Professional Documents
Culture Documents
Master Budgeting
Chapter 10
Understand why
organizations budget and
the processes they use to
create budgets.
Planning – Control –
involves developing involves the steps taken by
objectives and management to increase
preparing various the likelihood that the
budgets to achieve objectives set down while
those objectives. planning are attained and
that all parts of the
organization are working
together toward that goal.
Operating Budget
Understand Basic
Budgeting Terms and the
Behavioral Aspects of
Budgeting.
Middle Middle
Management Management
Lower-level Lower-level
Management Management
Cash Budget
Financing
budget
Budgeted Budgeted
income balance sheet
statement
Prepare a
production budget.
Sales Production
Budget Budget
and
Expected
Cash
Collections
March 31 inventory
Prepare a direct
labor budget.
d. $57,000
Prepare a
manufacturing
overhead budget.
* rounded
Direct materials
budget and information.
Production Budget.
Prepare a cash
budget.
Schedule of Expected
Cash Collections.
Schedule of Expected
Cash Disbursements.
Direct Labor
Budget.
Manufacturing
Overhead Budget.
Cash Budgeted
Budget Income
Statement
Prepare a budgeted
income statement.
Sales Budget.
Royal Company
Budgeted Income Statement
For the Three Months Ended June 30
Ending Finished
Sales (100,000 units @ $10) $ 1,000,000 Goods Inventory.
Cost of goods sold (100,000 @ $4.99) 499,000
Gross margin 501,000
Selling and administrative expenses 260,000 Selling and
Operating income 241,000 Administrative
Interest expense 2,000 Expense Budget.
Net income $ 239,000
Cash Budget.
Prepare a
budgeted balance
sheet.
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 100
Learning Objective 5
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 101
Key Budget Components for the Service Industry
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 102
Learning Objective 5 (a)
Prepare a
Visitorship Budget
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 103
Visitorship Budget
Based on historical records, economic outlook, tourist
arrival expectations, the following visitorship budget for the
coming year is prepared:
Number of Visitors
Adults 750,000
Children 250,000
Total Visitors 1,000,000
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 104
Learning Objective 5 (b)
Prepare a Revenue
Budget
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 105
Revenue Budget
Based on the average price charged by Wonder World and
other historical data, the following revenues per visitor are
budgeted and approved by the top management:
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 106
Revenue Budget
With the budgeted number of visitors and revenues per visitor
from each category, the budgeted revenues are computed:
Revenue
Gate Collections : Adults1 $9,750,000
Gate Collections : Children2 $2,250,000
Souvenir Shop3 $4,000,000
Food and Beverages4 $6,000,000
Total Revenue $22,000,000
Note
1 750,000 X $13
2 250,000 X $9
3 1,000,000 X $4
4 1,000,000 X $6
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 107
Learning Objective 5 (c)
Prepare a Cost of
Sales Budget and
Expense Budget
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 108
Cost of Sales Budget
For the cost of sales on souvenirs and food and beverages,
the company normally makes use of the historical cost of
sales % and takes into account any expected price changes
from suppliers. For the coming year, the expected cost of
sales % is 50% on sales for both the souvenir shop and food
and beverages.
Cost of Sales
Souvenir Shop $2,000,000
Food and Beverage $3,000,000
Total $5,000,000
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 109
Expenses Budget
How the items are budgeted will depend on the nature of the items.
Prepare a
Budgeted Income
Statement
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 111
Budgeted Income Statement
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 112
Learning Objective 6
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 113
Costs and Benefits of Budgeting
• Budgeting is time-consuming and costly.
• Budgetary slack or padding is an inherent problem of
budgeting.
• Despite the drawbacks of budgeting, most companies are still
using budgets to plan, communicate, set objectives, and
allocate resources, etc.
• Since budgets are still commonly used, benefits of budgeting
are high, and drawbacks of budgeting can be minimized by
having a good budgeting system.
• For a good budgeting system, it is critical to have effective
communication and mutual trust between the top
management and its staff.
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 114
End of Chapter 10
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 115