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© McGraw-Hill Ryerson Limited, 2001Irwin/McGraw-Hill Ryerson
15-1
Budgeting and FinancialPlanning
Student Tutorial
15
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15-2
Strategic Planning
Every enterprise has a set of goalsEvery enterprise has a set of goals
ProfitabilityProfitabilityGrowthGrowth
PublicServicePublic
Service
StrategicPlanning
StrategicPlanning
Achieving and Maintaining
a Competitive Advantage
Achieving and Maintaining
a Competitive Advantage
IDENTIFYCRITICAL SUCCESS
FACTORS
IDENTIFYCRITICAL SUCCESS
FACTORS
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What is a Strategic Long-Range Plan?What is a Strategic Long-Range Plan?
It discusses the major capital investments required to: It discusses the major capital investments required to:
It expresses the specific steps required to achieve the organization’s goal
It expresses the specific steps required to achieve the organization’s goal
MaintainPresent
Facilities
MaintainPresent
FacilitiesIncreaseCapacityIncreaseCapacity
DiversifyProducts orProcesses
DiversifyProducts orProcesses
DevelopParticularMarkets
DevelopParticularMarkets
Strategic Planning
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15-4
What Are The Key Purposes OfBudgeting Systems?
What is a budget?What is a budget?
What is a budgetingsystem?
What is a budgetingsystem?
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What Are The Key Purposes OfBudgeting Systems?
A detailed plan, expressed in quantitative terms,that specifies how an organization will acquire anduse resources during a particular period of time.
A detailed plan, expressed in quantitative terms,that specifies how an organization will acquire anduse resources during a particular period of time.
What is a budget?What is a budget?
What is a budgetingsystem?
What is a budgetingsystem?
The procedures used todevelop a budget
The procedures used todevelop a budget
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Managing Financialand
Operating Performance
Managing Financialand
Operating Performance
BudgetingSystem
BudgetingSystem
Facilitating Communication
and Coordination
Facilitating Communication
and Coordination
Evaluating Performanceand Providing
Incentives
Evaluating Performanceand Providing
Incentives
PlanningPlanning
AllocatingResources
AllocatingResources
What Are The Key Purposes OfBudgeting Systems?
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15-7Match the Definition with theType of Budget
1. Master Budget
2. Pro FormaFinancial
Statements
3. Capital Budget
4. Financial Budget
5. RollingBudget
Comprehensive set of budgets covering allphases of the organization’s operations
for a period of time
Show how the organization’s financialstatements will appear at a specified time if operations proceed according to plan
A plan for the acquisition of capital asset
Shows how the organization willacquire its financial resources
Continually updated by periodically addinga new incremental time period, anddropping the period just completed
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15-8Match the Definition with theType of Budget
1. Master Budget
2. Pro FormaFinancial
Statements
3. Capital Budget
4. Financial Budget
5. RollingBudget
Comprehensive set of budgets covering allphases of the organization’s operations
for a period of time
Show how the organization’s financialstatements will appear at a specified time if operations proceed according to plan
A plan for the acquisition of capital asset
Shows how the organization willacquire its financial resources
Continually updated by periodically addinga new incremental time period, anddropping the period just completed
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15-9Organizations Use Many Types OfBudgets
MASTER BUDGETA comprehensive set of budgets covering all phases of the
organization’s operations for a period of time
MASTER BUDGETA comprehensive set of budgets covering all phases of the
organization’s operations for a period of time
PRO FORMA FINANCIAL STATEMENTSShow how the organization’s financial statements will appear
at a specified time if operations proceed according to plan
PRO FORMA FINANCIAL STATEMENTSShow how the organization’s financial statements will appear
at a specified time if operations proceed according to plan
FINANCIAL BUDGETShows how the organization will acquire its financial resources
