~ Part• 1 Pl.

nnlng rn d Control ~
l....._....._~~

. , d b , co nsid ering other facto rs sud 1 a s the gen e ra l eco.

s ales fo recas t m ay b e 1rnprm e•id vcr11 } . . pi·iri ng policies, and so o n . Some coni pa ·
. . ·· s 111g, ·
1101111 c cl 1m a 1e, cornpctl tion , · 11 \''I th other more formal app ro.::ches s u
. supp leme n t the b o tcom- t.p approac 1 c
111cs . . and econo' metric
·• <
m odel in g.
"""'
11
. I . re l~t1 o n ana 1ys1s,
as t1111 c -scrics an a y-s1s, cor, ere!)' ' . .. 1 estima te. Th e sale s forecast is presente d t
1.1 • . . 1· 11 the 1111ll a . . o
l s . . , b udget com m 1tlee may d ec id e rh;.i ti
I l 1c d s ales JorlGl~· , fi co n s1de rao o n . 1 1ie . ie
or . . . d revis e ir a pp rop ria te ly. f-o r c.xa rn1p 1c,
fit JC' 1u ge . t co mm1 L1. ce• · coo oprrm 1s11c an
o rccas c 1s roo p ess11111s u c or • . ~s c is too 1essi mis ti c a n d n o t in It·,
'f I · d ides char r11e ,orec,, 1 , " r-
' '1 c b udge t co m mt lle<" cc • . · it m av recommend specifi c c1ct·
m o n v wnh . the s cr;11t::gr•c p Ian of ·,J1c, o rg·•1111zac 1o n , . . · · I . ns
· • to
to inc . · rea se sa les bevo nd che 1.o recas t level, su ch as rn creasrng promo 1rona act, vn, es

a n d h iring addicion'a l salespeo p le. f, r Texas Rex's s ca n dard T-shirt Jin ~. Fo r

Sch e d ule I ill us cra tes th e sa les budget o dLrc t· a standa rd s J,01·t-s l
· p l1·o · ty, we assu me ch. a t 1'exas Rex· has. o n ly o n e p rob · k · (Fo ·
' r mu lti, ple-pro • deeve d
s 1m
T I·
-s 11n Wllh •
· th e l -cxas Rex 1ogo scr- ee 1·1. p n n red on t 11e. ,ic •· d'3 I d II . ) u cr
fi rm , the sa lt's bu dge t rcO eCls sales ,or c each pro du ct in u nlls a n sacs o ,1 1s.

Schedule 1
Texas Rex, Inc.
Sale s Budget
For the Year Ended December 31,
Quarter
1 2 ec.::ac.:.r_ _
--c:
3 _ _ _ _ _4_ _ __ Y
U n its 1, 000 ],200 1,500 2,000 5,700
~lni r. se!ling p rice X }IO X $10 X $10 X $10 X $]0
l3udg e tcd sa les $10,000 S 12 ,000 $ 15 .000 $20,000 £57,000 -)tr S
_\-, . ' r , :,(Jr !'-' (, I /\fl • ' J> ,,. _
Notice chat rhc sa l1:-s l111dg'ct reveals th ;i 1 T1.·xas Rex s sales Ou ltu:i re se.1so11a ll y.
lv1os r sales takt.: p lace in rh e s umm er and (:ill qu.1ne1s. This is du ..- 10 !li e p o pularity
of the T-s hins in th e st 1111111 c; .in d th e s:ilcs prnmmions t h:11 T,·x,1s nc x p11ts 011 for
"'h ack CG s d1 00 I " a nd Chri.~1111as

Production Bud g et· ·rhc p rod u c cio,11 hud gc c dcsc1ihL ~ hu"' 111.1n y 11 1~i,~ 111us t
be p ro du ced i11 o rder 10 111t·,t ~.dcs nccd, .111d s,11isfy C':~d111g in•.·cn 1cn v 1c·qt•1,u1wn ts .
F10 111 Sched ule I . \vc i..: 1w\\' h"\\" 111.i111· 1-~h i::, .11c· needed 10 ~.11i , 1·: •.. 1k~ ,i<'111:111J
fnr cac h qu,1nc 1 ,111ci 1n , 1/J.._, y,·,11 If J l ~,11· n.r 1~,·gi11uiu,:J.1L 1..nrn11g i11•,, ·1Jlu 11~s,
:h e T-~ i1 i1 l\ 10 be p1odu cc, I wuulcJ c-..1cdr . _·qu.il 111e 1111i1s 10 b.._· suld. lhi ~ 1,u ulJ b.:
ihc' u1sc in ;1 /IT (jus1-1n-1i111t· 111,rnufactu1i11g) fi1111 . I lnw.._T,:r, 1n.111y 111.111 11:.1nu 1ing
finn s use; i111n1 to 1i es as .1 bu(Jn .rgainsl lllllen:1i111ies in c.lr111 :111J 01 pll d11, 11011 .
t\ ~s um e rli a t co 1npa111· -policy n:y11i 11.·s 29 pcrrn1t of th.._· ll<c.\t q 11.ll tL1 ':-; .:;,ll , ~ 111 e nd-
J\)_. ,,.,1 ing inn·11 rc1v :rn d 1h:11 h cgi1111i 11 g i11ver; tory of T s h111s fo r the f"ir~1 m1,.11tL·1 n f tile
•lj" ..,;-Y- I :,-c.ir •.·.. !\ ~

