BUDGETING
ibrhim4
budgeting_lecture_5.pptxPrepare and monitor basic operating and financial budgets
BS508 Accounting Principles
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BS508B Accounting Principles
Module 4 - Budgets
QUOTE
Budget:
A mathematical confirmation of your suspicions.
A.A. Latimer
Budget Definition 1:
A budget is a detailed plan in writing (usually expressed in monetary terms) that outlines the expected financial consequences of management’s strategies for achieving the organisation’s key objectives for the coming period.
Budgeting, A Practical Approach, 2nd Edition, National Institute of Accountants, Russell Clowes & Vic Scriven, Pearson, page.4
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BS508B Accounting Principles
Module 4 - Budgets
Budget Definition 2:
A budget is a financial document that expresses a future plan or expectation contributing to the operation or control of an organisation (e.g. expressing the expected future cash flows or setting out the expected sales quantities or revenues for a future period).
Why Budget ?
to be able to PLAN (eg. resource requirements, so that you have them when you
need them)
and
to be able to CONTROL
(ie. monitor how you’re going, to ensure that you stay on-track to achieve your plans)
Budgeting is a necessary element in the process of management
Cost accounting, a managerial emphasis, chapter 11 page 418.
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Module 4 - Budgets
Planning & Controlling
PLAN ing è via a MASTER BUDGET (static)
CONTROL ing è via a FLEXIBLE BUDGET (dynamic)
MASTER BUDGET
A set of interrelated budgets representing a comprehensive plan of action for a specified time period.
Basically, the master budget is a combination of all the individual budgets in an organisation, including the operating and financial budgets.
Master Budget for Stylistic Furniture
Advantages of Budgets
Budgeting forces management to plan ahead.
Realistic performance targets are set against which actual performance can be compared.
Budgeting assists all segments of the organisation to work towards the same goals.
Budgeting contributes to better communication through the exchange of financial information between departments.
Budgeting improves motivation by providing goals to be aimed for.
Limitations of Budgeting
B are unable to provide up-to-date information in a fast-changing environment.
B focus too much on short-term financial targets rather than value-adding activities.
B limit innovation by lower level managers
B is too focussed on the functions rather than the processes of the business.
B encourages incremental thinking, i.e. adding a percentage to last year’s figures, rather than strategic planning.
Budgets can encourage using up the whole budgeted amount, irrespective of need.
What is Budget Slack?
Budgets may be set in such a way that they are useless as either a control tool or a motivator. A manager who sets a budget that is known to be achievable without stretching (this is known as budget slack) has gone through the motions of budgeting but has not entered into the spirit of setting achievable but challenging targets.
On the other hand, unrealistically high targets act as a disincentive for staff and may produce resentment and reduce motivation. (SMART goals)
Types of Budgets
Individual budgets that make up the master budget are often classified as revenue budget, operating budgets or financial budgets.
Revenue budgets set out the estimates of the income of the firm (e.g. sales, fees and other income).
Operating budgets set out the estimates of the costs associated with different aspects of the operations of the firm (e.g. purchases budget, cost of goods sold budget, selling expenses budget, administration expenses budget and financial expenses budget).
Financial budgets set out the estimates of financing activities and the expected summary results for the coming period (e.g. cash budget, income statement budget, balance sheet budget and capital expenditure budget)
Budgeting, A Practical Approach, page 18
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BS508B Accounting Principles
Module 4 - Budgets
The Process of Budgeting & the Interrelationships of Budgets
Market Research/Trend Analysis/Demand Forecasting
Operating Budgets
Capital Exp Budgets
P & L Statement Budgets
Cash Flow Budgets
Balance Sheet Budgets
Operating Budgets
Revenues (Sales) Budget
Production Budget
Materials Purchases Budget
Direct Labour Budget
Manufacturing Overhead Budget
Non-Manufacturing Costs (Operating) Budgets
BUDGETED INCOME (P&L) STATEMENT
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BS508B Accounting Principles
Module 4 - Budgets
Operating Budgets
Illustrative Example:
Brentware Ltd (a manufacturer of clay pots)
Purchases Budget Exercise
Jesse idol’s DVD sales business
Jesse expects to sell 7000 DVDs in October and 7800 in November.