FINANCIAL BUDGETShows how the organization will acquire its financial resources
ROLLING BUDGETContinually updated by periodically adding a newincremental time period, such as a quarter, and
dropping the period just completed
ROLLING BUDGETContinually updated by periodically adding a newincremental time period, such as a quarter, and
dropping the period just completed
CAPITAL BUDGETA plan for the acquisition of capital asset
CAPITAL BUDGETA plan for the acquisition of capital asset
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15-10
Sales Budget
Production Budget
Direct Material Budget
Budgeted schedulecost of goods
manufactured and sold
Budgeted balanceStatement
Components Of A Master BudgetFor Manufacturing
Direct Labour Budget
Mft. Overhead Budget
Cash budget
Budgeted incomeStatement
Budgeted Statement of Cash Flows
Sales Budget
Selling, Generaland Administrative
Budget
R&D Budget
Marketing Budget
Customer Service Budget
Operational Budget
BudgetedFinancial
Statements
Capital Budget
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15-11
Sales Budget: The Starting Point
1. Past sales levels and trends
2. General economic trends
3. Economic trends in thecompany’s industry
4. Other factors expected toaffect sales in the industry
5. Political and legal events
6. The intended pricing policyof the company
7. Planned advertising andproduct promotion
8. Expected action ofcompetitors
9. New products contemplatedby the company or otherfirms
10. Market research studies
Sales forecasting is the process of predicting sales of goods andservices
Among the major factors considered when forecasting sales are:
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15-12
The sales level of the prior yearThe sales level of the prior year
Sales staffSales staff
Market researchersMarket researchers
Delphi techniqueDelphi technique
Econometric modelsEconometric models
StartingPoint
Sales Budget: The Starting Point
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Operational Budgets: Meeting TheDemand For Goods And Services
OPERATIONAL BUDGETSSpecify how the company’s operations will be carried out to meet the demand.
OPERATIONAL BUDGETSSpecify how the company’s operations will be carried out to meet the demand.
Prepared fromthe sales budget
ManufacturingFirm
ManufacturingFirm
Merchandising Firm
Merchandising Firm
Service Industry Firm
Service Industry Firm
Production Budgetshows the numberof product units tobe manufactured
MerchandisePurchases Budgetused instead of a
production budget
Set of budgetsthat shows how thefirm will meet the
demand for itsservices
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Operationalbudgets encompass
a plan for usingthe basic factors of
production(material, labour, and overhead) toproduce a product
or provide aservice
Operationalbudgets encompass
a plan for usingthe basic factors of
production(material, labour, and overhead) toproduce a product
or provide aservice
Operational Budgets: Meeting TheDemand For Goods And Services
OPERATIONAL BUDGETSSpecify how the company’s operations will be carried out to
meet the demand for its goods or services
OPERATIONAL BUDGETSSpecify how the company’s operations will be carried out to
meet the demand for its goods or services
CashBudgetCash
Budget
Shows expected cash receipts from selling
goods and services anddisbursements to pay
bills
Shows expected cash receipts from selling
goods and services anddisbursements to pay
bills
CapitalBudget
CapitalBudget
Details plans formajor acquisitionsand disposals of
assets
Details plans formajor acquisitionsand disposals of
assets
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15-15
Sales BudgetThe First Step
The sales budget displays the projected sales in units and the projectedsales return
The sales budget displays the projected sales in units and the projectedsales return
Seasonal Pattern in Sales
1st 2nd 3rd 4th YearSales in Units 15,000 5,000 10,000 20,000 50,000Unit sales price X $12 X $12 X $12 X $12 X $12Total sales revenue $180,000 $60,000 $120,000 $240,000 $600,000
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1st 2nd 3rd 4th Year
Sales in units 15,000 5,000 10,000 20,000 50,000Add desired ending inventory of finished goods 500 1,000 2,000 1,500 1,500Total units required 15,500 6,000 12,000 21,500 51,500Less expected beginning inventory of finished goods 1,500 500 1,000 2,000 1,500Units to be produced 14,000 5,500 11,000 19,500 50,000