Y . y') To cnm 1H11 ,· the t111i1s 10 he 1,roJu ced, b o 1h 1111it s;d es .:r nd unit s DI heg i1111i11g
~f'{,' a11d_ _ej1(ji11.g ri11i..:'i,h i::,.Lr-ic~o~I~ invr n wry a rc n eeded :

\ Inits to he produc cd/- l·xpeucd 11 nit s:1ks I- ll11i1s i11 c11di11g im-c111c 1ry
'-'~ >.
L _______
,_~v-•
--- I /nits in beginning i111·u; to1y

The formul a is the bas is for the p rodw: ri ' n b 11Jge t in ~ched1tlc 2. Let's gu
!!irn,:::,h !h e filst column o f Srhcdulc 2, the productio n n eed::; for :Ire fii :;t quarter.
\\ 'c sec th.11 Texas Rex :1nticip:ites sa lt's of 1,0 00 T-s hirt s. In add it io n , the cumpa y
1 11
,,alitS :? 40 '!'-shi n s in ending inve nto ry a t the en d of the first quarter (0.20 x 1,200).
Thus. 1, 2 '10 T-shins ;ire n~eJed Ju1i n g the firs t qu2ner. \'Vhere v:i!l rh e~e J,2 tJO
T -s hirt s come frnm? Beginning in ven tory Gin provide J 80 o f them, l~a\·ing 1,060
r -s!i ins re bs: pruduceJ du:u1g the firs t 4u;:i11er. J'-..'01ice th at 1he pi o Jucti on l>udgct
i.~ .:-sp rc.ss.::d i11 1e1111s uf unH s.

L.
 Chapter 8 / Budg eting for Planning and Control ~

Schedule 2
Texas Rex, Inc.
Production Budget
For ._,,e Ye E
'" ar nd ed December 31, 2008
Quarter
1
3 4 Year
Sales (Sched ule l) 1000 , .. 12.4V/, 0 % 0
<L/Q
· d d' · ' t _;-l , 200 I sou 2 000 5 700 "I
··(, Desire en mg 111\ICnto rv 240 ( ,, ..,00 / / ' . /~ u,•,rv"] /,,,c)c,•<cc.n I lv .::/ :,0, cJ i v -)
1 ,. 1 d · ~ \ .....2._ - 400 l ~ - -) 20 0 •

b· ")
Iota, ne_e s. . _ 1, 2 40 ;_'\...,_ l, 500 \ 1,900 \ ? 200· S 900 z.<-.J/ 1.u"/4: c:, c,u
r~~ Less:_Beg1n111ng inv~~l\Of)' ~ SO)L~s,.,~
l (240) "'> (300) '---) ~( 400) J 1SO) ',\ r ,~.>/-zu '.IJ c <: CJ.)
Unns to be produu::a 1 060 · 1
~
-=...t 260 ],600 !, SQQ 5,720 '-J oC " ~
, ,\ssumc that sales fo r the !!1st qu21ler of 2009 ar - -:- - - - -- ~ -- - - - -__- /
. q,c,r1r,1 Z,J'O') ;, , ,,c,,1<, ' 1111 ,.. ,.,, • ~ e ernmated at l,000111111s. !"', ,c,;, .1.i,c. ,, ·--,-·uf . ' , wt---' )
, . . / 1 , I £'t£-(C! t(( f (, ( 0./\1 "'
fwo. im portant· pomts shou ld be note d. I"·1rst, LJ1e beg11111111g
· · ·
mventory fo r one
quarter 1s .always
.
equal
.
to the
•
erd·
1 · f ·
mg inventory o the previous quarter. !·or •
Quaner
2, the begin:1ing inventory is 24 0 T-shirts, which is ident ical t0 the desired ending
in•irntory of Qu~rter 1. Second, the column for the year is not simply the addit ion
ct the an_10ums ,or ~he fom
q~arters. Notice that the desirec. ending inventory for
the year IS 200 T-shins which 1s, of course, equal to thr dcsirecl ending inventOI)' for
the frn1rth quancr. Th e beginning inventory for the year is 180 T-shirts, which is the
beginning inventory fo r the first quaner. .j
Direct Mate rials Pu rchases Budget ,\her the prod uction schedule is com-
pleted, the budgets for direct materials, direct labor, and overhead can be prepared The
direct materials purch .. - udgct tell s t 1e amount an1.! cost of raw materials to
be purd1ased in ead1 ti1 ne period; it deprnds 011 the cxpwed use of materials in pro-
duction and the raw materials inventory needs of the fi rm. The company needs to pre-
p;ire a separ:nc direct materials perchases budget fo r every type of raw matrri,d used.
Th e amount of direct materi ;ils r.eeded 1°1>r production depends P ll the number
of units to be prod uced . for simplicity, suppose that Texas Rex's !ego T-~hi.ts require
t,,·o types of r;iw mateiial· plain T-shins costing $3 each and ink (for the snren
printi:1g) costing JO 2() p0r ounce. On a per-unit basis, the fauory needs one plain
T-shi,1 .i nd fiw <cun ces of rnk fer rach logo I-shirt that it prod~iccs. 1 hen, ifTcx;i~
R,·x ',·::1:11 ~ 1'1 rr1"1clt1rT 1,0(;0 T:,l: i:l~ i11 iii,· fi1:,1 (j ll ,\II C'r, i1 1,·i!l 1h'C,I ! ,or.,) p! :1 i11 T-
~hins :rnd 5,_-\00 oun ces of i1,k (5 9u11 ~c~ :~ l ,OGO T-~hins) Omc -:xpcctcd usage ;s
compu ted, t:1r purchases (111 c1;;:ts) can be r,1111 !~u tcJ as fol lo1,•s:
I <_ .
rP~es-= Direct mat erizils nrcdcrl for procluc1ion + o,,sircd di rec , 111a tcri:1ls
·._ -- -~-
, } i!1 ending invrntory Direct m:i tcri:i ls in hq;::i nin 6 inventory
. ...
The qu,ultity of J irect !11<1leri:1L~ in f lVl;'l~OI)' is clctermined lw th e fi rm_'s inventory
PoliL . ···. ·1'exas .O..J_ ponli,v
. 1,',.,v's, is to have JO _percent ol the fnl low11-<g,;-iJLrnth s producuon..,_, ,,. ,,
1
:::.:.:.::L --~-- ---- (c;" • "-Jc;,,.,,,.. lo'/
;iced~ in ending i1m2ntory. l,et's a:;sume that the factory had~ 8 _plam _f-shins and ' ' ,,,, ,
390 m11Kcs- of ink on-hancl on J;rnual)' I. · -~ - 1 _,•: , , . r:; , / · ,. ,
·'-.,____ The r:,o diren m:iterials pu rchases budgets for Texas lk x are presented in Schecl--
,' __:ule 3. Notice how similar the direct materi als purchases budget is to the p1w luc 1ion
budoet. Let's oo thro uoh the first quarter of Schedu le 3, staning wi th the 1)lain T-
a
shirts. It t;ikcsb one pl ai,1 t>