Jesse requires that the physical stock on hand at the end of each months (i.e. closing inventory) equals 25% of the sales expected for the next month.
Jesse buys the DVDs for $15 each and sells them for $30 each.
Create the Purchases Budget for October.
Budgeting a practical approach, page 63
Module 4 - Budgets
3/11/2013
BS508B Accounting Principles
20
Jesse idol’s Purchases Budget
Cost/unit $50 + (100% mark-up)$50 = $100 SP
Projected Sales for July 5,600 units
August 6,200 units
Opening Stock: 1 July 1400 (25% of July Sales)
Closing Stock : 31 July 1550 (25% of Aug Sales)
a) Purchases for July: 5600 + 1550 – 1400 = 5750 units x $50 = $287,500
Jesse idol’s Purchases Budget
Sales 560,000
Less COS:
Open Inv. 70,000 (1400 x $50)
+ Purchases 287,500
Clos Inv (77,500) 280,000
Gross Profit $280,000
Variances
A Variance is the difference between a budgeted amount and the actual amount
Budgeted amounts may be based on:
past costs (but considering future changed conditions &/or past inefficiencies)
expected costs
best practice
“standards” (a combination of expected conditions & best practices)
Budgets
Static Budget – is the original budget based on the original planned level of output (ie. the master budget level) - used for resource planning purposes
Flexible Budget – is the static budget restated for the actual level of output achieved
used for analysis, after the ‘actuals’ have occurred, ► for performance evaluation purposes
enables a proper comparison of “apples with apples”
A simple example of this concept: Assume you are the Functions Catering Manager at a large hotel → see next slide
Variance Analysis
Prices Prices Price Variances
X X
Quantities Quantities Qty Variances
Variances
Budget
(plan)
Actuals
Variances
(for evaluation of
performance)
Costs
Costs
For example: your petrol budget for next week
| Budget ▼ | Actuals ▼ | Variances | ||
| 10 c | 12 c | Price variance | (2 c) x 300 km | = $(6) U |
| x | x | |||
| 200 km | 300 km | Qty variance | (100) km x 10 c | = $(10) U |
| ▼ | ▼ | |||
| $20 | $36 | Total variance | = $(16) U |
Formulas
to calculate variances:
Price Variance = price diff. x actual qty
Qty Variance = qty. diff. x budgeted price
Exercise
Lampa Ltd manufactures lamps. It has set up the following standards per finished unit for direct materials and direct labour:
| Budget | Actual | Variances | ||
| $4.50/kg | $5/kg | Price Variance | $0.50x 12kg | = $(6) U |
| x | x | |||
| 10 kg | 12 kg | Qty Variance | 2kg x $4.50 | = $(9)U |
| = | = | |||
| $45 | $60 | Total Variance | =$(15)U |
Sales Budget
SALES
(in units)
= required
PRODUCTION
= required
(in units)
Sales
Production Budget
+ Required Closing Stock
- Opening Stock
Direct Labour Budget
Manufacturing Overhead Budget
(in units & $'s)
Materials Purchases Budget
PURCHASES
Required for production
+ Required Closing Stock
- Opening Stock
(in hours & $'s)
Sheet1
| Sales Budget | Production Budget | Materials Purchases Budget | |||||
| SALES | Sales | Required for production | |||||
| (in units) | + Required Closing Stock | + Required Closing Stock | |||||
| - Opening Stock | - Opening Stock | ||||||
| = required | PRODUCTION | = required | PURCHASES | ||||
| (in units) | (in units & $'s) | ||||||
| Direct Labour Budget | |||||||
| (in hours & $'s) | |||||||
| Manufacturing Overhead Budget |
Sheet2
Sheet3
for example:
Sales Budget
SALES100 100 290kg
(in units) +50+ 80kg
- 5 - 60kg
= required
PRODUCTION= 145
= required
= 310kg
(in units)
= 72.5hrs
Required for production
+ Required Closing Stock
- Opening Stock
(in hours & $'s)
(in $'s)
Sales
Production Budget
+ Required Closing Stock
- Opening Stock
Direct Labour Budget
Manuf. O'head Budget
(in units & $'s)
Materials Purchases Budget
PURCHASES
@
2kg
@
½ hr
Sheet1
| for example: | |||||||||
| Sales Budget | Production Budget | Materials Purchases Budget | |||||||
| SALES | 100 | Sales | 100 | Required for production | 290kg | ||||
| (in units) | + Required Closing Stock | +50 | + Required Closing Stock | + 80kg | |||||
| - Opening Stock | - 5 | - Opening Stock | - 60kg | ||||||
| = required | PRODUCTION | = 145 | = required | PURCHASES | = 310kg | ||||
| (in units) | (in units & $'s) | ||||||||
| Direct Labour Budget | = 72.5hrs | ||||||||
| (in hours & $'s) | |||||||||
| Manuf. O'head Budget | |||||||||
| (in $'s) |
Sheet2
Sheet3
Projected Data for 1st Qtr. 200X
a). Product Specifications
Raw (Direct) Materials - clay 8kg. per pot$0.50per kg
Direct Labour0.5hrs. per pot$10per hour
b). Projected Sales JanFebMar
AprMay
Projected Sales
units
pots120020002400
26002700
Projected Selling
price
$15.00per pot
c). Projected Inventories JanFebMar
Finished Goods:
Beginning pots1800
Ending ► enough for next mths. sales x 1.5
Raw (Direct) Materials:
Beginning clay kgs9600
Ending ► enough for next mths. prodn.