Production BudgetSales in units + Desired ending inventory of finished goods = Total units requiredSales in units + Desired ending inventory of finished goods = Total units required
Total units required - Expected beginning inventory of finished goods = Units to be produced
Total units required - Expected beginning inventory of finished goods = Units to be produced
10% of next quarter’sexpected sales
10% of first quarter of nextyear’s expected sales of 15,000
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Sales Budget1st 2nd 3rd 4th Year
Sales in Units 25,000 10,000 20,000 15,000 70,000Unit sales price X $10 X $10 X $10 X $10 X $10Total sales revenue $250,000 $100,000 $200,000 $150,000 $700,000
Determine the units to be produced, assuming a 20% of the next quarters sales requirement for the ending inventory and no beginning inventory
1st 2nd 3rd 4th Year
Sales in units 25,000 10,000 20,000 15,000 70,000Add desired ending inventory of finished goodsTotal units requiredLess expected beginning inventory of finished goodsUnits to be produced
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15-18
Production BudgetDetermine the units to be produced, assuming a 20%
requirement for the ending inventory and no beginning inventory. Assume the sales of the 1st quarter
of next year is 25,000 units
Determine the units to be produced, assuming a 20% requirement for the ending inventory and no beginning
inventory. Assume the sales of the 1st quarter of next year is 25,000 units
1st 2nd 3rd 4th Year
Sales in units 25,000 10,000 20,000 15,000 70,000Add desired ending inventory of finished goods 2,000 4,000 3,000 5,000 5,000Total units required 27,000 14,000 23,000 20,000 75,000Less expected beginning inventory of finished goodsUnits to be produced
Add desired ending inventory of 20% of the next quarters sales
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15-19
Production BudgetDetermine the units to be produced, assuming a 20%
requirement for the ending inventory and no beginning inventory. Assume the sales of the 1st quarter
of next year is 25,000 units
Determine the units to be produced, assuming a 20% requirement for the ending inventory and no beginning
inventory. Assume the sales of the 1st quarter of next year is 25,000 units
1st 2nd 3rd 4th Year
Sales in units 25,000 10,000 20,000 15,000 70,000Add desired ending inventory of finished goods 2,000 4,000 3,000 5,000 5,000Total units required 27,000 14,000 23,000 20,000 75,000Less expected beginning inventory of finished goods 0 2,000 4,000 3,000 0Units to be produced 27,000 12,000 19,000 17,000 75,000
Add desired ending inventory of 20% of the next quarters sales
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15-20
Direct Material BudgetAssume that the production of Product AB-59 has beenbudgeted for the month at 350,000 units. One unit ofAB-59 requires 5 pounds of raw materials Z. There arecurrently 10,000 pounds of Z in the beginning inventory.They expect to maintain 5,000 pounds of Z in the endinginventory.How many pounds of Z should be purchased.A. 1,750,000B. 1,740,000C. 1,745,000D. 350,000
Assume that the production of Product AB-59 has beenbudgeted for the month at 350,000 units. One unit ofAB-59 requires 5 pounds of raw materials Z. There arecurrently 10,000 pounds of Z in the beginning inventory.They expect to maintain 5,000 pounds of Z in the endinginventory.How many pounds of Z should be purchased.A. 1,750,000B. 1,740,000C. 1,745,000D. 350,000
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15-21
Direct Material BudgetAssume that the production of Product AB-59 has beenbudgeted for the month at 350,000 units. One unit ofAB-59 requires 5 pounds of raw materials Z. There arecurrently 10,000 pounds of Z in the beginning inventory.They expect to maintain 5,000 pounds of Z in the endinginventory.How many pounds of Z should be purchased.A. 1,750,000B. 1,740,000C. 1,745,000D. 350,000
Assume that the production of Product AB-59 has beenbudgeted for the month at 350,000 units. One unit ofAB-59 requires 5 pounds of raw materials Z. There arecurrently 10,000 pounds of Z in the beginning inventory.They expect to maintain 5,000 pounds of Z in the endinginventory.How many pounds of Z should be purchased.A. 1,750,000B. 1,740,000C. 1,745,000D. 350,000
You have told me howmany pounds of materialthey need to USE. Now,
tell me how many poundsthey need to PURCHASE!