produced are multi piied by one to obtain the number_ of plain 1-sh ms nee~,.:d for
n:
T-shirt fo r every logo tee, so tI1e L CGO I~go_·r-s I·11. to Ik

oroduction . Then, the desired ending inventory of 126 (10 percc-nt of the ne: t qu:ir-
.1
.er s pro d urn·on nee ds) ·,s addPd
•
- . \Ve see th at l , l P.6 . plain
. T-sh
. irts ;ire needed . dun ng
:he first quarter. Of this tOtal, 58 are already in beg1n111 ng inv:nto_':'· rne:rnng the
remainin" I 128 inust be ourchased . Multip lying the 1, 128 p,a111 I-shirt~ by the co~t
of $3 each ~ivcs Texas Ro/ the ~3 ,38-1 expected cost of plain l-shin purch;ises lr,r the
first qu:mer of the year.
 l n1] Part 4 / Planning ~nd
Control
;;,,_=.,r;.,,..,;:;,~w- - -
-- -----
-----
-----
----~
----
---------
Schedule 3
Texas Re x, Inc.
t B ud ge
D ir ec t M at en.a I purchases
s be r 31 8
Fo r th e Ye ar En d d oe ce m 20 0
e '
Q ua rt er
Pl ai n T- sh irt s:
1 2_ 3 4 Y ea r
U 11 its to be p ro
du ce d (S ch ed ul e 1, GO O J ,8 00
D ire ct m::it e ri~I ~ 2) 1, 06 0 1,2 60 5, 72 0
p !'r u ni t
Pr od uc tio n n ee ds ~ X
,;..c..--l X -: 1
..: .- -
X l :.< J ./ ,

D es ire d en di n g 1, 06 0 ,,.,,,, l,2 60 1,GOO 1,8 00 S, 72 0 , ·. 1

in ve nt o ry .
To ta l ne ed s
Less : D eg in ni ng in ve
_L l.Q
1, 18 6 - lGO
J ,420
-- 18 0
1,780
10 6 •
1, 90Ci
10()
5, R2G
nt or y
Di re ct m at er i a ls _i li .) ~) _l l.f il! ) ( 18 0) (5 8)
lo b e pu rc ha se d
C os t pe r p la in T- l, 12 8 1,294 l, 62 0 J ,7 26 '.;, 7 68
sh irt
T,:,; a l pu rc h as e
cost. pl ai n T-sh irt ~ X $3 X
.c-- $3
-
X "ti3 >-~ $3 ✓
s ~3L882 $4 ,8 60 is , 17 8
~ = -- - '.b l 7. ,iG 4