d). Projected Overheads
Variable Manuf. O/head Costs:
electricity, maintenance, indirect labour etc $2.00per labour hour
Fixed Manuf. O/head Costs: JanFebMar
total
insurance, depreciation, salaries etc $3,500$3,500$4,250
$11,250
e). Projected Selling & Admin Expenses
variable items
(eg vary in relation to revenues):
sales commissions, bad debts, etc
fixed items:
rent, salaries, vehicle exps, etc
f). Projected Tax Rate
40%
$2,000$2,500
BRENTWARE LTD - a manufacturer of clay pots
$2,500
Quantities Costs
per schedules
Sheet1
| Projected Data for 1st Qtr. 200X | ||||||
| a). Product Specifications | Quantities | Costs | ||||
| Raw (Direct) Materials - clay | 8 | kg. per pot | $0.50 | per kg | ||
| Direct Labour | 0.5 | hrs. per pot | $10 | per hour | ||
| b). Projected Sales | Jan | Feb | Mar | Apr | May | |
| pots | 1200 | 2000 | 2400 | 2600 | 2700 | |
| $15.00 | per pot | |||||
| c). Projected Inventories | Jan | Feb | Mar | |||
| Beginning | pots | 1800 | ||||
| Ending ► enough for next mths. sales x | 1.5 | |||||
| Beginning | clay kgs | 9600 | ||||
| Ending ► enough for next mths. prodn. | ||||||
| d). Projected Overheads | ||||||
| Variable Manuf. O/head Costs: | ||||||
| electricity, maintenance, indirect labour etc | $2.00 | per labour hour | ||||
| Fixed Manuf. O/head Costs: | Jan | Feb | Mar | |||
| insurance, depreciation, salaries etc | $3,500 | $3,500 | $4,250 | $11,250 | ||
| e). Projected Selling & Admin Expenses | ||||||
| per schedules | ||||||
| sales commissions, bad debts, etc | $2,000 | $2,500 | $2,500 | |||
| fixed items: | ||||||
| rent, salaries, vehicle exps, etc | ||||||
| f). Projected Tax Rate | 40% |
Sheet2
Sheet3
Operating Budgets for 1st Qtr. 200X
JanFebMar
1. Revenues Budget
Units sales 120020002400
Selling price
$15$15$15
Total
$18,000$30,000$36,000
2. Production Budget
Apr
Planned Salespots120020002400
2600
+ Required Closing Stock 300036003900
4050
- Opening Stock -1800-3000-3600
-3900
= Production
pots240026002700
2750
total pots =
3. Materials Purchases Budget
Required for production
pots X 8kgs
192002080021600
22000
+ Required Closing Stock 208002160022000
- Opening Stock -9600-20800-21600
=Purchases
kgs304002160022000
Purchases ($) @
$0.50
$15,200$10,800$11,000
4. Direct Labour Budget
Production
pots
240026002700
X standard labour input (.50hrs/pot)
std. lab. hrs =
120013001350
X standard labour rate (
$10
/hr)
$12,000$13,000$13,500
5. Manufacturing Overhead Budget
Variable
Manufacturing Overhead Budget:
std. lab. hrs =
120013001350
X standard variable overhead rate
(per dir lab hr)$2.00
$2,400$2,600$2,700
Fixed
Manufacturing Overhead Budget:
total
per schedule $3,500$3,500$4,250
$11,250
Total Manufacturing Overheads
$5,900$6,100$6,950
6. Selling & Administration Budget
variable items
(eg vary in relation to revenues):
sales commissions, bad debts, etc
fixed items:
rent, salaries, vehicle exps, etc
7700
$2,000$2,500$2,500
per schedules
Sheet1
| Projected Data for 1st Qtr. 200X | ||||||