Try again.
You have told me howmany pounds of materialthey need to USE. Now,
tell me how many poundsthey need to PURCHASE!
Try again.
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15-22
Direct Material BudgetAssume that the production of Product AB-59 has beenbudgeted for the month at 350,000 units. One unit ofAB-59 requires 5 pounds of raw materials Z. There arecurrently 10,000 pounds of Z in the beginning inventory.They expect to maintain 5,000 pounds of Z in the endinginventory.How many pounds of Z should be purchased.A. 1,750,000B. 1,740,000C. 1,745,000D. 350,000
Assume that the production of Product AB-59 has beenbudgeted for the month at 350,000 units. One unit ofAB-59 requires 5 pounds of raw materials Z. There arecurrently 10,000 pounds of Z in the beginning inventory.They expect to maintain 5,000 pounds of Z in the endinginventory.How many pounds of Z should be purchased.A. 1,750,000B. 1,740,000C. 1,745,000D. 350,000
You are close, but youseem to have forgottenabout the 5,000 pounds
you need in endinginventory.
You are close, but youseem to have forgottenabout the 5,000 pounds
you need in endinginventory.
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15-23
Direct Material BudgetAssume that the production of Product AB-59 has beenbudgeted for the month at 350,000 units. One unit ofAB-59 requires 5 pounds of raw materials Z. There arecurrently 10,000 pounds of Z in the beginning inventory.They expect to maintain 5,000 pounds of Z in the endinginventory.How many pounds of Z should be purchased.A. 1,750,000B. 1,740,000C. 1,745,000D. 350,000
Assume that the production of Product AB-59 has beenbudgeted for the month at 350,000 units. One unit ofAB-59 requires 5 pounds of raw materials Z. There arecurrently 10,000 pounds of Z in the beginning inventory.They expect to maintain 5,000 pounds of Z in the endinginventory.How many pounds of Z should be purchased.A. 1,750,000B. 1,740,000C. 1,745,000D. 350,000
350,000 units X 5 lbs. = 1,750,000 lbs.1,750,000 lbs. - 10,000 lbs. = 1,740,000 lbs.1,740,000 lbs. + 5,000 lbs. = 1,745,000 lbs.
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15-24
Direct Material BudgetAssume that the production of Product AB-59 has beenbudgeted for the month at 350,000 units. One unit ofAB-59 requires 5 pounds of raw materials Z. There arecurrently 10,000 pounds of Z in the beginning inventory.They expect to maintain 5,000 pounds of Z in the endinginventory.How many pounds of Z should be purchased.A. 1,750,000B. 1,740,000C. 1,745,000D. 350,000
Assume that the production of Product AB-59 has beenbudgeted for the month at 350,000 units. One unit ofAB-59 requires 5 pounds of raw materials Z. There arecurrently 10,000 pounds of Z in the beginning inventory.They expect to maintain 5,000 pounds of Z in the endinginventory.How many pounds of Z should be purchased.A. 1,750,000B. 1,740,000C. 1,745,000D. 350,000
You’re not trying veryhard. This is the numberof units we are going to
produce, not the POUNDSwe need.
You’re not trying veryhard. This is the numberof units we are going to
produce, not the POUNDSwe need.
