Professional Documents
Culture Documents
Master Cash Budget
Master Cash Budget
Responsibility Accounting
Chapter 6
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Learning Objective 1
Understand what a master budget
is and explain its benefits.
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Budgeting Cycle
Performance planning
Providing a frame of reference
Investigating variations
Corrective action
Planning again
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Operating
Decisions
Financial
Decisions
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Learning Objective 2
Describe the advantages
of budgets.
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#2
Provides a framework
for judging performance
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Motivates employees
and managers
#4
Promotes coordination
and communication
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Long-run
Budgets
Short-run
Planning
Short-run
Budgets
Strategy
Analysis
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Learning Objective 3
Prepare the operating budget
and its supporting schedules.
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480 pounds
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Direct Manufacturing
Labor Budget
Each unit requires 3 direct labor-hours
at $7.00 per hour.
Hawaii Diving Direct Labor Budget
for the Month of August 2004
Units produced:
1,080
Direct labor-hours/unit
3
Total direct labor-hours:
3,240
Total budget @ $7.00/hour:
$22,680
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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$ 4
21
24
5*
$54
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80 $54 = $4,320
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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$ 5,400
$58,320
$63,720
$ 4,320
$59,400
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Learning Objective 4
Use computer-based financial
planning models in
sensitivity analysis.
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Software
Software packages are now readily
available to reduce the computational
burden and time required to prepare
budgets.
These packages assist managers
to do sensitivity analysis.
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Sensitivity Analysis
Consider Hawaii Diving.
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Sensitivity Analysis
What if the materials cost is expected to increase
to $2.50 per pound instead of $2.00.
What is the cost of goods sold?
1,100 $55 = $60,500 instead of $59,400
Why the increase?
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Cash Budget
Hawaii Diving has the following
collection pattern:
In the month of sale:
50%
27%
Uncollectible:
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
3%
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Cash Budget
Budgeted charge sales are as follows:
June
July
August
September
$200,000
$250,000
$264,000
$260,000
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Cash Budget
Budgeted Cash Receipts
for the Month Ending August 31, 2004
August sales: $264,000 50% $132,000
July sales:
$250,000 27%
67,500
June sales:
$200,000 20%
40,000
Total
$239,500
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Cash Budget
Budgeted Cash Disbursements
for the Month Ending August 31, 2004
August purchases
$ 4,620
Direct labor
22,680
Total overhead
31,320
Other expenses
9,760*
Total
$68,380
*Other expenses exclude depreciation
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Cash Budget
Cash Budget
for the Month Ending August 31, 2004
Budgeted receipts
$239,500
Budgeted disbursements
68,380
Net increase in cash
$171,120
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Learning Objective 5
Explain kaizen budgeting
and how it is used for
cost management.
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What is Kaizen?
The Japanese use the term kaizen
for continuous improvement.
Kaizen budgeting is an approach that
explicitly incorporates continuous
improvement during the budget
period into the budget numbers.
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Kaizen Budgeting
It was previously estimated that it should
take 3 labor-hours for Hawaii Diving to
manufacture its product.
A kaizen budgeting approach would
incorporate future improvements.
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Kaizen Budgeting
Budgeted Hours/Item
January March 2004
April June 2004
July September 2004
October December 2004
3.00
2.95
2.90
2.85
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Learning Objective 6
Prepare an activity-based
budget.
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Activity-Based Budgeting
Activity-based costing reports and analyzes
past and current costs.
Activity-based budgeting (ABB) focuses
on the budgeted cost of activities necessary
to produce and sell products and services.
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Activity-Based Budgeting
Product A Product B
Units produced:
880
200
Labor-hours per unit:
3
3
Budgeted setup-hours:
5
5
Total budgeted machine setup related cost is
$25,920 per month.
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Activity-Based Budgeting
Total budgeted labor-hours are:
Product A: 880 3
2,640
Product B: 200 3
600
Total
3,240
What is the allocation rate per labor-hour?
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Activity-Based Budgeting
Total cost allocated to each product line:
Product A: $8.00 2,640
$21,120
$ 4,800
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Activity-Based Budgeting
Under ABB, the number of setups is the cost driver.
$25,920 budgeted machine setup cost
10 budgeted machine setup-hours
= $2,592 allocation rate per machine setup-hour.
How much machine setup related costs are
allocated to each product line?
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Activity-Based Budgeting
Product A
Product B
$2,592 5
$12,960
$2,592 5
$12,960
Setup-related cost per unit:
Product A: $12,960 880 $14.73
Product B: $12,960 200 $64.80
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Learning Objective 7
Describe responsibility centers
and responsibility accounting.
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production
service
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Learning Objective 8
Explain how controllability
relates to responsibility
accounting.
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What is Controllability?
It is the degree of influence that a specific
manager has over costs, revenues,
or other items in question.
A controllable cost is any cost that is
primarily subject to the influence of a
given responsibility center manager
for a given time period.
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Controllability
Responsibility accounting focuses on
information and knowledge, not control.
A responsibility accounting system could
exclude all uncontrollable costs from
a managers performance report.
In practice, controllability is difficult to pinpoint.
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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End of Chapter 6
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