| a). Product Specifications | Quantities | Costs | ||||
| Raw (Direct) Materials - clay | 8 | kg. per pot | $0.50 | per kg | ||
| Direct Labour | 0.5 | hrs. per pot | $10 | per hour | ||
| b). Projected Sales | Jan | Feb | Mar | Apr | May | |
| pots | 1200 | 2000 | 2400 | 2600 | 2700 | |
| $15.00 | per pot | |||||
| c). Projected Inventories | Jan | Feb | Mar | |||
| Beginning | pots | 1800 | ||||
| Ending ► enough for next mths. sales x | 1.5 | |||||
| Beginning | clay kgs | 9600 | ||||
| Ending ► enough for next mths. prodn. | ||||||
| d). Projected Overheads | ||||||
| Variable Manuf. O/head Costs: | ||||||
| electricity, maintenance, indirect labour etc | $2.00 | per labour hour | ||||
| Fixed Manuf. O/head Costs: | Jan | Feb | Mar | |||
| insurance, depreciation, salaries etc | $3,500 | $3,500 | $4,250 | $11,250 | ||
| e). Projected Selling & Admin Expenses | ||||||
| per schedules | ||||||
| sales commissions, bad debts, etc | $2,000 | $2,500 | $2,500 | |||
| fixed items: | ||||||
| rent, salaries, vehicle exps, etc | ||||||
| f). Projected Tax Rate | 40% | |||||
| Operating Budgets for 1st Qtr. 200X | ||||||
| Jan | Feb | Mar | ||||
| 1. Revenues Budget | ||||||
| Units sales | 1200 | 2000 | 2400 | |||
| Selling price | $15 | $15 | $15 | |||
| Total | $18,000 | $30,000 | $36,000 | |||
| 2. Production Budget | Apr | |||||
| Planned Sales | pots | 1200 | 2000 | 2400 | 2600 | |
| + Required Closing Stock | 3000 | 3600 | 3900 | 4050 | ||
| - Opening Stock | -1800 | -3000 | -3600 | -3900 | ||
| pots | 2400 | 2600 | 2700 | 2750 | ||
| total pots = | 7700 | |||||
| 3. Materials Purchases Budget | ||||||
| Required for production | pots X 8kgs | 19200 | 20800 | 21600 | 22000 | |
| + Required Closing Stock | 20800 | 21600 | 22000 | |||
| - Opening Stock | -9600 | -20800 | -21600 | |||
| kgs | 30400 | 21600 | 22000 | |||
| Purchases ($) @ | $0.50 | $15,200 | $10,800 | $11,000 | ||
| 4. Direct Labour Budget | ||||||
| Production | pots | 2400 | 2600 | 2700 | ||
| std. lab. hrs = | 1200 | 1300 | 1350 | |||
| $12,000 | $13,000 | $13,500 | ||||
| 5. Manufacturing Overhead Budget | ||||||
| std. lab. hrs = | 1200 | 1300 | 1350 | |||
| $2.00 | $2,400 | $2,600 | $2,700 | |||
| per schedule | $3,500 | $3,500 | $4,250 | $11,250 | ||
| Total Manufacturing Overheads | $5,900 | $6,100 | $6,950 | |||
| 6. Selling & Administration Budget | ||||||
| per schedules | ||||||
| sales commissions, bad debts, etc | $2,000 | $2,500 | $2,500 | |||
| fixed items: | ||||||
| rent, salaries, vehicle exps, etc | ||||||
| Inventories Budgets ($'s) for 1st Qtr. 200X | ||||||
| Jan | Feb | Mar | ||||
| Beginning @/kg | $0.50 | $4,800 | $10,400 | $10,800 | ||
| Ending @/kg | $0.50 | $10,400 | $10,800 | $11,000 | ||
| Cost | ||||||
| Unit Costs - | Quantities | Rates | per unit | |||
| Raw (Direct) Materials | 8 | kg @ | $0.50 | per kg | $4.00 | |
| Direct Labour | 0.5 | hrs @ | $10.00 | per hour | 5.00 | |
