Professional Documents
Culture Documents
Budgeting
Budgeting
Profit Planning
PowerPoint Authors:
Jon A. Booker, Ph.D., CPA, CIA
Charles W. Caldwell, D.B.A., CMA
Susan Coomer Galbreath, Ph.D., CPA
McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
7-2
Learning Objective 1
Understand why
organizations budget and the
processes they use to create
budgets.
7-3
Planning – Control –
involves involves the steps
developing taken by
objectives and management that
preparing various attempt to ensure
budgets to achieve the objectives are
these objectives. attained.
7-5
Advantages of Budgeting
Define goals
and objectives
Communicate Think about and
plans plan for the future
Advantages
Coordinate Means of allocating
activities resources
Uncover potential
bottlenecks
7-6
Responsibility Accounting
Managers should be held responsible
for those items — and only those items
— that the manager can actually control
to a significant extent.
7-7
Operating Budget
Self-Imposed Budget
Top Management
Middle Middle
Management Management
Self-Imposed Budgets
Most companies do not rely exclusively upon
self-imposed budgets in the sense that top
managers usually initiate the budget process
by issuing broad guidelines in terms of overall
target profits or sales.
Self-imposed
budgets should be Managers should
reviewed by higher watch our for
levels of budgetary slack.
management.
7-11
Budgeted Budgeted
income balance
statement sheet
7-14
Learning Objective 2
Budgeting Example
Royal Company is preparing budgets for the
quarter ending June 30.
Budgeted sales for the next five months are:
April 20,000 units
May 50,000 units
June 30,000 units
July 25,000 units
August 15,000 units
The selling price is $10 per unit.
7-16
Quick Check
Quick Check
Learning Objective 3
Quick Check
What is the required production
for May?
a. 56,000 units
b. 46,000 units
c. 62,000 units
d. 52,000 units
7-30
Quick Check
What is the required production
for May?
a. 56,000 units
b. 46,000 units
c. 62,000 units
d. 52,000 units
7-31
Learning Objective 4
March 31 inventory
Quick Check
How much materials should be
purchased in May?
a. 221,500 pounds
b. 240,000 pounds
c. 230,000 pounds
d. 211,500 pounds
7-39
Quick Check
How much materials should be
purchased in May?
a. 221,500 pounds
b. 240,000 pounds
c. 230,000 pounds
d. 211,500 pounds
7-40
Quick Check
What are the total cash
disbursements for the quarter?
a. $185,000
b. $ 68,000
c. $ 56,000
d. $201,400
7-46
Quick Check
What are the total cash
disbursements for the quarter?
a. $185,000
b. $ 68,000
c. $ 56,000
d. $201,400
7-47
Learning Objective 5
Quick Check
What would be the total direct labor cost
for the quarter if the company follows its
no lay-off policy, but pays $15 (time-and-a-
half) for every hour worked in excess of
1,500 hours in a month?
a. $79,500
b. $64,500
c. $61,000
d. $57,000
7-55
Quick Check
What would be the total direct labor cost
for the quarter if the company follows its
no lay-off policy, but pays $15 (time-and-a-
half) for every hour worked in excess of
1,500 hours in a month? April May June Quarter
a. $79,500 Labor hours required 1,300 2,300 1,450
Regular hours paid 1,500 1,500 1,500 4,500
b. $64,500 Overtime hours paid - 800 - 800
Learning Objective 6
Prepare a manufacturing
overhead budget.
7-57
Direct materials
budget and information
7-62
Production Budget
7-65
Learning Objective 7
Quick Check
What are the total cash disbursements
for selling and administrative expenses
for the quarter?
a. $180,000
b. $230,000
c. $110,000
d. $ 70,000
7-69
Quick Check
What are the total cash disbursements
for selling and administrative expenses
for the quarter?
a. $180,000
b. $230,000
c. $110,000
d. $ 70,000
7-70
Learning Objective 8
Schedule of Expected
Cash Collections
7-75
Schedule of Expected
Cash Disbursements
Direct Labor
Budget
Manufacturing
Overhead Budget
Quick Check
What is the excess (deficiency) of
cash available over disbursements
for June?
a. $ 85,000
b. $(10,000)
c. $ 75,000
d. $ 95,000
7-80
Quick Check
What is the excess (deficiency) of
cash available over disbursements
for June?
a. $ 85,000
b. $(10,000)
c. $ 75,000
d. $ 95,000
7-81
Learning Objective 9
Prepare a budgeted
income statement.
7-83
Cash Budget
7-85
Learning Objective 10
Prepare a budgeted
balance sheet.
7-86
Royal Company
Budgeted Balance Sheet 25% of June
June 30 sales of
Current assets $300,000
Cash $ 43,000
Accounts receivable 75,000 11,500 lbs.
Raw materials inventory 4,600 at $0.40/lb.
Finished goods inventory 24,950
Total current assets 147,550 5,000 units
Property and equipment at $4.99 each
Land 50,000
Equipment 367,000
Total property and equipment 417,000
Total assets $ 564,550
50% of June
Accounts payable $ 28,400 purchases
Common stock 200,000
of $56,800
Retained earnings 336,150
Total liabilities and equities $ 564,550
7-88
Royal Company
Budgeted Balance Sheet
June 30
Current assets
Cash $ 43,000
Accounts receivable 75,000
Beginning balance $146,150
Raw materials inventory Add:
4,600net income 239,000
Deduct: dividends (49,000)
Finished goods inventory 24,950
Ending balance $336,150
Total current assets 147,550
Property and equipment
Land 50,000
Equipment 367,000
Total property and equipment 417,000
Total assets $ 564,550
End of Chapter 7