Professional Documents
Culture Documents
B.
Sales budget
Production budget
Direct materials budget
Direct labor budget
Manufacturing overhead budget
Ending finished goods inventory budget
Selling and administrative expenses budget
Cash budget
Budgeted income statement
Budgeted balance sheet
OVERVIEW OF BUDGETING
A budget is a detailed plan for acquiring and using financial and other
resources over a specified period. Budgeting involves two stages:
Planning: Developing objectives and preparing various detailed budgets
to achieve those objectives.
Control: The steps taken by management to attain the objectives set
down at the planning stage.
PURPOSES OF BUDGETING
Budgets communicate managements plans throughout the
organization.
Budgeting forces managers to give planning top priority.
TM 9-2
Budgets provide a means of allocating resources to their most effective
uses.
Budgeting uncovers potential bottlenecks.
Budgeting coordinates the activities of the entire organization.
Budgeting provides goals that serve as benchmarks for evaluating
subsequent performance.
TM 9-3
MASTER BUDGET INTERRELATIONSHIPS
(Exhibit 9-2)
TM 9-4
COMPREHENSIVE BUDGETING EXAMPLE
Royal Company is preparing budgets for the second quarter ending June
30.
Budgeted sales of the companys only product for the next five months
are:
April.......
May........
June........
July.........
August....
20,000
50,000
30,000
25,000
15,000
units
units
units
units
units
2.
Production budget.
3.
4.
5.
6.
7.
8.
Cash budget.
9.
10.
SALES BUDGET
Budgeted sales (units).....
Selling price per unit.......
Total sales........................
April
20,000
$10
$200,000
May
50,000
$10
$500,000
June
30,000
$10
$300,000
Quarter
100,000
$10
$1,000,000
The company collects 70% of these credit sales in the month of the
sale; 25% are collected in the month following sale; and the remaining
5% are uncollectible.
TM 9-5
Accounts receivable
beginning balance............
April sales
70% $200,000...............
25% $200,000...............
May sales
70% $500,000...............
25% $500,000...............
June sales
70% $300,000...............
Total cash collections...........
April
May
June
$ 30,000
$ 30,000
140,000
140,000
50,000
$ 50,000
350,000
$170,000
Quarter
$400,000
$125,000
350,000
125,000
210,000
$335,000
210,000
$905,000
PRODUCTION BUDGET
Additional data:
The company desires to have inventory on hand at the end of each
month equal to 20% of the following months budgeted unit sales.
On March 31, 4,000 units were on hand.
Budgeted sales [TM 9-4]............
Add desired ending inventory. . .
Total needs................................
Less beginning inventory..........
Required production..................
April
20,000
10,000
30,000
4,000
26,000
May
50,000
6,000
56,000
10,000
46,000
June
30,000
5,000
35,000
6,000
29,000
July
25,000
3,000*
28,000
5,000
23,000
April
May
June
26,000
5
46,000
5
29,000
5
Quarter
101,000
5
TM 9-6
Production needs (pounds)..........
Add desired ending inventory
(pounds)*..................................
Total needs (pounds)...................
Less beginning inventory
(pounds)....................................
Raw materials to be purchased
(pounds)....................................
Cost of raw materials to be
purchased at $0.40 per pound.
130,000
230,000
145,000
505,000
23,000
153,000
14,500
244,500
11,500
156,500
11,500
516,500
13,000
23,000
14,500
13,000
140,000
221,500
142,000
503,500
$56,000
$88,600
$56,800
$201,400
* For June: 23,000 units produced in July [TM 9-6] 5 pounds per unit =
115,000 pounds; 115,000 pounds 10% = 11,500 pounds
SCHEDULE OF EXPECTED CASH DISBURSEMENTS FOR MATERIAL
Additional data:
Half of a months purchases are paid for in the month of purchase; the
other half is paid for in the following month.
No discounts are given for early payment.
The accounts payable balance on March 31 was $12,000.
Accounts payable beginning
balance...............................
April purchases
50% $56,000...................
50% $56,000...................
May purchases
50% $88,600...................
50% $88,600...................
June purchases
50% $56,800...................
Total cash disbursements for
materials.............................
$12,000
$ 12,000
28,000
28,000
28,000
$28,000
44,300
$40,000
$72,300
44,300
$44,300
28,400
28,400
$72,700
$185,000
April
26,000
May
46,000
June
29,000
Quarter
101,000
TM 9-7
[TM 9-6].............................