| Variable Manuf O/head Costs | 0.5 | labour hrs @ | $2.00 | per labour hr | 1.00 | |
| Fixed Manuf O/head Costs | $1.46 | per unit | 1.46 | |||
| $11.46 | ||||||
| Fin Goods Inventory Valuations - | Jan | Feb | Mar | |||
| Beginning Inventory @ | $11.46 | $20,628 | $34,380 | $41,256 | ||
| Ending Inventory @ | $11.46 | $34,380 | $41,256 | $44,694 | ||
| BUDGETED INCOME (Profit & Loss) STATEMENT | ||||||
| Jan | Feb | Mar | ||||
| Revenues | $18,000 | $30,000 | $36,000 | |||
| Opening Stock - Finished Goods | $20,628 | $34,380 | $41,256 | |||
| + Cost of Goods Manufactured | (see below*) | 27,500 | 29,500 | 31,250 | ||
| -34,380 | -41,256 | -44,694 | ||||
| 13,748 | 22,624 | 27,812 | ||||
| Gross Profit | $4,252 | $7,376 | $8,188 | |||
| Selling and Administration Expenses | -2,000 | -2,500 | -2,500 | |||
| Net Profit before Tax | $2,252 | $4,876 | $5,688 | |||
| -901 | -1,950 | -2,275 | ||||
| Net Profit after Tax | $1,351 | $2,926 | $3,413 | |||
| Direct (Raw) Materials: | ||||||
| Opening Stock | $4,800 | $10,400 | $10,800 | |||
| + Purchases | 15,200 | 10,800 | 11,000 | |||
| - Closing Stock | -10,400 | -10,800 | -11,000 | |||
| 9,600 | 10,400 | 10,800 | ||||
| Direct Labour | 12,000 | 13,000 | 13,500 | |||
| Manuf Overheads | 5,900 | 6,100 | 6,950 | |||
| 27,500 | 29,500 | 31,250 |
Sheet2
Sheet3
Inventories Budgets ($'s) for 1st Qtr. 200X
Raw (Direct) Materials:
JanFebMar
Beginning @/kg$0.50$4,800$10,400$10,800
Ending @/kg$0.50$10,400$10,800$11,000
Finished Goods:
Cost
Unit Costs - per unit
Raw (Direct) Materials 8kg @$0.50per kg$4.00
Direct Labour 0.5hrs @$10.00per hour5.00
Variable Manuf O/head Costs 0.5labour hrs @$2.00per labour hr1.00
Fixed Manuf O/head Costs $1.46per unit1.46
$11.46
Fin Goods Inventory Valuations -
JanFebMar
Beginning Inventory @
$11.46
$20,628$34,380$41,256
Ending Inventory @
$11.46
$34,380$41,256$44,694
BUDGETED INCOME (Profit & Loss) STATEMENT
JanFebMar
Revenues $18,000$30,000$36,000
less Cost of Goods Sold:
Opening Stock - Finished Goods $20,628$34,380$41,256
+ Cost of Goods Manufactured
(see below*)
27,50029,50031,250
less Closing Stock - Finished Goods
-34,380-41,256-44,694
= Cost of Goods Sold
13,74822,62427,812
Gross Profit $4,252$7,376$8,188
less Operating Expenses
Selling and Administration Expenses -2,000-2,500-2,500
Net Profit before Tax $2,252$4,876$5,688
less Income Tax Expense
-901-1,950-2,275
Net Profit after Tax $1,351$2,926$3,413
*Cost of Goods Manufactured:
Direct (Raw) Materials:
Opening Stock $4,800$10,400$10,800
+ Purchases 15,20010,80011,000
- Closing Stock -10,400-10,800-11,000
9,60010,40010,800
Direct Labour 12,00013,00013,500
Manuf Overheads 5,9006,1006,950
27,50029,50031,250
Quantities Rates
$11,250 ÷ 7700 units =
*Cost of Goods Manufactured:
Sheet1
| Projected Data for 1st Qtr. 200X | ||||||
| a). Product Specifications | Quantities | Costs | ||||
| Raw (Direct) Materials - clay | 8 | kg. per pot | $0.50 | per kg | ||
| Direct Labour | 0.5 | hrs. per pot | $10 | per hour | ||