!n k~::______ _ _ _ _
U n its tc, b e pr od
_ _ _ _ _ _-;
/ 1
-~ -_ :.!____ _ _ _
--:--!- 2
Q ua rt er
3 4 Y ea r
-, \\1<. '),
i

uc ed (S ch ed ul e ~ - -- ~ ~ ~--

!
D ire ct m a te ria l s 2 ) 1, 06 0 1, 26 0 -- ;- 1} ,83 (0)(r~J- - -5 5~,7i2;0O
pH un it :. .: .. -~ 1, 60 0
Pr od uc tio n ne ed X 5
x ~ -- _ _2
s 5 X 5 _ X 5 ✓
5, 30 0 3 S,OOO
D es ire d en di ng
in ve nt o ry
~
G , oo " 9, 0~ 0. 28 ,6 00 <.J::. ••
63 0 sjo-
7 ,~~
.,
To ta ! ne ed s
5, 93 ~
)fib'/, 90 0 53 0
Less: Be gi r:. ni ng
i;1 ve nt o ry · o 8 , 90 0 f'u') 9, 53 0 29 , 13
I
( oo) 0
D ire ct m at er ia 1s 'o I d
\ ( 39 o) o, SoO C 630 )L 8 __ 19 0 0)
Co st pe r ou nc e to e pu re 1a se \ 5 54 0 __,,~ ~ 8 63 0
(3 90 )
, 6 470
$, 8, 10 0 28 ,7 40
\ $0 .2 0 O C X $O ,
To ta l pu rc ha se co
st of in k
X
x ·2 ' .L 0
. ., x -i;o 20- X $0 .2 0 .,.
To ta l d ire ct m a te ' .....lL JO S ): $1 29 4 - ·
ri al s pu rch as e co ' $ 1. 6 1 $ c
st -~ -=.=...c~0 $1 ,7 ?6
::i., 7 4 8
· w~ do no , kn..,v; produ L- $ \ 17 6 $G, 4 80 $2 3, 05 2
.1n5 J1l
· \.i"' 11t1
cti on fo r th e firs t
qu an er of 20 07 becal•s:\; 1, 6 ,'J 04
• •..,fl·C!j;• 0 1,· to•: -b ec
d•; no : knc,w s:1!es
v 1.., ( in T-s li i-ts
, ~Jn d _53 0 ou nce
s of ink are given f~'. th~ se~on d qu3n er of 20
s,m plv
. to com pk te 1,11 07 . Th ere for ,". d, c
s <:.x,1m 1,le. d(·s i,,·d en d -

Th e se co nd st cti
o n of th e d ire ct m
le t's go th ro ugh a te ri a ls pu rc h ;i~es
th e fir st qu a rte r. l)\ \d gc t is fo r in
It 1;i kes llvi;: ou nc es o f k. /\g ai n,
J ,0 60 lo go T- in k fo r ev er y \o gn
sh irt s to be p ro d
o f in k n ee d ed fo u ce d ;-i re m ul tip li ed by tee, so th e
r p~ o du cti o n . Th fiv e to ob t:i in th
en , th e d es ire d en e 5, 30 0 ou nc es
pe rce nt o f th e ile d i11g in ':e nt or y of
xt qu a rte r's pr od G3 0 ou nc es ( 10
of in k ar e n ':'ede uc ti on ne ed s) is ad de d .
d du rin g th e first W.c S('.c_j h; H S, 93
be gi nn in g in ve n qu ar te r. O f th is to t;i 0 o u nc es
tory, m ea ning th l, 3,20 ou nc es' :.:ir
e re m ai n in g 5,...,4 s? :il rc ad y in
tir ly in g th e 5,5 4
C ou n ces of i~k by 0 ou nc es m us t be pu
th e co s t of $0 .2 0 p e rc ha se d. tv1u l-
$1 , 108 ex p:cte d co r ou nce give~ Te
st of in k pu rc ha se :.:1:: Re
Th e to ta l d ire ct s fo r th e fir st qu a
,v r of th e ye a 1.
x th e
m ar.eria ls p urch ;is
th e $3 ,3 84 pl ai n es o f $4 ,,192 fo r th e fir st
T-sh irt pu rc hase s <111,1 1LET is th e :;u
w ou ld b e a se pa an d th e $ 1, 10 8 in m o f'
ra te di re ct m;-it e ri;- k pu rc h as es . O f
in a fir m . i ls pu rc h;-ise s b 11dgft co u rse , th er e
fo r e;-irh ty pe of
ra w m aL e ria l
Dire ct Lc ;1bor Budg~t Th e di
re ct la bo r bu d ge
h o urs ,1eea@ a n ct_tn e as so ci ~t ed
co st fo r di e nu n-,b
t s ho ws th e to tal
di re ct la bo r
bu d ge t. As wi th c, of un it s in tl ie
d n ec t m at en al s, pr od uu io n
by th e re lar.i~ ns hi th e b ud ge te d h o
p b ~t we e,n lab or ur s of di re ct l;1b
~ ts re q, m es 12 a nd o ut p ut .
d 11 ec t :a lio r ho ur
Fo:
ex;-imple, if a ba
s, th en th e ch rc ct
n r ;:i re d e te rm in ed
td of 10 0 lo go
2~ ou r. . la bo r ttm c pe r 1io
. go T- sh irt is
G iv en th e di re ct
la bo r u se d pe1: lll
rro rn th e pr od uc lll of o ut pu t a nd th
uo n bu dget. th l: e un its to be p ro
d 1rt:c:t lab o r h1 1dgP du ce d
t is co m p iit cd ;:is
sh ow n in
 - - - Cl1aptP. J e I 811rlzet ir1z r~r flcnni~z , nl, C1i ri trd fW j
, ·I ·, h1k ,t. In ti,,, di11·1t bli, 11 lludnrt II 1,
~1 11, , 1, , 1 w,11•1· ltl lf.' (t lO l .
' 11. ,v,·1,11:l: w:11·,<.: paid tl1c di1 crt • '
1 ·,1,, . ,- . .
JI U• ' 1••1 <1(' ' l I ·· 1
· p.i:1 111111 111 rlii·, <:xmrq,k)
'. II '
,:. . . Sii 1( C' it i~ a 11 :1v\'1:1g(', ii a11 01., . ( ·• ' "·'· 1'.1 1_'< Wll 1 !lit p 1c1d11< 1irm of rhc '/'-
1
. 111l~. •S lJI ·1 Of . l' f/' .
I 1I(' 110•·• !1 11 11
~[lll•,,divid11;d bl>o1c1:,, "•' Y ur t:111,g wage: ratc:5 p;.iid

