||
| Deduct: End. material inventory | 9,200 | 5,800 | 4,600 | 4,600 | ||
| Direct material used | 52,000 | 92,000 | 58,000 | 202,000 | ||
| Direct labor | 24,000 | 36,800 | 24,000 | 84,800 | ||
| Manufacturing overhead | 56,000 | 76,000 | 59,000 | 191,000 | ||
| Total manufacturing costs | 132,000 | 204,800 | 141,000 | 477,800 | ||
| Add: Beg. Work-in-process inventory | 3,800 | 16,200 | 9,400 | 3,800 | ||
| Subtotal | 135,800 | 221,000 | 150,400 | 481,600 | ||
| Deduct: End.Work-in-process inventory | 16,200 | 9,400 | 17,000 | 17,000 | ||
| April | May | June | Quarter | |||
| Cost of goods manufactured | 119,600 | 211,600 | 133,400 | 464,600 | 26,000 | |
| Add: Beg. finished-goods inventory | 18,400 | 46,000 | 27,600 | 18,400 | ||
| Cost of goods available for sale | 138,000 | 257,600 | 161,000 | 483,000 | 30,000 | |
| Deduct: End. finished-goods inventory | 46,000 | 27,600 | 23,000 | 23,000 | ||
| Cost of goods sold | $ 92,000 | $ 230,000 | $ 138,000 | $ 460,000 |
Sheet7
| April | May | June | Quarter | |
| Cash flows from operating activities: | ||||
| Cash receipts from customers | $ 170,000 | $ 400,000 | $ 335,000 | $ 905,000 |
| Cash payments: | ||||
| To suppliers of raw material | (40,000) | (72,300) | (72,700) | (185,000) |
| For direct labor | (24,000) | (36,800) | (24,000) | (84,800) |
| For manufacturing-overhead expenditures | (56,000) | (76,000) | (59,000) | (191,000) |
| For selling and administrative expenses | (70,000) | (85,000) | (75,000) | (230,000) |
| For interest | - | - | (838) | (838) |
| Total cash payments | (190,000) | (270,100) | (231,538) | (691,638) |
| Net cash flow from operating activities | $ (20,000) | $ 129,900 | $ 103,462 | $ 213,362 |
| Cash flows from investing activities: | ||||
| Purchase of equipment | - | (143,700) | (48,300) | (192,000) |
| Net cash used by investing activities | $ - | $ (143,700) | $ (48,300) | $ (192,000) |
| Cash flows from financing activities: | ||||
| Payment of dividends | (25,000) | - | - | (25,000) |
| Principle of bank loan | 35,000 | 13,800 | - | 48,800 |
| Repayment of bank loan | - | - | (48,800) | (48,800) |
| Net cash provided by financing activities | $ 10,000 | $ 13,800 | $ (48,800) | $ (25,000) |
| Net increase in cash | $ (10,000) | $ - | $ 6,362 | $ (3,638) |
| Balance in cash, beginning | 40,000 | 30,000 | 30,000 | 40,000 |
| Balance in cash. end of month | $ 30,000 | $ 30,000 | $ 36,362 | $ 36,362 |
Revenue (100,000 × $10)
1,000,000
$
Cost of goods sold (100,000 × $4.60)
460,000
Gross margin
540,000
Operating expenses:
Selling and admin. Expenses
260,000
$
Interest expense
838
Total operating expenses
260,838
Net income
279,162
$
Breakers, Inc.
Budgeted Income Statement
For the Three Months Ended June 30
Revenue (100,000 × $10)1,000,000$
Cost of goods sold (100,000 × $4.60)460,000
Gross margin540,000
Operating expenses:
Selling and admin. Expenses260,000$
Interest expense838
Total operating expenses260,838
Net income279,162$
Breakers, Inc.