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15-25
Direct-labour BudgetThe Cookeville Toy Company manufacturers toy trucks.Direct labour $12 per hourBudgeted production: 10,000 unitsBudget sales: 9,000 unitsDirect labour per truck: .5 hours
What is the budgeted factory labour cost?A. $60,000B. $120,000C. $54,000D. $108,000
The Cookeville Toy Company manufacturers toy trucks.Direct labour $12 per hourBudgeted production: 10,000 unitsBudget sales: 9,000 unitsDirect labour per truck: .5 hours
What is the budgeted factory labour cost?A. $60,000B. $120,000C. $54,000D. $108,000
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15-26
Direct-labour BudgetThe Cookeville Toy Company manufacturers toy trucks.Direct labour $12 per hourBudgeted production: 10,000 unitsBudget sales: 9,000 unitsDirect labour per truck: .5 hours
What is the budgeted factory labour cost?A. $60,000B. $120,000C. $54,000D. $108,000
The Cookeville Toy Company manufacturers toy trucks.Direct labour $12 per hourBudgeted production: 10,000 unitsBudget sales: 9,000 unitsDirect labour per truck: .5 hours
What is the budgeted factory labour cost?A. $60,000B. $120,000C. $54,000D. $108,000
10,000 units X .5 hours = 5,000 hours5,000 hours X $12 = $60,000
10,000 units X .5 hours = 5,000 hours5,000 hours X $12 = $60,000
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15-27
Direct-labour BudgetThe Cookeville Toy Company manufacturers toy trucks.Direct labour $12 per hourBudgeted production: 10,000 unitsBudget sales: 9,000 unitsDirect labour per truck: .5 hours
What is the budgeted factory labour cost?A. $60,000B. $120,000C. $54,000D. $108,000
The Cookeville Toy Company manufacturers toy trucks.Direct labour $12 per hourBudgeted production: 10,000 unitsBudget sales: 9,000 unitsDirect labour per truck: .5 hours
What is the budgeted factory labour cost?A. $60,000B. $120,000C. $54,000D. $108,000
HINT: Take a look at howmany hours it takes toproduce one unit. Try
again.
HINT: Take a look at howmany hours it takes toproduce one unit. Try
again.
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15-28
Direct-labour BudgetThe Cookeville Toy Company manufacturers toy trucks.Direct labour $12 per hourBudgeted production: 10,000 unitsBudget sales: 9,000 unitsDirect labour per truck: .5 hours
What is the budgeted factory labour cost?A. $60,000B. $120,000C. $54,000D. $108,000
The Cookeville Toy Company manufacturers toy trucks.Direct labour $12 per hourBudgeted production: 10,000 unitsBudget sales: 9,000 unitsDirect labour per truck: .5 hours
What is the budgeted factory labour cost?A. $60,000B. $120,000C. $54,000D. $108,000
Did you use budgetedSALES or budgeted
PRODUCTION? Try again.
Did you use budgetedSALES or budgeted
PRODUCTION? Try again.
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15-29
Direct-labour BudgetThe Cookeville Toy Company manufacturers toy trucks.Direct labour $12 per hourBudgeted production: 10,000 unitsBudget sales: 9,000 unitsDirect labour per truck: .5 hours
What is the budgeted factory labour cost?A. $60,000B. $120,000C. $54,000D. $108,000
The Cookeville Toy Company manufacturers toy trucks.Direct labour $12 per hourBudgeted production: 10,000 unitsBudget sales: 9,000 unitsDirect labour per truck: .5 hours
What is the budgeted factory labour cost?A. $60,000B. $120,000C. $54,000D. $108,000
Go back and check both thetime it takes to make 1 unit, andthe number of units produced?
Try again.
Go back and check both thetime it takes to make 1 unit, andthe number of units produced?
Try again.