| b). Projected Sales | Jan | Feb | Mar | Apr | May | |
| pots | 1200 | 2000 | 2400 | 2600 | 2700 | |
| $15.00 | per pot | |||||
| c). Projected Inventories | Jan | Feb | Mar | |||
| Beginning | pots | 1800 | ||||
| Ending ► enough for next mths. sales x | 1.5 | |||||
| Beginning | clay kgs | 9600 | ||||
| Ending ► enough for next mths. prodn. | ||||||
| d). Projected Overheads | ||||||
| Variable Manuf. O/head Costs: | ||||||
| electricity, maintenance, indirect labour etc | $2.00 | per labour hour | ||||
| Fixed Manuf. O/head Costs: | Jan | Feb | Mar | |||
| insurance, depreciation, salaries etc | $3,500 | $3,500 | $4,250 | $11,250 | ||
| e). Projected Selling & Admin Expenses | ||||||
| per schedules | ||||||
| sales commissions, bad debts, etc | $2,000 | $2,500 | $2,500 | |||
| fixed items: | ||||||
| rent, salaries, vehicle exps, etc | ||||||
| f). Projected Tax Rate | 40% | |||||
| Operating Budgets for 1st Qtr. 200X | ||||||
| Jan | Feb | Mar | ||||
| 1. Revenues Budget | ||||||
| Units sales | 1200 | 2000 | 2400 | |||
| Selling price | $15 | $15 | $15 | |||
| Total | $18,000 | $30,000 | $36,000 | |||
| 2. Production Budget | Apr | |||||
| Planned Sales | pots | 1200 | 2000 | 2400 | 2600 | |
| + Required Closing Stock | 3000 | 3600 | 3900 | 4050 | ||
| - Opening Stock | -1800 | -3000 | -3600 | -3900 | ||
| pots | 2400 | 2600 | 2700 | 2750 | ||
| total pots = | 7700 | |||||
| 3. Materials Purchases Budget | ||||||
| Required for production | pots X 8kgs | 19200 | 20800 | 21600 | 22000 | |
| + Required Closing Stock | 20800 | 21600 | 22000 | |||
| - Opening Stock | -9600 | -20800 | -21600 | |||
| kgs | 30400 | 21600 | 22000 | |||
| Purchases ($) @ | $0.50 | $15,200 | $10,800 | $11,000 | ||
| 4. Direct Labour Budget | ||||||
| Production | pots | 2400 | 2600 | 2700 | ||
| std. lab. hrs = | 1200 | 1300 | 1350 | |||
| $12,000 | $13,000 | $13,500 | ||||
| 5. Manufacturing Overhead Budget | ||||||
| std. lab. hrs = | 1200 | 1300 | 1350 | |||
| $2.00 | $2,400 | $2,600 | $2,700 | |||
| per schedule | $3,500 | $3,500 | $4,250 | $11,250 | ||
| Total Manufacturing Overheads | $5,900 | $6,100 | $6,950 | |||
| 6. Selling & Administration Budget | ||||||
| per schedules | ||||||
| sales commissions, bad debts, etc | $2,000 | $2,500 | $2,500 | |||
| fixed items: | ||||||
| rent, salaries, vehicle exps, etc | ||||||
| Inventories Budgets ($'s) for 1st Qtr. 200X | ||||||
| Jan | Feb | Mar | ||||
| Beginning @/kg | $0.50 | $4,800 | $10,400 | $10,800 | ||
| Ending @/kg | $0.50 | $10,400 | $10,800 | $11,000 | ||
| Cost | ||||||
| Unit Costs - | Quantities | Rates | per unit | |||
| Raw (Direct) Materials | 8 | kg @ | $0.50 | per kg | $4.00 | |
| Direct Labour | 0.5 | hrs @ | $10.00 | per hour | 5.00 | |
| Variable Manuf O/head Costs | 0.5 | labour hrs @ | $2.00 | per labour hr | 1.00 | |
| Fixed Manuf O/head Costs | $11,250 ÷ 7700 units = | $1.46 | per unit | 1.46 | ||
| $11.46 | ||||||