Budgeted Income Statement
For the Three Months Ended June 30
AprilMayJuneQuarter
Beginning cash balance40,000$ 30,000$ 30,000$ 40,000$
Add: cash collections170,000 400,000 335,000 905,000
Total cash available210,000 430,000 365,000 945,000
Less: disbursements
Materials40,000 72,300 72,700 185,000
Direct labor24,000 36,800 24,000 84,800
Mfg. overhead56,000 76,000 59,000 191,000
Selling and admin.70,000 85,000 75,000 230,000
Equipment purchase- 143,700 48,300 192,000
Dividends25,000 - - 25,000
Total disbursements215,000 413,800 279,000 907,800
Excess (deficiency) of
Cash available over
disbursements(5,000)$ 16,200$ 86,000$ 37,200$
AprilMayJuneQuarter
Excess (deficiency) of
Cash available over
disbursements(5,000)$ 16,200$ 86,000$ 37,200$
Financing:
Borrowing35,000 13,800 48,800
Repayments- - (48,800) (48,800)
Interest- - (838) (838)
Total financing35,000 13,800 (49,638) (838)
Ending cash balance30,000$ 30,000$ 36,362$ 36,362$
MBD0059B721.xls
Sheet: 慃桳
40000.0
30000.0
30000.0
40000.0
170000.0
400000.0
335000.0
905000.0
210000.0
430000.0
365000.0
945000.0
40000.0
72300.0
72700.0
185000.0
24000.0
36800.0
24000.0
84800.0
56000.0
76000.0
59000.0
191000.0
70000.0
85000.0
75000.0
230000.0
0.0
143700.0
48300.0
192000.0
25000.0
0.0
0.0
25000.0
215000.0
413800.0
279000.0
907800.0
-5000.0
16200.0
86000.0
37200.0
MBD0059D636.xls
Sheet11
| April | May | June | Quarter | |||||
| Excess (deficiency) of Cash available over disbursements | $ (5,000) | $ 16,200 | $ 86,000 | $ 37,200 | ||||
| Financing: | ||||||||
| Borrowing | 35,000 | 13,800 | 48,800 | |||||
| Repayments | - 0 | - 0 | (48,800) | (48,800) | ||||
| Interest | - 0 | - 0 | (838) | (838) | ||||
| Total financing | 35,000 | 13,800 | (49,638) | (838) | ||||
| Ending cash balance | $ 30,000 | $ 30,000 | $ 36,362 | $ 36,362 |
MBD00559E2F.xls
Sheet1
| 191000 | |||||||
| 10600 | |||||||
| Breakers, Inc. | 18.0188679245 | ||||||
| Budgeted Income Statement | |||||||
| For the Three Months Ended June 30 | |||||||
| Revenue (100,000 × $10) | $ 1,000,000 | ||||||
| Cost of goods sold (100,000 × $4.60) | 460,000 | ||||||
| Gross margin | 540,000 | ||||||
| Operating expenses: | |||||||
| Selling and admin. Expenses | $ 260,000 | ||||||
| Interest expense | 838 | ||||||
| Total operating expenses | 260,838 | ||||||
| Net income | $ 279,162 |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Budgeted Balance Sheet
Breakers reports the following account balances on March 31 prior to preparing its budgeted financial statements for June 30:
Land - $50,000
Building (net) - $148,000
Common stock - $217,000
Retained earnings - $46,400
9-*
Account balances for property, plant, and equipment and stockholders’ equity accounts are needed before preparing the budgeted balance sheet. (LO 9-6)
25%of June
sales of
$300,000
11,500 lbs. at
$.40 per lb.
5,000 units at
$4.60 per unit
50% of June
purchases
of $56,800
9-*
Helen (H) - Slide 43 Third left text box: Deleted the period after the word 'unit.'
The budgeted balance sheet is prepared for the date June 30. Cash is taken from the cash budget or the budgeted statement of cash flows. Accounts receivable is 25% of June sales. (Recall the collections pattern from the cash collections schedule.) The raw materials, work-in-process, and finished goods inventory amounts can be taken from the cost of goods manufactured and costs of goods sold schedules. The amount for equipment can be taken from the cash disbursements budget or the budgeted statement of cash flows.