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15-30
Manufacturing Overhead Budget
Assume that Elmore Co. has the following overhead costs.Indirect materials $5,000Machine utilities $2,000Setup $12,000Material handling $8,000Product development $20,000Building depreciation $50,000
Prepare a Manufacturing Overhead Budget using ABC levels
Assume that Elmore Co. has the following overhead costs.Indirect materials $5,000Machine utilities $2,000Setup $12,000Material handling $8,000Product development $20,000Building depreciation $50,000
Prepare a Manufacturing Overhead Budget using ABC levels
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15-31
Unit-level costs:Indirect materials $5,000Machine utilities 2,000
$7,000Batch-level costs:
Setup $12,000Material handling $8,000
$20,000Product-level costs:
Product development $20,000Facility-level costs:
Building depreciation $50,000Total Overhead: $97,000Less depreciation ($50,000)
Total cash disbursements for overhead: $47,000
Unit-level costs:Indirect materials $5,000Machine utilities 2,000
$7,000Batch-level costs:
Setup $12,000Material handling $8,000
$20,000Product-level costs:
Product development $20,000Facility-level costs:
Building depreciation $50,000Total Overhead: $97,000Less depreciation ($50,000)
Total cash disbursements for overhead: $47,000
Manufacturing Overhead Budget
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15-32
Shows the cost of overhead expected to be incurred in the productionprocess during the budget period
Shows the cost of overhead expected to be incurred in the productionprocess during the budget period
Indirect materialElectricity for
machinery
1st 2nd 3rd 4th YearUnit-level costs $5,600 $2,200 $4,400 $7,800 $20,000Batch-level costs $8,400 $3,300 $6,600 $11,700 $30,000Product-level costs $1,000 $1,000 $1,000 $1,000 $4,000Facility and gen'l operations level costs $36,500 $36,500 $36,500 $36,500 $146,000
Total overhead $51,500 $43,000 $48,500 $57,000 $200,000Less: depreciation $15,000 $15,000 $15,000 $15,000 $60,000Total cash disbursements for overhead $36,500 $28,000 $33,500 $42,000 $140,000
Manufacturing Overhead Budget
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15-33
Shows the cost of overhead expected to be incurred in the productionprocess during the budget period
Shows the cost of overhead expected to be incurred in the productionprocess during the budget period
SetupPurchasing & material
handlingInspection
1st 2nd 3rd 4th YearUnit-level costs $5,600 $2,200 $4,400 $7,800 $20,000Batch-level costs $8,400 $3,300 $6,600 $11,700 $30,000Product-level costs $1,000 $1,000 $1,000 $1,000 $4,000Facility and gen'l operations level costs $36,500 $36,500 $36,500 $36,500 $146,000
Total overhead $51,500 $43,000 $48,500 $57,000 $200,000Less: depreciation $15,000 $15,000 $15,000 $15,000 $60,000Total cash disbursements for overhead $36,500 $28,000 $33,500 $42,000 $140,000
Manufacturing Overhead Budget
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15-34
Shows the cost of overhead expected to be incurred in the productionprocess during the budget period
Shows the cost of overhead expected to be incurred in the productionprocess during the budget period
Design
1st 2nd 3rd 4th YearUnit-level costs $5,600 $2,200 $4,400 $7,800 $20,000Batch-level costs $8,400 $3,300 $6,600 $11,700 $30,000Product-level costs $1,000 $1,000 $1,000 $1,000 $4,000Facility and gen'l operations level costs $36,500 $36,500 $36,500 $36,500 $146,000
Total overhead $51,500 $43,000 $48,500 $57,000 $200,000Less: depreciation $15,000 $15,000 $15,000 $15,000 $60,000Total cash disbursements for overhead $36,500 $28,000 $33,500 $42,000 $140,000
Manufacturing Overhead Budget
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15-35
Shows the cost of overhead expected to be incurred in the productionprocess during the budget period
Shows the cost of overhead expected to be incurred in the productionprocess during the budget period
Supervisory salariesInsurance and property taxesMaintenance
UtilitiesDepreciation
1st 2nd 3rd 4th YearUnit-level costs $5,600 $2,200 $4,400 $7,800 $20,000Batch-level costs $8,400 $3,300 $6,600 $11,700 $30,000Product-level costs $1,000 $1,000 $1,000 $1,000 $4,000Facility and gen'l operations level costs $36,500 $36,500 $36,500 $36,500 $146,000
Total overhead $51,500 $43,000 $48,500 $57,000 $200,000Less: depreciation $15,000 $15,000 $15,000 $15,000 $60,000Total cash disbursements for overhead $36,500 $28,000 $33,500 $42,000 $140,000
