CH 09
CH 09
CH 09
McGraw-Hill/Irwin
Types of Budgets
Detail Budget Detail Budget
Materials
Master Budget
Covering all phases of a companys operations.
Detail Budget
Sales
Production
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Types of Budgets
Income Statement
Direct Materials
Overhead Budget
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Resources Resources
Activities Activities
Activities Activities
Activity-Based Activity-Based Budgeting (ABB) Budgeting (ABB)
Cost objects: Cost objects: products and services products and services produced, and produced, and customers served. customers served.
Forecast of products Forecast of products and services to be and services to be produced and produced and customers served. customers served.
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Sales Budget
Breakers, Inc. is preparing budgets for the quarter Breakers, Inc. is preparing budgets for the quarter ending June 30. ending June 30. Budgeted sales for the next five months are: Budgeted sales for the next five months are: April 20,000 units April 20,000 units May 50,000 units May 50,000 units June 30,000 units June 30,000 units July 25,000 units July 25,000 units August 15,000 units. August 15,000 units. The selling price is $10 per unit. The selling price is $10 per unit.
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Sales Budget
April Budgeted sales (units) Selling price per unit T otal Rev enue May June Quarter
20,000 $ 10 $
50,000 10 $
30,000 10 $
100,000 10
$ 200,000
$ 500,000
$ 300,000
$ 1,000,000
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Production Budget
The management of Breakers, Inc. wants ending The management of Breakers, Inc. wants ending inventory to be equal to 20% of the following inventory to be equal to 20% of the following months budgeted sales in units. months budgeted sales in units. On March 31, 4,000 units were on hand. On March 31, 4,000 units were on hand. Lets prepare the production budget. Lets prepare the production budget.
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Production Budget
April 20,000 10,000 30,000 4,000 26,000 May 50,000 6,000 56,000 10,000 46,000 June 30,000 Quarter 100,000
Sales in units Add: desired end. inventory Total needed Less: beg. inventory Units to be produced
5,000 5,000 Ending inventory becomes 35,000 105,000 beginning inventory the next month 6,000 29,000 4,000 101,000
Direct-Material Budget
At Breakers, five pounds of material are required At Breakers, five pounds of material are required per unit of product. per unit of product. Management wants materials on hand at the end Management wants materials on hand at the end of each month equal to 10% of the following of each month equal to 10% of the following months production. months production. On March 31, 13,000 pounds of material are on On March 31, 13,000 pounds of material are on hand. Material cost $.40 per pound. hand. Material cost $.40 per pound. Lets prepare the direct materials budget. Lets prepare the direct materials budget.
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Direct-Material Budget
March 31 inventory
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Direct-Material Budget
July Production Sales in units Add: desired ending inventory Total units needed Less: beginning inventory Production in units 25,000 3,000 28,000 5,000 23,000
June Ending Inventory July production in units 23,000 Materials per unit 5 Total units needed 115,000 Inventory percentage 10% June desired ending inventory 11,500
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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. Lets prepare the direct labor budget.
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Direct-Labor Budget
Overhead Budget
Here is Breakers Overhead Budget for the quarter.
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Cash Budget
To maintain a cash balance of $30,000, Breakers must borrow $35,000 on its line of credit.
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Cash Budget
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(Collections and Disbursements) At the end of June, Breakers has enough cash to repay the $48,800 loan plus interest at 12%.
Cash Budget
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Cash Budget
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Cash Budget
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25%of June sales of $300,000 11,500 lbs. at $.40 per lb. 5,000 units at $4.60 per unit. 50% of June purchases of $56,800
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Budget Administration
The Budget Committee is a standing committee responsible for . . .
overall policy matters relating to the budget. overall policy matters relating to the budget. q coordinating the preparation of the budget. q coordinating the preparation of the budget.
q q
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rates. rates. High inflation rates in some foreign countries. High inflation rates in some foreign countries. Differences in local economic conditions. Differences in local economic conditions.
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Participative Budgeting
T M o p M a n a g e m M e n t
M S
i d d l e a n a g e m
e n t M
i d d l e a n a g e m
e n
u p e r v Si s u o p r e r v Si s u o p r e r v Si s u o p r e r v i s
End of Chapter 9
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