The accounts payable balance is 50% of June’s purchases for direct materials. (Recall the cash disbursements pattern for direct materials.) The ending retained balance is the beginning balance plus net income less dividends paid. (LO 9-6)
Sheet1
| Royal Company | ||
| Budgeted Income Statement | ||
| For the Three Month Ended June 30, 19X1 | ||
| Sales (100,000 units @ $10) | $ 1,000,000 | |
| Cost of goods sold (100,000 @ $4.99) | 499,000 | |
| Gross margin | 501,000 | |
| Selling and administrative expenses | 230,000 | |
| Operating income | 271,000 | |
| Interest expense | 2,000 | |
| Net income | $ 269,000 | |
| Breakers, Inc. | ||
| Budgeted Balance Sheet | ||
| June 30 | ||
| Current assets | ||
| Cash | $ 36,362 | |
| Accounts receivable | 75,000 | |
| Raw materials inventory | 4,600 | |
| Work-in-process inventory | 17,000 | |
| Finished goods inventory | 23,000 | |
| Total current assets | 155,962 | |
| Property and equipment | ||
| Land | 50,000 | |
| Building | 148,000 | |
| Equipment | 192,000 | |
| Total property and equipment | 390,000 | |
| Total assets | $ 545,962 | |
| Accounts payable | $ 28,400 | |
| Common stock | 217,000 | |
| Retained earnings | 300,562 | |
| Total liabilities and equities | $ 545,962 |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Sheet7
Sheet8
Sheet9
Sheet10
Sheet11
Sheet12
Sheet13
Sheet14
Sheet15
Sheet16
Fin
| Royal Company | ||||||
| Budgeted Income Statement | ||||||
| For the Three Month Ended June 30, 19X1 | ||||||
| Sales (100,000 units @ $10) | $ 1,000,000 | Beginning balance | $ 46,400 | |||
| Cost of goods sold (100,000 @ $4.99) | 499,000 | Add: net income | 279,162 | |||
| Gross margin | 501,000 | Deduct: dividends | (25,000) | |||
| Selling and administrative expenses | 230,000 | Ending balance | $ 300,562 | |||
| Operating income | 271,000 | |||||
| Interest expense | 2,000 | |||||
| Net income | $ 269,000 | |||||
| Royal Company | ||||||
| Budgeted Balance Sheet | ||||||
| June 30, 19X1 | ||||||
| Current assets | ||||||
| Cash | $ 43,000 | |||||
| Accounts receivable | 75,000 | |||||
| Raw materials inventory | 4,600 | |||||
| Finished goods inventory | 24,950 | |||||
| Total current assets | 147,550 | |||||
| Property and equipment | ||||||
| Land | 50,000 | |||||
| Building | 175,000 | |||||
| Equipment | 192,000 | |||||
| Total property and equipment | 417,000 | |||||
| Total assets | $ 564,550 | |||||
| Accounts payable | $ 28,400 | |||||
| Common stock | 200,000 | |||||
| Retained earnings | 336,150 | |||||
| Total liabilities and equities | $ 564,550 |
Learning Objective 9-7 – Discuss the role of assumptions and predictions in budgeting.
9-*
Learning Objective 9-7. Discuss the role of assumptions and predictions in budgeting.
Budgeted Income Statement
Cash Budget
Sales of Services or Goods
Ending
Inventory
Budget
Work in Process
and Finished
Goods
Production
Budget
Direct
Materials
Budget
Selling and
Administrative
Budget
Direct
Labor
Budget
Overhead
Budget
Ending
Inventory
Budget
Direct Materials
Budgeted Balance Sheet
Budgeted Statement of Cash Flows
When the interactions of the elements of the master budget are expressed as a set of mathematical relations, it becomes a financial planning model that can be used to answer “what if” questions about unknown variables.