Manufacturing Overhead Budget
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15-36Selling, General, AndAdministration (SG&A) Expense
BudgetShows the planned amounts of expenditures for selling, general,
and administrative expenses during a budget period
Shows the planned amounts of expenditures for selling, general, and administrative expenses during a budget period
Sales commissionsFreight-out
Licensing fees for use ofuniversities’ names and logos
Sales salariesAdvertising
Clerical wages
1st 2nd 3rd 4th Year
Unit-level expenses $14,000 $5,500 $11,000 $19,500 $50,000Customer-level expenses $1,500 $1,500 $1,500 $1,500 $6,000Facility and general operations-level expenses $4,750 $4,750 $4,750 $4,750 $19,000Total expenses $20,250 $11,750 $17,250 $25,750 $75,000
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15-37
Cash Receipts Budget
Details the expected cash collections during a budget periodDetails the expected cash collections during a budget period
80% of revenue
18% x $240,000 (priorquarter’s revenue)
1st 2nd 3rd 4th YearSales revenue $180,000 $60,000 $120,000 $240,000 $600,000
Collections in quarter of sale $144,000 $48,000 $96,000 $192,000 $480,000Collections in quarter following sale 43,200 32,400 10,800 21,600 108,000Total cash receipts $187,200 $80,400 $106,800 $213,600 $588,000
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15-38Cash Disbursements Budget
Details the expected cash payments during a budget periodDetails the expected cash payments during a budget period
1st 2nd 3rd 4th YearCost of raw material purchases $39,450 $18,150 $35,550 $56,850 $150,000
Cash payments for purchases made during the quarter $23,670 $10,890 $21,330 $34,110 $90,000Cash payments for prior quarter's purchases 22,740 15,780 7,260 14,220 60,000
Total cash payments for direct material purchases $46,410 $26,670 $28,590 $48,330 $150,000
Other cash disbursements $84,750 $50,750 $72,750 $106,750 $315,000
Total cash disbursements $131,160 $77,420 $101,340 $155,080 $465,000
60% of current
quarter’spurchases
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15-39Cash Disbursements Budget
Details the expected cash payments during a budget periodDetails the expected cash payments during a budget period
1st 2nd 3rd 4th YearCost of raw material purchases $39,450 $18,150 $35,550 $56,850 $150,000
Cash payments for purchases made during the quarter $23,670 $10,890 $21,330 $34,110 $90,000Cash payments for prior quarter's purchases 22,740 15,780 7,260 14,220 60,000
Total cash payments for direct material purchases $46,410 $26,670 $28,590 $48,330 $150,000
Other cash disbursements $84,750 $50,750 $72,750 $106,750 $315,000
Total cash disbursements $131,160 $77,420 $101,340 $155,080 $465,000
40% of prior
quarter’spurchases
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15-40Budgeted Schedule Of Cost OfGoods Manufactured And Sold
Direct material Raw material inventory, January 1 $4,200 Add: Purchases of raw material 150,000
Raw material available for use 154,200 Deduct: Raw-material, December 31 4,200
Direct material used $150,000Direct labour 100,000Manufacturing overhead 200,000
Subtotal 450,000Add: Work-in-process inventory, Jan. 1 0
Subtotal 450,000Deduct: Work-in-process inventory, Dec. 31 0Cost of goods manufactured 450,000Add: Finished goods inventory, Jan. 1 13,500
Cost of goods available for sale 463,500Deduct: Finished goods inventory, Dec. 31 13,500
Cost of goods sold $450,000
1,500 unitsx $9
absorptionmanufacturing
cost(direct material
= $3, direct labour = $2, andoverhead = $4)
Details the direct material, direct labour, and manufacturing overheadcosts to be incurred and the cost of the goods to be sold
Details the direct material, direct labour, and manufacturing overheadcosts to be incurred and the cost of the goods to be sold
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15-41
Sales Budget
Production Budget
Direct Material Budget
Budgeted schedulecost of goods
manufactured and sold
Capital Budget Budgeted balanceStatement
Components Of A Master Budget ForManufacturing
Direct labour Budget
Mft. Overhead Budget
Cash budget
Budgeted incomeStatement
Budgeted Statement of Cash Flows
Sales Budget
Selling, Generaland Administrative
Budget
R&D Budget
Marketing Budget
Customer Service Budget
Operational Budget
BudgetedFinancial
Statements
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15-42Financial Planning Models
???