Schedule 4
ICXi'.ls Rex, Inc.
Direct labor Budget
For the
Year Ended December 31, 2008
Quarter
- - .....
- 1 2
- llnits to hr p1od 11 ccd (Scli('du i,_, ~) - - - -- ----- -- ·-·- 3 4 Yea r
l,OGO 1,2(,0 1,600 1, 800 5,720
l) i 11,(l lahu r 1i11 1C' pcr unit (li r. )
'!'ot:il horns lh'<:1.kd
!-_it L2 :.< 0.12 1/s 0. J 2 X 0.1 2 / O.i 2
! 'F/ .2 l SJ.2 192 216 68 6.4
;\vcraf',l' W:11', <' per hn, 1r
Tutal dir('CI l.1hrn rns1
~-1!i! Iv,11 ;,:: '.h ]!) X $ 10 X '.i, JO
ll,) 72 S I, SJ). '.i, ],')20 5. 2, 160

overhe ad Budyr.t The f1vcrhcad l>~ t ;hows th e expected cost of all in direct
111 ~nuf:wurin g it ems Unlike dir\'ct 111.1 ·, ,~ ;i nd rl ireCI l;1bnr, th ere is no reac.li lv
idrnti fi able i11put -ou tput rela tionship fo r o ve rhead items. Instead, ,here ;ire a ~,;ries
of activities and rcla1ccl dri vers. Experience ca n be used ;is a guide to deterrr.in e how
these ovcrh c;; d activities vary wit h th eir dri vers. Individu;i l items tha t ·.viii vary are
identified (for cxampk, su ppli es and utili tie~) , ancl the a111o~n t d ial is expected 10
he spent for each ilc111 pr r uni t of activi1 y is est i•11,Hed. lr,di"idua! rates are then
totaled to obtain a v;iriable ovr.rhead rate. Fo1 om example, let's assun~e th at two
uverltea<l cost pools ~n e created, o ne for overhead ;ictivities that vary \\'ith direct
labor hou rs and one for all other activities, which are fixed 'rh e ~ Vol-\ 1r'r-\
rate is $5 per dircrt hhor hour; fJ.Xcd ovc-rhcad is budgeted at ~6,580 ($1 645 per
quarter). Using this in fo rm;itiun :rnd the l.urlpcrrd direct lalffl r ho urs fro m th,'. direct
Libor budget (Schcdu!c '1) th e ove rhead budget in Sehr.du Ir '.i is [Jrl' [J,i i cd .

Sch e d ule 5
Tex as f/ ex, in c.
Cve rh -:: .c,.:i f; u ciget
Fo r th •2 Ye..,_( l: n ci':! d De ce m b e r 31, 2008
Quarte r
1 2 _ _ _ _--=.
3_ _ _ __4 __ __Year
__ _

Budgeted direct l:ibQ1 llllurs (~( lw<iuk· ,J J l .' ·i ..> ' ! 92.0 21 6.0 6SG.-i
)< ~)5 S5 ~< .,,..--
Variable o,·crl1cat.l 1atc (__ SS X ~i .)

Budgeted vari ab le ove rhead S 63/J '· 75G s %0 $1,080 s 31 4:-2

Budgeted fi xetl overh ead· _l ,/J-15 __!_ :,.1 5 l 6~'.i 1,645 6,580 -
Tot:11 ove1hcad $2_.28 J i1. 4U1 $2,G OS & 7]j S 10,012
' Includes $5-10 of dcprccia1io11 ; 11 o ch qu z.i tcL
------· -

1111s,he d ro
End.mg F'-' v e·-~lo;·y
u ·ou-'s !o1·,, .. 11 • !:lud<!et
.., ':J Th, e n d ing• fini s hed g ood s
inventory bud 00 Cl supplies · nee
· ·111 form;iuon , dcrl for t h l' bala1,cc sht'et andI :i bo ·r
serves :is an importa nt 111 pu t fo rt e prLp,:1 .., l ·I 0 11 of :he
. .
1
1 , ~- •
cost
•• bI 1Ju< 1g(:' t.,d10
of. "•·oods soc
prepare this · cost 01
• budget, the urnt .
,· !HOl · n ,,a
j l •,CII\:, ·h !:--,r.o !-sh;r, must _c ca. 1cu 1art'
_, '- · -."
usino info rmation from Schcdu Ies .1, 4, :in :i. ' '- 1111il cmt
~ d ~ Tl-" · of a !o" o1 -sh1na11C
0 1
l '"' . d
1 ie co~l of the plannc enc,ng
1 - · .,
,m en'1 ...
) r·\ · 1 1·c sho\': 11 in Sched ule 6.
 8 Part ◄ I Plann ing and Contr ol