9-*
Managers must make assumptions and predictions in preparing budgets because organizations operate in a world of uncertainty. One way of coping with that uncertainty is to supplement the budgeting process with a financial planning model. A financial planning model is a set of mathematical relationships that express the interactions among the various operational, financial, and environmental events that determine the overall results of an organization’s activities. A financial planning model is a mathematical expression of all the relationships expressed in a master budget flow chart. In a fully developed financial planning model, all of the key estimates and assumptions are expressed as general mathematical relationships. Then the model is run on a computer many times to determine the impact of different combinations of these unknown variables. “What if” questions can be answered about such unknown variables as inflation, interest rates, the value of the dollar, demand, competitors’ actions, union demands in forthcoming wage negotiations, and a host of other factors. The widespread availability of personal computers and electronic-spreadsheet software has made financial planning models a more common management tool. (LO7)
Learning Objective 9-8 – Describe a typical organization’s process of budget administration.
9-*
Learning Objective 9-8. Describe a typical organization’s process of budget administration.
Budget Administration
The Budget Committee is a standing committee responsible for . . .
overall policy matters relating to the budget.
coordinating the preparation of the budget.
9-*
In small organizations, the procedures used to gather information and construct a master budget are usually informal. In contrast, larger organizations use a formal process to collect data and prepare the master budget. Such organizations usually designate a budget director or chief budget officer, which is often the controller. A budget committee, consisting of key senior executives, often is appointed to advise the budget director during the preparation of the budget. This committee is responsible for policy matters relating to the budget and coordinating the preparation of the budget. The authority to give final approval to the master budget usually belongs to the board of directors. By exercising its authority to make changes in the budget and grant final approval, the board of directors can have considerable influence on the overall direction the organization takes.
E-budgeting is an increasingly popular, Internet-based budgeting tool that can help streamline and speed up an organization’s budgeting process. The e in e-budgeting stands for both electronic and enterprisewide; employees throughout an organization, at all levels and around the globe, can submit and retrieve budget information electronically via the Internet. Managers in organizations using e-budgeting have found that it greatly streamlines the entire budgeting process. In the past, these organizations have compiled their master budgets on hundreds of spreadsheets, which had to be collected and integrated by the corporate controller’s office. (LO 9-8)
International Aspects of Budgeting
Firms with international operations face special problems when preparing a budget.
Fluctuations in foreign currency exchange rates.
High inflation rates in some foreign countries.
Differences in local economic conditions.
9-*
Firms with international operations face a variety of additional challenges in preparing their budgets. First, a multinational firm’s budget must reflect the translation of foreign currencies into U.S. dollars. Since almost all the world’s currencies fluctuate in their values relative to the dollar, this makes budgeting for those translations difficult. Although multinationals have sophisticated financial ways of hedging against such currency fluctuations, the budgeting task is still more challenging. Second, it is difficult to prepare budgets when inflation is high or unpredictable. While the United States has experienced periods of high inflation, some foreign countries have experienced hyperinflation, sometimes with annual inflation rates well over 100 percent. Predicting such high inflation rates is difficult and further complicates a multinational’s budgeting process. Finally, the economies of all countries fluctuate in terms of consumer demand, availability of skilled labor, laws affecting commerce, and so forth. Companies with offshore operations face the task of anticipating such changing conditions in their budgeting processes. (LO 9-8)
Learning Objective 9-9 – Discuss the behavioral issues in budgeting.
9-*
Learning Objective 9-9. Discuss the behavioral issues in budgeting.
Behavioral Impact of Budgets
Budgetary Slack: Padding the Budget
People often perceive that their performance will look better in their superiors’ eyes if they can “beat the budget.”
