Professional Documents
Culture Documents
Master Budgets CH 9
Master Budgets CH 9
Learning Objective 1
Understand why
organizations budget
and the processes they
use to create budgets.
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9-2
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9-3
Advantages of Budgeting
Define goals
and objectives
Communicate
plans
Advantages
Coordinate Means of allocating
activities resources
Uncover potential
bottlenecks
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9-4
Responsibility Accounting
Managers should be held
responsible for those items -
and only those items - that
they can actually control
to a significant extent.
Responsibility accounting
enables organizations to react
quickly to deviations from their
plans and to learn from
feedback.
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9-5
Operating
Operating budgets
budgets ordinarily
ordinarily AA continuous
continuous budget
budget is
is aa
cover
cover aa one-year
one-year period
period 12-month
12-month budget
budget that
that rolls
rolls
corresponding to a company’s
corresponding to a company’s forward one month (or quarter)
fiscal year. Many companies forward one month (or quarter)
fiscal year. Many companies as the current month (or quarter)
divide their annual budget as the current month (or quarter)
divide their annual budget is
into four quarters. is completed.
completed.
into four quarters.
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9-6
Self-Imposed Budget
Top M anagem ent
M id d le M id d le
M anagem ent M anagem ent
S u p e r v is o r S u p e r v is o r S u p e r v is o r S u p e r v is o r
A self-imposed budget or participative budget is a budget that is
prepared with the full cooperation and participation of managers
at all levels.
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9-7
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9-9
Selling
Selling and
and
Ending
Ending inventory
inventory administrative
administrative
Production
Production budget
budget
budget
budget budget
budget
Direct
Direct materials
materials Direct
Direct labor
labor Manufacturing
Manufacturing
budget
budget budget
budget overhead
overhead budget
budget
Cash
Cash Budget
Budget
Budgeted
Budgeted Budgeted
Budgeted
income
income balance
balance sheet
sheet
statement
statement
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9-10
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9-11
Learning Objective 2
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9-12
Budgeting Example
Royal Company is preparing budgets for the
quarter ending June 30th.
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.
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9-13
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9-14
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9-15
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9-16
From
From the
the Sales
Sales Budget
Budget for
for April.
April.
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9-17
From
From the
the Sales
Sales Budget
Budget for
for May.
May.
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9-18
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9-19
Learning Objective 3
Prepare a production
budget.
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9-20
Sales Production
Budget Budget
ed
and l et
p
Expected
o m
C
Cash
Collections
IfIf Royal
Royal was
was aa merchandising
merchandising company
company itit would
would prepare
prepare aa
merchandise
merchandise purchase
purchase budget
budget instead
instead of
of aa production
production budget.
budget.
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9-22
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9-23
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
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9-25
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9-26
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
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9-27
Assumed
Assumed ending
ending inventory.
inventory.
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9-28
Learning Objective 4
Prepare a direct
materials budget,
including a schedule of
expected cash
disbursements for
purchases of materials.
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9-29
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9-30
From
From production
production budget.
budget.
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9-31
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9-32
March 31 inventory.
Quick Check
How
How much
much materials
materials should
should be
be purchased
purchased in
in May?
May?
a.
a. 221,500
221,500 pounds
pounds
b.
b. 240,000
240,000 pounds
pounds
c.
c. 230,000
230,000 pounds
pounds
d.
d. 211,500
211,500 pounds
pounds
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9-34
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9-35
Quick Check
How
How much
much materials
materials should
should be
be purchased
purchased in
in May?
May?
a.
a. 221,500
221,500 pounds
pounds
b.
b. 240,000
240,000 pounds
pounds
c.
c. 230,000
230,000 pounds
pounds
d.
d. 211,500
211,500 pounds
pounds
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9-36
Assumed
Assumed ending
ending inventory.
inventory.
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9-37
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9-38
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9-39
140,000
140,000 lbs.
lbs. ×× $0.40/lb.
$0.40/lb. == $56,000
$56,000
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9-40
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9-41
Learning Objective 5
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9-42
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9-43
From
From production
production budget.
budget.
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9-44
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9-45
Greater
Greater of
of labor
labor hours
hours required
required
or
or labor
labor hours
hours guaranteed.
guaranteed.
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9-46
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9-47
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
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9-48
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 April ofMay
1,500Junehours
Quarter
Labor hours required 1,300 2,300 1,450
in a month?Regular hours paid 1,500 1,500 1,500 4,500
a. $79,500 Overtime hours paid - 800 - 800
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9-49
Learning Objective 6
Prepare a manufacturing
overhead budget.
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9-50
Let’s
Let’s prepare
prepare the
the manufacturing
manufacturing overhead
overhead budget.
budget.
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9-51
Direct
Direct Labor
Labor Budget.
Budget.
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9-52
* rounded
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9-53
Depreciation
Depreciation is
is aa noncash
noncash charge.
charge.
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9-54
Learning Objective 7
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9-55
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9-58
Learning Objective 8
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9-59
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9-61
Schedule
Schedule of
of Expected
Expected
Cash
Cash Collections.
Collections.
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9-62
Schedule
Schedule of
of Expected
Expected
Cash
Cash Disbursements.
Disbursements.
Direct
Direct Labor
Labor
Budget.
Budget.
Manufacturing
Manufacturing
Overhead
Overhead Budget.
Budget.
Selling
Selling and
and Administrative
Administrative
Expense
Expense Budget.
Budget.
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9-63
Because
Because Royal
Royal maintains
maintains
aa cash
cash balance
balance of of $30,000,
$30,000,
the
the company
company mustmust borrow
borrow
$50,000
$50,000 on
on its
its line-of-credit.
line-of-credit.
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9-64
Because
Because Royal
Royal maintains
maintains
aa cash
cash balance
balance of of $30,000,
$30,000,
the
the company
company mustmust borrow
borrow
$50,000
$50,000 on
on its
its line-of-credit.
line-of-credit.
Ending
Ending cash
cash balance
balance for
for April
April
is
is the
the beginning
beginning May
May balance.
balance.
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9-65
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9-66
$50,000
$50,000 ×× 16%
16% ×× 3/12
3/12 == $2,000
$2,000
Borrowings
Borrowings on
on April
April 11 and
and
repayment
repayment on
on June
June 30.
30.
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9-67
Cash Budgeted
Budget Income
Statement
t ed
e
pl
om
C
Learning Objective 9
Prepare a budgeted
income statement.
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9-69
Cash
Cash Budget.
Budget.
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9-70
Learning Objective 10
Prepare a budgeted
balance sheet.
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