0.05
0.05
0.05
0.05
1,300
$10
$13,000
2,300
$10
$23,000
1,450
$10
$14,500
5,050
$10
$50,500
Note: Many companies do not fully adjust their direct labor work force every
month and in such companies direct labor behaves more like a fixed cost,
with additional cost if overtime is necessary.
MANUFACTURING OVERHEAD BUDGET
Additional data:
Variable manufacturing overhead is $20 per direct labor-hour.
Fixed manufacturing overhead is $50,500 per month. This includes
$20,500 in depreciation, which is not a cash outflow.
Budgeted direct labor-hours
[TM 9-9]...................................
Variable manufacturing
overhead rate.........................
Variable manufacturing
overhead.................................
Fixed manufacturing overhead..
Total manufacturing overhead. .
Less depreciation.......................
Cash disbursements for
manufacturing overhead........
April
May
June
Quarter
1,300
2,300
1,450
5,050
$20
$20
$20
$20
$26,000
50,500
76,500
20,500
$46,000
50,500
96,500
20,500
$29,000
50,500
79,500
20,500
$101,000
151,500
252,500
61,500
$56,000
$76,000
$59,000
$191,000
Quantity
5 pounds
Cost
$0.40 per pound
Total
$2.00
TM 9-8
Direct labor.......................
Manufacturing overhead...
Unit product cost...............
*
0.05 hours
0.05 hours
0.50
2.50
$5.00
$252,500
= $50.00 per hour
5,050 hours
5,000
$5
$25,000
April
May
June
Quarter
20,000
50,000
30,000
100,000
$0.50
$0.50
$0.50
$0.50
$10,000
$25,000
$15,000
$ 50,000
70,000
70,000
70,000
210,000
80,000
10,000
95,000
10,000
85,000
10,000
260,000
30,000
$70,000
$85,000
$75,000
$230,000
TM 9-9
CASH BUDGET
Additional data:
1.
2.
3.
4.
CASH BUDGET
Royal Company Cash Budget
For the Quarter Ending June 30
April
$ 40,000
May
$ 30,000
June
$ 30,000
Quarter
$ 40,000
170,000
210,000
400,000
430,000
335,000
365,000
905,000
945,000
40,000
13,000
72,300
23,000
72,700
14,500
185,000
50,500
[TM 9-10]...............................
56,000
76,000
59,000
191,000
Equipment purchases...........
Dividends.............................
Total disbursements................
[TM 9-12]...............................
70,000
0
51,000
230,000
85,000
143,700
0
400,000
75,000
48,800
0
270,000
230,000
192,500
51,000
900,000
(20,000)
30,000
95,000
45,000
Financing:
Borrowings...........................
Repayments.........................
Interest*...............................
50,000
0
0
0
(50,000)
( 2,000)
50,000
(50,000)
( 2,000)
0
0
0
TM 9-10
Total financing.........................
50,000
$ 30,000
$ 30,000
(52,000)
$ 43,000
( 2,000)
$ 43,000
$950,000
500,000
450,000
260,000
190,000
2,000
$188,000
$1,000,000
50,000
$ 950,000
100,000
$5
$500,000
$ 40,000
30,000
5,200
20,000
(a)
(b)
(c)
(d)
400,000 (e)
1,610,000 (f)
(750,000) (g)
95,200
1,260,000
$1,355,200
$
12,000 (h)
TM 9-11
Common stock.....................................
Retained earnings................................
Total liabilities and stockholders equity.
(a)
(b)
(c)
(d)
(e)
See TM 9-13
See TM 9-5
Given
Given
Given
(f)
(g)
(h)
(i)
(j)
$ 200,000 (i)
1,143,200 (j)
1,343,200
$1,355,200
Given
Given
See TM 9-8
Given
Given
See TM 9-14
$300,000 sales 25%
11,500 pounds $0.40 per
pound
See TM 9-11
See TM 9-16
43,000
75,000
4,600
25,000
(a)
(b)
(c)
(d)
400,000 (e)
1,802,500 (f)
(841,500) (g)
$ 147,600
1,361,000
$1,508,600
$
$ 200,000 (i)
1,280,200 (j)
28,400 (h)
1,480,200
$1,508,600
(f)
(g)
(h)
(i)
(j)
See TM 9-16
$1,143,200 + $188,000 $51,000