9-*
When a supervisor provides a departmental cost projection for budgetary purposes, there is an incentive to overestimate costs. When the actual cost incurred in the department proves to be less than the inflated cost projection, the supervisor appears to have managed in a cost-effective way. At least that is the perception of many managers, and, in the behavioral area, perceptions are what count most. These illustrations are examples of padding the budget. Budget padding means underestimating revenue or overestimating costs. The difference between the revenue or cost projection that a person provides and a realistic estimate of the revenue or cost is called budgetary slack. (LO 9-9)
Participative Budgeting
Flow of Budget Data
9-*
Most people will perform better and make greater attempts to achieve a goal if they have been consulted in setting the goal. The idea of participative budgeting is to involve employees throughout an organization in the budgetary process. Such participation can give employees the feeling that “this is our budget,” rather than the all-too-common feeling that “this is the budget you imposed on us.” While participative budgeting can be very effective, it also can have shortcomings. Too much participation and discussion can lead to uncertainty and delay. Also, when those involved in the budgeting process disagree in significant and irreconcilable ways, the process of participation can accentuate those differences. Finally, the problem of budget padding can be severe unless incentives for accurate projections are provided. (LO 9-9)
End Chapter 9
9-*
AprilMayJuneQuarter
Budgeted
sales (units)20,000 50,000 30,000 100,000
Selling price
per unit10$ 10$ 10$ 10$
Total
Revenue
200,000$ 500,000$ 300,000$ 1,000,000$
AprilMayJuneQuarter
Sales in units20,000 50,000 30,000 100,000
Add: desired
end. inventory10,000 6,000 5,000 5,000
Total needed30,000 56,000 35,000 105,000
Less: beg.
inventory4,000 10,000 6,000 4,000
Units to be
produced
26,000 46,000 29,000 101,000
May sales50,000 units
Desired percent20%
Desired inventory10,000 units
AprilMayJuneQuarter
Production in units
26,000 46,000 29,000 101,000
Materials per unit5 5 5 5
Production needs130,000 230,000 145,000 505,000
Add: desired
ending inventory23,000 14,500 11,500 11,500
Total needed153,000 244,500 156,500 516,500
Less: beginning
inventory13,000 23,000 14,500 13,000
Materials to be
purchased
140,000 221,500 142,000 503,500
AprilMayJuneQuarter
Production in units26,000 46,000 29,000 101,000
Materials per unit5 5 5 5
Production needs130,000 230,000 145,000 505,000
Add: desired
ending inventory23,000 14,500 11,500 11,500
Total needed153,000 244,500 156,500 516,500
Less: beginning
inventory13,000 23,000 14,500 13,000
Materials to be
purchased
140,000 221,500 142,000 503,500
June Ending Inventory
July production in units23,000
Materials per unit5
Total units needed115,000
Inventory percentage10%
June desired ending inventory11,500
July Production
Sales in units25,000
Add: desired ending inventory3,000
Total units needed28,000
Less: beginning inventory5,000
Production in units23,000
AprilMayJuneQuarter
Production in units
26,000 46,000 29,000 101,000