Sch edu le 6
Texas Rex, fnc. tory Bud get
End ing Fini she d Good!i '":~ er
31, 200 8
For the Yea r End ed Oece
Uni t-cost co m p utat io n: I ll :>
Di rect m:it cria ls ($3 + $I)
Direct labo r (0. 12 h r. @ $ 10)
Ove rhea d:
$4.0 0
1.20 <· o ,tl X 1(1
C: x Oil

- ~1
Va riab le (0. 12 h r. @ $5) tHiO
Fixed (0. 12 h r. @ $9.5 9)' __LL1' • -7 G, ,s'o o I GU,tl
Tota l u ni t cost $6 .95 .
• Uud5 ,tcd fixed m-crh cad (Sche dule 5
)/ Budgrtc J di·,c·u !Jl,cr ho,m
(Sd1cd ulc ~) = S6,SS 0j G66 .-l = $9 .59
f ;"';'-\.. °J~ e~'' j · · Ruun d~d
''

e;c.,.\.-o\ \ ')_
Uni ts Uni t Cos t Tota l
\. ------------:-:--
~ Fini sh ed goods: Logo T-sh ins ?00 SG.9 5
- S 1,39 0
Cos t of Goo ds Sold Bud get ,\rni::,in£, th :it th t.' ht.'ginnin
i<>-0~ "' ~ \cc-r, ~ G Awe.\ - ·ln\'C Q'QQ ' ;s valu g finish ~ goo ~s
I - tI ..., ~ I 1:c I)Lil I ·. , f c i:-1 u f nood s sold
ed a1 s l.2 ;,J. . sche dule ',;in
bdl (
.• h e pre-
l "
- : ~ - d r, Th,
pa red usin g Sch edul es .), cos t of ••oo ds sold bud get rc \L
I I, ( - I als
4, :J. an ' ' .n th e
expe cted cost o l· th e goo d s :o IJL 1-. , . ,1
so Ih·c o~1o r guod ~~o ldsc I1C'<1 1c ~c 1c
'd I -
11c
IS
t ·
· t l1C Ias t SC l1ed II lC nee d CJ b - c tlie l)ud" L , • ,. _, b, ~ -~ 1)
C10 I i:,'t' !Cd ,nco mc s1:itc ,11Ln t c:111 L pn:pa11.:d .
Sch edu le 7
Texas Rex, Inc.
Cos t of Goo ds Sold !3 ud£ et
For the Yea r End ed Dec emb er 31
, 2 01J_8 _
Dirccr m;i teri,ds uscci (Schedule 3) · I 1(,. .:, )
D i rec: l:i bor used (Sr hed uk ·l)
(),86 -1
O,·c1hc.1ci (Sch edul e 'i)
_J_Q 0 1-~
llud getc d 1:1:::nuf.--.. ::.i rin;; .. 1>st~
ncg inni ng finis hed goo d s
_l_,2 j] I, ., \ ! ) '
Cn,~ds J\';1il.1hlc for s.il l"
~ .J 1.no:-
l c•.•, End ing ti,,i·,hcJ gt,,, d:, (Sd1 ,,lu k
b) _11 ,')t))
n udg c tL·d cn\ t t i f 1;on tls s,ild
i ..5'l, i; I :·
· r•,odu c:ion nccJ~ = (~.~:o I IJ11, I •Llfl•
• 5q ,
(: ~.C-(10 oz ink X 50.20 )

Se lling an d Ad mini st ra tive Expe nse s Bud

p:1,._
ge t ·11ic nc.\ t bud get t<J be p 1e-
.J, the se llin g and a Jmi ni ~:r:i tin: 1·xp
cn ~rs l; ud gd, Ol1:l i1w~ p Lrnnt·d exp,
tu rcs for no nma nufa c1uri1;g :i cti,·itics .. ndi-
\s h·it h o,-c1hc,1d. sell ing ;ind ;idm inis
exp,msc s can be brok en G0 \\'11 into fixed tra ti vc .
and ,·3r i;i ble CO!l lpon erw: . Suc h item s
sale s com miss ions . freight . and ~upp li cs :is
\',1 ry \\'ith sales act ivity. The sell ing :rn t!
::id min istr:iti,-c C.Xflt'nsc s bud g-: t i~ ill u<tr.1
tcd in -~·d iedu le g

