Transcript skellogg.sdsmt.edu

IENG 216
Budgeting
Guidelines
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Set Objectives
Bottom Up vs Top Down
Sales Forecast
Historical Data
Non-Financial Parameters
Responsibility Accounting
Setting Objectives
Setting Objectives
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Profit
Increased market share
Return on Investment
Cost Reduction
Revenue increases
Bottom Up vs Top Down
 Iterative Process
 You cannot ask a manager at any level to
accept responsibility for living within budgets
that he or she had no hand in setting.
Categories
 Operating Budget
 Sales
 Production
 Direct
Materials/Labor
 Factory Overhead
 Pro-forma income
 Financial Budget
 Cash
 Pro-forma
balance sheet
Preparation
 Prepare sales forecast
 Determine aggregate production
 Estimate manufacturing costs & operating
exp.
 Determine cash flow
 Formulate project financial statements
Sales Budget
Desired
Ending
Inventory
Production Budget
Direct
Material
Direct
Labor
Factory
Overhead
Cost of Good
Sold Budget
Selling Expense
Admin Expense
Budgeted Income
Capital Budget
Budgeted Balance
Cash Budget
Sales Forecast
K -C orp In com e S tatem ent
Net Sales
Cos t of Goods Sold
$574,800
428,300
Gros s M argin
Operating Expens es
Sales Expens es
Depreciation Equip
Depreciation Bldg
Administrative
Utilities
Total Operating
Income from Operations
Taxes
Net Income
146,500
87,400
7,200
9,200
14,500
4,600
$122,900
23,600
5,600
$18,000
Sales Forecast
Coke Sales
4.00
Sales
3.00
Demand
2.00
Trend
1.00
0.00
0
20
40
60
Tim e
80
100
120
Sales Forecast
Coke Sales
4.00
Sales
3.00
Demand
2.00
Trend
1.00
0.00
0
20
40
60
Tim e
80
100
120
Sales Forecast
Coke Sales
4.00
Sales
3.00
Demand
2.00
Trend
1.00
0.00
0
20
40
60
Tim e
80
100
120
Sales Forecast
Coke Sales
4.00
Sales
3.00
Demand
2.00
Trend
1.00
0.00
0
20
40
60
80
100
120
Tim e
Forecast
4.0
Sales
3.0
2.0
Demand
1.0
Forecast
0.0
0
20
40
60
Tim e
80
100
120
Example
K-Corp
Sales Budget, December 31, 1999
1
Expected Sales in units
Unit sales price
Total Sales
Expected Cash Collections
Accounts Receivable
1st quarter sales
2nd quarter sales
3rd quarter sales
4th quarter sales
Total Cash Collections
900
50
$45,000
5,000
31,500
$36,500
2
700
50
$35,000
11,250
24,500
$35,750
Quarter
3
800
50
$40,000
8,750
28,000
$36,750
4
Total
3,300
900
50
$45,000
$165,000
10,000
31,500
$41,500
$5,000
42,750
33,250
38,000
31,500
$150,500
Example (cont.)
K-Corp
Production Budget, December 31, 1999
Prev
Expected Sales in units
Desired Ending Inventory
Total Needs
Less Beginning Inventory
Units to Produce
1
40
2
900
50
950
40
910
700
60
760
50
710
Quarter
3
800
80
880
60
820
4
900
50
950
80
870
Total
3,300
50
3,540
80
3,310
Example (cont.)
K-Corp
Material Budget, December 31, 1999
Prev
Units to Produce
Alum, 5 lbs/unit
Total Material
Desired Ending Inventory
Total Needs
Less Beginning Inventory
Materials to Purchase
Unit Price
Purchase Cost
400
1
2
910
5
4,550
710
5
3,550
Quarter
3
820
5
4,100
350
4,900
400
4,500
2.5
$11,250
400
3,950
350
3,600
2.5
$9,000
400
4,500
400
4,100
2.5
$10,250
4
870
5
4,350
500
4,850
400
4,450
2.5
$11,125
Total
3,310
5
16,550
500
18,200
16,650
2.5
$41,625
Example (cont.)
K-Corp
Material Budget, December 31, 1999
Prev
Units to Produce
Alum, 5 lbs/unit
Total Material
Desired Ending Inventory
Total Needs
Less Beginning Inventory
Materials to Purchase
Unit Price
Purchase Cost
Cash Disbursements
Accounts Payable
1st quarter purchases
2nd quarter purchases
3rd quarter purchases
4th quarter purchases
Total Cash Outlay
400
1
2
910
5
4,550
710
5
3,550
Quarter
3
820
5
4,100
350
4,900
400
4,500
2.5
$11,250
400
3,950
350
3,600
2.5
$9,000
400
4,500
400
4,100
2.5
$10,250
3,500
5,625
$9,125
5,625
4,500
$10,125
4,500
5,125
$9,625
4
870
5
4,350
Total
3,310
5
16,550
500
4,850
400
4,450
2.5
$11,125
500
18,200
16,650
2.5
$41,625
5,125
5,563
$10,688
3,500
11,250
9,000
10,250
5,563
$39,563
Example (cont.)
K-Corp
Direct Labor Budget, December 31, 1999
1
Units to Produce
Direct Labor Hrs / Unit
Total Hours
Labor Cost / hr.
Total Labor Cost
910
2
1,820
12
$21,840
2
710
2
1,420
12
$17,040
Quarter
3
820
2
1,640
12
$19,680
4
870
2
1,740
12
$20,880
Total
3,310
2
6,620
12
$79,440
Example (cont.)
K-Corp
Factory Overhead Budget, December 31, 1999
Direct Labor Hours
Variable Overhead Rate
Variable Overhead
Fixed Overhad
Total Budget Overhead
1
1,820
2.25
4,095
8,000
12,095
2
1,420
2.25
3,195
8,000
11,195
Quarter
3
1,640
2.25
3,690
8,000
11,690
Less Depreciation
Cash Disbursement Ovh.
3,000
$9,095
3,000
$8,195
3,000
$8,690
4
1,740
2.25
3,915
8,000
11,915
Total
6,620
2.25
14,895
32,000
46,895
3,000
$8,915
12,000
$34,895
Example (cont.)
K-Corp
Ending Inventory, December 31, 1999
Units
Direct Materials
500
Finished Goods
50
Unit Variable Cost
Direct Materials
Direct Labor
Variable Overhead
5
2
2
Price
2.50
41.00
Total
$1,250
$2,050
2.50
12.00
2.25
Total
$12.50
24.00
4.50
$41.00
Selling & Admin
Expenses
Cash Budget
K-Corp
Cash Budget, December 31, 1999
Cash Balance Beginning
Receipts
Total Cash Avail
Less Disbursements
Direct Materials
Direct Labor
Factory Overhead
Selling & Admin
Cash Surplus (Deficit)
Financing
Notes Payable
Repayment
Cash Balance
1
40,000
36,500
76,500
2
28,440
35,750
64,190
Quarter
3
20,830
36,750
57,580
9,125
21,840
9,095
8,000
10,125
17,040
8,195
8,000
9,625
19,680
8,690
8,000
10,688
20,880
8,915
8,000
28,440
20,830
11,585
4,603
4
11,585
41,500
53,085
Total
11,585
150,500
251,355
39,563
79,440
34,895
32,000
0
65,458
0
28,440
0
0
20,830
11,585
4,603
4,603
Budget Income
Pro-forma Balance