Direct labor hours0.10 0.10 0.10 0.10
Labor hours required2,600 4,600 2,900 10,100
Guaranteed labor
hours3,000 3,000 3,000
Labor hours paid3,000 4,600 3,000 10,600
Wage rate8$ 8$ 8$ 8$
Total direct labot cost24,000$ 36,800$ 24,000$ 84,800$
April MayJuneQuarter
Indirect labor17,500$ 26,500$ 17,900$ 61,900$
Indirect material7,000 12,600 8,600 28,200
Utilities4,200 8,400 5,200 17,800
Rent13,300 13,300 13,300 39,900
Insurance5,800 5,800 5,800 17,400
Maintenance8,200 9,400 8,200 25,800
56,000$ 76,000$ 59,000$ 191,000$
AprilMayJuneQuarter
Sales in units20,000 50,000 30,000 100,000
Variable S&A rate0.50$ 0.50$ 0.50$ 0.50$
Variable expense10,000$ 25,000$ 15,000$ 50,000$
Fixed S&A
expense70,000 70,000 70,000 210,000
Total expense80,000 95,000 85,000 260,000
Less: noncash
expenses10,000 10,000 10,000 30,000
Cash
disbursements
70,000$ 85,000$ 75,000$ 230,000$
April
May
June
Quarter
Accounts rec. - 3/31
30,000
$
30,000
$
April sales
70% x $200,000
140,000
140,000
25% x $200,000
50,000
$
50,000
May sales
70% x $500,000
350,000
350,000
25% x $500,000
125,000
$
125,000
June sales
70% x $300,000
210,000
210,000
Total cash collections
170,000
$
400,000
$
335,000
$
905,000
$
April
May
June
Quarter
Accounts pay. 3/31
12,000
$
12,000
$
April purchases
50% x $56,000
28,000
28,000
50% x $56,000
28,000
$
28,000
May purchases
50% x $88,600
44,300
44,300
50% x $88,600
44,300
$
44,300
June purchases
50% x $56,800
28,400
28,400
Total cash payments
for materials
40,000
$
72,300
$
72,700
$
185,000
$
April
May
June
Quarter
Beginning cash balance
40,000
$
Add
: cash collections
170,000
Total cash available
210,000
Less
: disbursements
Materials
40,000
Direct labor
24,000
Mfg. overhead
56,000
Selling and admin.
70,000
Equipment purchase
-
Dividends
25,000
Total disbursements
215,000
Excess (deficiency) of
Cash available over
disbursements
(5,000)
$
April
May
June
Quarter
Beginning cash balance
40,000
$
30,000
$
Add
: cash collections
170,000
400,000
Total cash available
210,000
430,000
Less
: disbursements
Materials
40,000
72,300
Direct labor
24,000
36,800
Mfg. overhead
56,000
76,000
Selling and admin.
70,000
85,000
Equipment purchase
-
143,700
Dividends
25,000
-
Total disbursements
215,000
413,800
Excess (deficiency) of
Cash available over
disbursements
(5,000)
$
16,200
$
April
May
June
Quarter
Beginning cash balance
40,000
$
30,000
$
30,000
$
Add
: cash collections
170,000
400,000
335,000
Total cash available
210,000
430,000
365,000
Less
: disbursements
Materials
40,000
72,300
72,700
Direct labor
24,000
36,800
24,000
Mfg. overhead
56,000
76,000
59,000
Selling and admin.
70,000
85,000
75,000
Equipment purchase
-
143,700
48,300
Dividends
25,000
-
-
Total disbursements
215,000
413,800
279,000
Excess (deficiency) of
Cash available over
disbursements
(5,000)
$
16,200
$
86,000
$
April
May
June
Quarter
Beginning cash balance
40,000
$
30,000
$
30,000
$
40,000
$
Add
: cash collections
170,000
400,000
335,000
905,000
Total cash available
210,000
430,000
365,000
945,000
Less
: disbursements
Materials
40,000
72,300
72,700
185,000
Direct labor
24,000
36,800
24,000
84,800
Mfg. overhead
56,000
76,000
59,000
191,000
Selling and admin.