Bud qet ed Inc om e Sta tem ent \\'i:h the com

}J
J f ~ ,.J•]C 3'"J .ll ,l. pleti on of the> bud:~u1:d rn:; t o f
goc,u ,:; so ·:1 s ~.!~... u l! .. l . ,
~ : ::: t :t},:: l t. Ul v,.,1 1: , l l..
1 ~
.
Texa s Rex has al! Lhc opcr::i iing 1,udgd:-,
]HJ 11
'-.. dtg ~!iiu J{J!l ,rt. 11)\_!) buugl Lt,
JII)!S li.i li \'t"
nc(d ed tu prep.ire Jn c:, ri ;it-: u( <JjW
inco me. This bud ge ted in CP!ll\'._ ~t::itcmcn 111 Litii ig
d t is show n in Sd 1r:dule 9 ·1 li e eigh t sch
: 11c.~ ;1,rc ~\. y pr.,..r..,
I
. . ,.. red , ··· -,lo r.~ .... ,1 1 ,I. ,, I . ,A- •1-, , ; n--" ed -
·:_. n . , , ,, 1 ,· .
the oDcr::i tin g bud get for Te:J s 1-:cx ,("_ • ·- · ,:.\ \ , J - 1•t,il d ng 1ncr, n1(' ·,t~ ~1::~ ~;";1t . <1' c t ' 1;: ·
1
()p,·ra tinf! inco me is nt1 1 equ i\·.de 11t 10
the r:n inrn rnr rJ f : fin To, j, lei ,
1. nc, ·rn,..,_ 1ntt
. ' ·•. • . , 1
rLst , __-,;_---.ci 1~' • ... • • 111 -·r ( b"' .,t...,1
- 1- •"Jll <j T:)Y,C- ' ,( .•:1tt,
I' . ciJ lr!1•n 11 11 1
•
ni11 •1:1 ;!:1::
• • ,
1; ,·, n1r· / L,
 Chapter 8 / 8udgeting
. fo r Planning and Control [iiO
Schedule 8
Selling and Ad T~x~s Rex, Inc.
Fo -h nunistraf
r t e Year Ended Dive Expenses Budget
ecember 31 , 2008
Quarter
1 2
Planned sales in units (Sci1 d 3 4 Year
Variable selling and adn1 • .e ule 1) 1,000 1,200 . 1,500
llllStrativ 2,000 S,700
expenses per unit e
Total variable expenses X $0.10 X $0. IO X 0. 10 X $0.10
Fixed selling and admi ni'strat1ve
. pxp $ 100 $ 120
. $ 200 $ 570
Salaries ~ enses:
$1,220 $ 1,220
Util ities $ 1,720 $ 1,220 $ 5,380
Advertising so 50 50 50 200
Depreciation 100 2CO 300 500 1,100
ISO 150 150 150 600
ln surar,ce
200 -1.QQ
Total fo:ed expenses _1QQ 200 ~
$ 1,720 $ 1,820 $ 2,420 $2, 120 $ 8,0S0
Total selling and admi nistra1-ive exprnses
$ l ,820 _$ J,940 $ 2,570 $2,320 $ 8,650

inteiest expense deductio n is tak en

, fro m the c:i ' I· b d
taxes owe d~pend on the currc111 t . I , s ' u get shciwn in Schedule 10 The
d ax aws. ·

Schedule 9
Texas Rex, Inc.
Bl!dgeted lnc')me Statemen•
Fo r the Year Ended December 31 • 2008
SJles (Schedul e l ) ' 5 57,000
Less: Cost of goods sold (Sc hedule 7 ) (39,61 7)
Cross m:i rgin : 17,383
Less: Sel!ing_and adm in istra ti ve expenses (Schedul e S) (8,650)
Ope rall ng inco me $ 8,733
Less: lnteresl expense (Schedule .OJ (GO)
income befo re income L1xcs
l,css: Income taxPs (Sclwd11k 10) (2,550)
~ 6, l 23
Net inco me

Preparing the Financial Budget

The remaining budgets founti in the ma~1 er b11dget ;ue the f11",11cial budge",. The
usual fin ancial bud gets µ1cp31ed arc:
1. The cash budget rv -'J t,).~ ~c;,,,.-., rs
2. The budgeted bala nce sheet v
3. rhe budg<'l fo, opital cxpcndi 1u1cs '1

The master budget :ilso co nt 2ins a plan for acquiring long-term assets- assets tha t
h:m· a time he: ;;:on that extends beyond the one-year oper:iting period. Some of
th e~\:' assets rnay be purch:iscd duri ng the coming year; plans lO purchase others may
be dctaikd for fu lure pc, iods. Th is pa rt of the master budget is typically referred to
:is the rnpiwl hudgcr. Dcci:;ion makin g for capi tal ex penditures is considered in Chap-
ter i 3. Accord ingly, only the cash budge t and the budgeted b2lance sheet 1,·ill be
i\lustr.'ti::d her~.
 r-,
~~
.....J __f~rt ~ / r lanln i : nd ( on t1 cl

--------- -·--- -- - --------- ~

Schedule 10
Texas Rex, Inc.
Cash Budget
- - - -- - -- - ~F~o~r_t~t~1e~Y~e~a:!_!r~E~n~d~e~d~D~e~c~e:.!:m~b~e!...r...:3~1!.!,_.:2~0~0~8~-------- -