? Managers make assumptions and predictions in preparing budgets because organizations operate in a world of uncertainty
Managers make assumptions and predictions in preparing budgets because organizations operate in a world of uncertainty
FINANCIAL PLANNING MODELa set of mathematical relationships that expresses the
interactions among the various operational, financial, and environmental events that determine the overall results of
an organization’s activities
FINANCIAL PLANNING MODELa set of mathematical relationships that expresses the
interactions among the various operational, financial, and environmental events that determine the overall results of
an organization’s activities
Uncollectible accounts expense = 2% (Sales revenue)Uncollectible accounts expense = 2% (Sales revenue)
Uncollectible accounts expense = p (Sales revenue)Uncollectible accounts expense = p (Sales revenue)
The budget staff canrun the financial
planning model as many times as desired
with p = a differentvalue each time
The budget staff canrun the financial
planning model as many times as desired
with p = a differentvalue each time
?
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15-43
Who Is Responsible For BudgetAdministration
Small firmSmall firm Budget process is informalBudget process is informal
Larger firmsLarger firms Budget process is formalBudget process is formal
Designate a BUDGETDIRECTOR (usually the controller) whospecifies the process by which budget
data will begathered, collectsthe information, and prepares the
master budget
Designate a BUDGETDIRECTOR (usually the controller) whospecifies the process by which budget
data will begathered, collectsthe information, and prepares the
master budget
Develops and disseminates a BUDGET
MANUAL which indicates who isresponsible for
providing various types of budget information, when the information is
required, and whatform the information
is to take
Develops and disseminates a BUDGET
MANUAL which indicates who isresponsible for
providing various types of budget information, when the information is
required, and whatform the information
is to take
A BUDGET COMMITTEE,
consisting of key senior executives,often is appointed
to advise the budgetdirector during thepreparation of the
budget
A BUDGET COMMITTEE,
consisting of key senior executives,often is appointed
to advise the budgetdirector during thepreparation of the
budget
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15-44
Behavioural Implications OfBudget
A budget affects virtually everyone in an organization: thosewho prepare it, those who use it to facilitate decision-making,
and those who are evaluated using the budget
A budget affects virtually everyone in an organization: thosewho prepare it, those who use it to facilitate decision-making,
and those who are evaluated using the budget
BudgetarySlack
BudgetarySlack
ParticipativeBudgetingParticipative
Budgeting
PADDING THE BUDGETIntentionally underestimating
revenue or overestimatingcosts in order to enhancethe person’s performance
evaluation
PADDING THE BUDGETIntentionally underestimating
revenue or overestimatingcosts in order to enhancethe person’s performance
evaluation
People perform better and make greater
attempts to achieve a goal if they
have beenconsulted in
setting the goals
People perform better and make greater
attempts to achieve a goal if they
have beenconsulted in
setting the goals
© McGraw-Hill Ryerson Limited, 2001Irwin/McGraw-Hill Ryerson
15-45
END OF CHAPTER
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