| Fin Goods Inventory Valuations - | Jan | Feb | Mar | |||
| Beginning Inventory @ | $11.46 | $20,628 | $34,380 | $41,256 | ||
| Ending Inventory @ | $11.46 | $34,380 | $41,256 | $44,694 | ||
| BUDGETED INCOME (Profit & Loss) STATEMENT | ||||||
| Jan | Feb | Mar | ||||
| Revenues | $18,000 | $30,000 | $36,000 | |||
| Opening Stock - Finished Goods | $20,628 | $34,380 | $41,256 | |||
| + Cost of Goods Manufactured | (see below*) | 27,500 | 29,500 | 31,250 | ||
| -34,380 | -41,256 | -44,694 | ||||
| 13,748 | 22,624 | 27,812 | ||||
| Gross Profit | $4,252 | $7,376 | $8,188 | |||
| Selling and Administration Expenses | -2,000 | -2,500 | -2,500 | |||
| Net Profit before Tax | $2,252 | $4,876 | $5,688 | |||
| -901 | -1,950 | -2,275 | ||||
| Net Profit after Tax | $1,351 | $2,926 | $3,413 | |||
| Direct (Raw) Materials: | ||||||
| Opening Stock | $4,800 | $10,400 | $10,800 | |||
| + Purchases | 15,200 | 10,800 | 11,000 | |||
| - Closing Stock | -10,400 | -10,800 | -11,000 | |||
| 9,600 | 10,400 | 10,800 | ||||
| Direct Labour | 12,000 | 13,000 | 13,500 | |||
| Manuf Overheads | 5,900 | 6,100 | 6,950 | |||
| 27,500 | 29,500 | 31,250 |
Sheet2
Sheet3
Booking for a wedding reception
Expected number of guests100guestsMaster (Static) Budget for 100 guests
(for planning purposes)
Quoted Price$30per guestRevenue$3,000
Est Costs: food, beverages, labour, etc$20per guestCosts2,000
Expected Profit$10per guestProfit$1,000
Actual number of guests120guestsActual Results for 120 guests
Revenue$3,600
Costs2,280
Profit$1,320
Static BudgetActualVariance
Costs2,0002,280-280
Flexible BudgetActualVariance
Revenue
($30 x 120)
$3,600$3,6000
Costs
($20 x 120)
$2,4002,280120Favourable cost control ?? - YES
Profit
($10 x 120)
$1,200$1,320120
Functions Catering Dept - Cartman's Hotel
Evaluation ??
Evaluation ??
OR should the Evaluation be:
Evaluation of Cost Performance ??
Unfavourable - Poor cost control ??
Sheet1
| Functions Catering Dept - Cartman's Hotel | |||||||
| Booking for a wedding reception | |||||||
| Expected number of guests | 100 | guests | Master (Static) Budget for 100 guests | ||||
| (for planning purposes) | |||||||
| Quoted Price | $30 | per guest | Revenue | $3,000 | |||
| Est Costs: food, beverages, labour, etc | $20 | per guest | Costs | 2,000 | |||
| Expected Profit | $10 | per guest | Profit | $1,000 | |||
| Actual number of guests | 120 | guests | Actual Results for 120 guests | ||||
| Revenue | $3,600 | ||||||
| Costs | 2,280 | ||||||
| Profit | $1,320 | ||||||
| Evaluation of Cost Performance ?? | |||||||
| Static Budget | Actual | Variance | Evaluation ?? | ||||
| Costs | 2,000 | 2,280 | -280 | Unfavourable - Poor cost control ?? | |||
| OR should the Evaluation be: | |||||||
| Flexible Budget | Actual | Variance | Evaluation ?? | ||||
| Revenue | ($30 x 120) | $3,600 | $3,600 | 0 | |||
| Costs | ($20 x 120) | $2,400 | 2,280 | 120 | Favourable cost control ?? - YES | ||
| Profit | ($10 x 120) | $1,200 | $1,320 | 120 |
