Transcript Budgeting

Chapter 9
Profit Planning
and
Activity-Based
Budgeting
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning
Objective
1
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Purposes of Budgeting Systems
Budget
a detailed plan,
expressed in
quantitative terms,
that specifies how
resources will be
acquired and used
during a specified
period of time.
1. Planning
2. Facilitating
Communication and
Coordination
3. Allocating Resources
4. Controlling Profit and
Operations
5. Evaluating
Performance and
Providing Incentives
9-3
Types of Budgets
Detail
Budget
Detail
Budget
Covering all
phases of
a company’s
operations.
Production
Master
Budget
Detail
Budget
9-4
Types of Budgets
Income
Statement
Budgeted
Financial
Statements
Balance
Sheet
Statement of
Cash Flows
9-5
Learning
Objective
2
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Sales of Services or Goods
Ending
Inventory
Budget
Production
Budget
Work in Process
and Finished
Goods
Ending
Inventory
Budget
Direct
Materials
Budget
Direct
Labor
Budget
Overhead
Budget
Direct Materials
Cash Budget
Selling and
Administrative
Budget
Budgeted Income
Statement
Budgeted Balance
Sheet
Budgeted Statement
of Cash Flows
9-7
Learning
Objective
3
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Activity-Based Costing versus
Activity-Based Budgeting
Resources
Resources
Activity-Based
Costing (ABC)
Activities
Cost objects:
products and services
produced, and
customers served.
Activities
Activity-Based
Budgeting (ABB)
Forecast of products
and services to be
produced and
customers served.
9-9
Learning
Objective
4
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Sales Budget
Breakers, Inc. 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.
9-11
Sales Budget
April
Budgeted
sales (units)
20,000
Selling price
per unit
$
10
Total
Revenue
$ 200,000
May
June
50,000
$
10
$ 500,000
Quarter
30,000
$
10
$ 300,000
100,000
$
10
$ 1,000,000
9-12
Production Budget
The management of Breakers, Inc. wants ending
inventory to be equal to 20% of the following
month’s budgeted sales in units.
On March 31, 4,000 units were on hand.
Let’s prepare the production budget.
9-13
From
sales
budget
Sales in units
Add: desired
end. inventory
Total needed
Less: beg.
inventory
Units to be
produced
Production Budget
April
20,000
10,000
30,000
May sales
50,000 units
Desired percent
20%
May
June
Quarter
Desired inventory
10,000 units
50,000
30,000
100,000
Ending inventory becomes
6,000beginning 5,000
5,000
inventory the next
56,000
35,000
105,000
month
4,000
10,000
6,000
4,000
26,000
46,000
29,000
101,000
March 31
ending inventory
9-14
Direct-Material Budget
• At Breakers, five pounds of material are required
per unit of product.
• Management wants materials on hand at the end
of each month equal to 10% of the following
month’s production.
• On March 31, 13,000 pounds of material are on
hand. Material cost $.40 per pound.
Let’s prepare the direct materials budget.
9-15
From our
production
budget
Direct-Material Budget
Production in units
Materials per unit
Production needs
Add: desired
ending inventory
Total needed
Less: beginning
inventory
Materials to be
purchased
April
26,000
5
130,000
May
46,000
5
230,000
June
29,000
5
145,000
Quarter
101,000
5
505,000
23,000
153,000
14,500
244,500
11,500
156,500
11,500
516,500
13,000
23,000
14,500
13,000
140,000
221,500
142,000
503,500
10% of the following
month’s production
March 31
inventory
9-16
Direct-Material Budget
July Production
April 25,000 May
Sales in units
Add: Production
desired ending
inventory26,000 3,000 46,000
in units
TotalMaterials
units needed
per unit
528,000
5
Less:Production
beginning inventory
needs
130,000 5,000 230,000
Production in units
23,000
June
29,000
5
145,000
Add: desired
ending inventory
23,000
14,500
11,500
Total needed
153,000
244,500
156,500
Less: beginning
June
Ending Inventory
inventory
13,000
23,000
14,500
July
in units
23,000
Materials
toproduction
be
Materials per unit
5142,000
purchased
140,000
221,500
Total units needed
115,000
Inventory percentage
10%
June desired ending inventory
11,500
Quarter
101,000
5
505,000
11,500
516,500
13,000
503,500
9-17
Direct-Labor Budget
• At Breakers, each unit of product requires 0.1 hours
of direct labor.
• The Company has a “no layoff” policy so all
employees will be paid for 40 hours of work each
week.
• In exchange for the “no layoff” policy, workers agreed
to a wage rate of $8 per hour regardless of the hours
worked (No overtime pay).
• For the next three months, the direct labor workforce
will be paid for a minimum of 3,000 hours per month.
Let’s prepare the direct labor budget.
9-18
Direct-Labor Budget
April
26,000
0.10
2,600
Production in units
Direct labor hours
Labor hours required
Guaranteed labor
hours
3,000
Labor hours paid
3,000
Wage rate
$
8
Total direct labot cost $ 24,000
From our
production
budget
May
46,000
0.10
4,600
June
29,000
0.10
2,900
Quarter
101,000
0.10
10,100
3,000
4,600
$
8
$ 36,800
3,000
3,000
$
8
$ 24,000
10,600
$
8
$ 84,800
This is the greater of
labor hours required or
labor hours guaranteed.
9-19
Overhead Budget
Here is Breakers’ Overhead Budget for the quarter.
April
Indirect labor
Indirect material
Utilities
Rent
Insurance
Maintenance
$
$
17,500
7,000
4,200
13,300
5,800
8,200
56,000
May
$
$
26,500
12,600
8,400
13,300
5,800
9,400
76,000
June
$
$
17,900
8,600
5,200
13,300
5,800
8,200
59,000
Quarter
$
61,900
28,200
17,800
39,900
17,400
25,800
$ 191,000
9-20
For the
remaining
budgets and
Learning
Objectives
5 – 8 see the
Text Book
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
End of Chapter 9
9-22