- ----- 2
Quarter
3 4 Source.1
------
n ~•gi11niJ1g < .1~'1 b,d .i11c('
Colkni o ns. S s 3, 762
l ,023 $ 1,611 g
CJ.s h ~:1 lr~ 14,250
2,500 3,00U 3,75 0 5,000 b, C
C rt:d1 t s::il c~:
C urre nt (Ju :in c r 13,500 38,4 75 b, 1
6,750 8,100 10, 125
l~rio r q u Jrte r 4, 125
1,350 75 0 900 1,125 b, l
To t::if cas h ::ivaibbfe s; 23 ,387 $ 62,050
5 I 5.800 $ 12,873 $ 16,386
Less di s b ursements:
Oi r cc i rn::iteriafs :
~~rrent quart e r :i, (J , 594 ) $ (4,1 4 1) $ (5,184) $ (5,523) $(1 8,442) C, 3
J_ rror quan e r (l ,000) (I. 296) (4,229) C, 3
(898) (1 ,035)
Direct la b o r -·, ,:c,, . , , r.
11 ,2 72 ) (1,512) (1,920) (2, 160) (6,864) 4
?v~rh ead ~) -,c -:- "D.',,."··' W'-' l~~•y 1, 74 1 ) (1,861) (2,065 ) (2,185) (7,852) d, 5
.Se llin g a nd admini strati ve ( 1,G7 o) ( I. 790) (2,420) (2, 170) (8, 050 ) d, 8
In coine la..,es -~ ~ o<J
((k , o 0 -
,~•111) - (2,550) (2,550) f, 9
Eq uipm e nt .-,, <:. • c , (G ,500) (6,500) e
Tota l disbu rsements $(1 5 , 777) / $(10,202) $(15,884) $(54,487)
j,(12,624)
Minimum cash balance ( 1.000) ) (1,000) (l.000) (I,000) (1,000) a
Total cash n eeds $ {16. 77 7) , ${11 ,202) $(13,62 4) $( 16,884) $(55,487)
Excess ( defic ie n cy) of c::ish
avai lab le o ver n eed s $ (977)✓ -
$ 1,671 2,762 $ .G,503 $ 6,563
fin a n c ing:
Bo rrowin gs J ,000 1,000 a
Rep<1yme nrs (J ,000) •I - (1 ,000) :l
• I ocP ,._ ll. ' 'I( .:.-
'. n te res rb --~ (_{)_\
-}) . ..!l. (60) J
Tow ! financing 1,000 $ (1 ,060)
f: n d in g c:1.c; h bal:rn cec $ 1,0~3 l , (i1 l 3J 762
J' l!er ~ 1,::f.:1 10 t h.: 1nform ;:; 1ion on p:igc 327 ,-,!11mbcrs rdcr !O ~d1cdu l.:s 3/re.1 d;- d~·:dored
J111 e 1t'~ • p ay111e 111 i~ 6/ 1 2 X O 12 X SI .000 Sin.:e bo , 101vi11gs occu, a t 1he hcgi!! ning o f 1/i c qu ~11 rr and 1cp~y ine11 1s a t the i:nd o ( th e quancr. :he
r1 ri 1;.:ir:1 ! r""f)~)'lrnmr 1.a kes pl:ice :i ft e r .si.x m 0 n1hs.
·n•.,J, ;, • !: ,r:,;::.:! ,!r :n inu5 :o t.1/ , k :b11: ~:" n cn 1.•; r l u~ (<>r :i1i:111~.) 10 1.1/ /in ~" r in.r::

i..:xliibit 8-3 displays th e pa u crn of cash inOows from bo th cash and cred it sales
Lcr's loo k at th e cash receip ts for Lh e first quart.er of 2008. Cash sales d uring th e
quarter a re budgeted for $2,500 (0.25 X $ J0,000; Schedule 1). Collectio ns on
accou nt for th <". fi rs t quarte r relate tc, crcrl it sa les made clming the last quarter of tL ~
previo us year a nd th e firs t q u arter o f 2008 . Q uart er 4, 2007, credit sales eq u aled
'.l,13,5GO ( 0.75 X $18,000) ;rnd $ 1,350 o f 1hose sales (0.10 x $ 13,500) re m ain to be
co ilccted in Q 11ancr 1, 2008. Qu ;rncr l, 2008, credit sales arc budgeted at :l, 7,500,
3 nd 90 p ercent will be col lected in th a t q u:i rler. Thnefo re, $6,750 will be co ll ected
, on 2.,count for cred it sales m 3de in 1ha i qu:u! e r. Sirni l,1r co mputa tio ns are m::id e for
ti :r rem ..ii n ing q ua rters.
Si mil ar comp ut a ti o 11s ;.ire d one for purchases. In both cases, patterns of coll ec-
ti o n ;; nd paymc1~1 ;ire n cc-d ed in additio n to th e infnrrn_01:_0n suppl ied by che sch ed -
ul es. /id ditionalJy, all n o n cas h ex.pcnses, su ch as dcprcn;it10 11, need to be re moved
from til e wul amo u n ts repo rt ed in the expense budgers. Tht,s, th e budgeted exp enses
in Sch ed ules 5 cind 11 v:cre redu ced by 1he bud g~ tcd,cl epreci,~tio n (or each q u ancr.
. ., ci' '"!' •••i ··,,, · Sd iedtd e 5 were redu ced u:,· oeµrc ua uon 0 1 $54 0 per ciu a ne r.
0 ve rn c .. c., ,.._ . ., , . 111 ~