70,000
85,000
75,000
230,000
Equipment purchase
-
143,700
48,300
192,000
Dividends
25,000
-
-
25,000
Total disbursements
215,000
413,800
279,000
907,800
Excess (deficiency) of
Cash available over
disbursements
(5,000)
$
16,200
$
86,000
$
37,200
$
April
May
June
Quarter
Excess (deficiency) of
Cash available over
disbursements
(5,000)
$
16,200
$
86,000
$
37,200
$
Financing:
Borrowing
35,000
13,800
48,800
Repayments
-
-
(48,800)
(48,800)
Interest
-
-
(838)
(838)
Total financing
35,000
13,800
(49,638)
(838)
Ending cash balance
30,000
$
30,000
$
36,362
$
36,362
$
Interest
RateBorrowing
Monthly
Interest Rate
Months
Outstanding
Interest
Expense
12% / 12 = 1%$35,000×1%×2=$700
12% / 12 = 1%$13,800×1%×1=138
838$
AprilMay June Quarter
Direct material:
Beg.material inventory5,200$ 9,200$ 5,800$ 5,200$
Add: Materials purchases56,000 88,600 56,800 201,400
Material available for use61,200 97,800 62,600 206,600
Deduct: End. material inventory9,200 5,800 4,600 4,600
Direct material used 52,000 92,000 58,000 202,000
Direct labor 24,000 36,800 24,000 84,800
Manufacturing overhead 56,000 76,000 59,000 191,000
Total manufacturing costs 132,000 204,800 141,000 477,800
Add: Beg. Work-in-process inventory3,800 16,200 9,400 3,800
Subtotal 135,800 221,000 150,400 481,600
Deduct: End.Work-in-process inventory16,200 9,400 17,000 17,000
Cost of goods manufactured 119,600$ 211,600$ 133,400$ 464,600$
AprilMay June Quarter
Cost of goods manufactured 119,600$ 211,600$ 133,400$ 464,600$
Add: Beg. finished-goods inventory18,400 46,000 27,600 18,400
Cost of goods available for sale 138,000 257,600 161,000 483,000
Deduct: End. finished-goods inventory46,000 27,600 23,000 23,000
Cost of goods sold 92,000$ 230,000$ 138,000$ 460,000$
Revenue (100,000 × $10)1,000,000$
Cost of goods sold 460,000
Gross margin540,000
Operating expenses:
Selling and admin. expenses260,000$
Interest expense838
Total operating expenses260,838
Net income279,162$
Breakers, Inc.
Budgeted Income Statement
For the Three Months Ended June 30
AprilMay June Quarter
Cash flows from operating activities:
Cash receipts from customers170,000$ 400,000$ 335,000$ 905,000$
Cash payments:
To suppliers of raw material(40,000) (72,300) (72,700) (185,000)
For direct labor(24,000) (36,800) (24,000) (84,800)
For manufacturing-overhead expenditures(56,000) (76,000) (59,000) (191,000)
For selling and administrative expenses(70,000) (85,000) (75,000) (230,000)
For interest- - (838) (838)
Total cash payments(190,000) (270,100) (231,538) (691,638)
Net cash flow from operating activities (20,000)$ 129,900$ 103,462$ 213,362$
Cash flows from investing activities:
Purchase of equipment- (143,700) (48,300) (192,000)
Net cash used by investing activities -$ (143,700)$ (48,300)$ (192,000)$
Cash flows from financing activities:
Payment of dividends(25,000) - - (25,000)
Principle of bank loan35,000 13,800 - 48,800
Repayment of bank loan- - (48,800) (48,800)
Net cash provided by financing activities10,000$ 13,800$ (48,800)$ (25,000)$
Net increase in cash(10,000)$ -$ 6,362$ (3,638)$
Balance in cash, beginning 40,000 30,000 30,000 40,000
Balance in cash. end of month30,000$ 30,000$ 36,362$ 36,362$
Breakers, Inc.
Budgeted Balance Sheet
June 30
Current assets
Cash36,362$
Accounts receivable75,000
Raw materials inventory4,600
Work-in-process inventory17,000
Finished goods inventory23,000
Total current assets155,962
Property and equipment
Land50,000
Building148,000
Equipment192,000
Total property and equipment390,000
Total assets545,962$
Accounts payable28,400$
Common stock217,000
Retained earnings300,562
Total liabilities and equities545,962$
Beginning balance
46,400
$
Add: net income
279,162
Deduct: dividends
(25,000)
Ending balance
300,562
$
Supervisor
Supervisor
Middle
Management
Supervisor
Supervisor
Middle
Management
Top Management
