lesson 6 budgetary planning

8/16/2019 Lesson 6 Budgetary Planning

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Accounting 6

Management Accounting

Lesson 6


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In 3-5 sentences, answer the followingquestions. Handwrite the answers in a yellowaer.

!."hat is the role of accounting in #udgeting$

%.&i'e at least three #ene(ts of #udgeting.

3.)rie*y e+lain the idea of articiati'e#udgeting.

."hat is #udgetary slac$5.i/erentiate #udget from a long-range lan.

6.escri#e the master #udget.


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0lanning1 rocess of esta#lishing enterrise-wide lans2long-term and short-term1 includes the roosed ways to accomlish these lans

A formal written statement of management lans for aseci(ed eriod e+ressed in (nancial terms is called. . .

BUDGET (control device)

Why is it considered a control device?


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What is the role of accounting in budgeting?

Accounting Historical data 2re'enues, costs, e+enses

4ranslate management lans into (gures thatfacilitates the measurement rocess

ommunicates to emloyees for imlementation

0reare eriodic reorts that measures erformance#y comaring actual results with lanned o#ecti'es

Hoever! the budget itself and thead"inistration of budget is entirely"anage"ent res#onsibilities$


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It requires all le'els of management tolan ahead and to formali7e the goals ona recurring #asis.

It ro'ides de(nite o#ecti'es fore'aluating erformance at each le'el ofresonsi#ility.

It creates and early warning system forotential ro#lems so that managementcan mae changes #efore things can getout of hand.


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It facilitates the coordination of acti'itieswithin the #usiness. 4he goals of eachsegments are correlated with thecomany8s o'erall o#ecti'es.

It results in greater managementawareness of the entity8s o'erall oerationand the imact of e+ternal factors.

It moti'ates ersonnel throughout theorgani7ation to meet the lannedo#ecti'es.


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A budget is an aid to"anage"ent! it is

not a substitute to

"anage"ent$


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9ound organi7ationalstructure

:esearch and analysis

Accetance #y all le'elsof management


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%ne year Any #eriod of ti"e

&actors' Ty#e of budget ature of the organiation eed for #eriodic a##raisal *revailing business condition

+ong enough to #rovide an attainable goalunder nor"al business condition but nottoo long that reliable esti"ates arei"#ossible$


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ollection of data - 0ast erformance is used as starting oint

9ales forecast - ;actors to consider are general economic

condition, industry trends, maret researchstudies, anticiated ad'ertising and romotion,changes in rices and technological de'eloments

;inal form - 4he #udget committee 2re'iew-modify-reconcile

Aro'al - )oard of irectors

istri#ution


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0articiati'e #udgeting- Lower managers articiation is essential

#ecause they are more nowledgea#le as to the

needs of their deartments.- Loo at the #udget as fair.

)udgetary slac- "hen managers intentionally misstate

re'enues and e+enses to achie'e target easily


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A set of interrelated #udgets thatconstitutes an enterrise-wide lan ofactions for a seci(ed time eriod.


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&

)?&=4

;I>A>IAL )?&=4

9ales )udget

Manufacturing


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SALES BUDGET

* The frst budget to be prepared

* Other budgets depend on the sales budget

SALES FORECAST* Manageent best est!ate o" sales re#enue

"or the budget per!od

* $na%%urate sales budget a& ha#e an

ad#erse e'e%t O#erl& opt!!st!% sales "ore%ast ( e)%ess!#e !n#entor&

h!%h a& ha#e to be sold at redu%ed pr!%es

Too %onser#at!#e sales "ore%ast + "orego salesopportun!t!es be%ause o" !n#entor& shortage


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,o to "ore%ast sales-* Est!ate the nuber o" un!ts to besold

* Est!ate the sell!ng pr!%e( Ma& ha#e a based &ear .e/g/ pre#!ous &ear0 and

then

est!ate the per!od!% !n%reent

E12ECTED 3UMBER OF U3$TS

) EST$MATED SELL$3G 2R$CE

((((((((((((((((((((((((((((((((((((((((((((((

TOTAL SALES


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45 46Grand Total

Units Unit Price Total Units Unit Price Total Units Unit Price Total

XQ

103 20,000 15 300.000 25,000 15 375,000 45,000 15 675,000

XQ

104 10,000 25 250,000 16,000 25 400,000 26,000 25 650,000

Total 30,000 550,000 41,000 775,000 71,000 1,325,000


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27(5A6889 6887

2lan A 2lan B

Un!ts 988:888 ;68:888788:888

Sell!ng 2r!%e ; ;/


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* Un!ts to be produ%ed to eet thebudgeted sales

* Real!st!% est!ate !s essent!al !ns%hedul!ng produ%t!on re?u!reents

( Ra ater!als

( Labor

( O#erhead

* E)%ess!#e !n#entor& a& lead to%utba%@s and la&o's


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Budgeted sales !n un!ts

Des!red end!ng fn!shed goods

( Beg!nn!ng !n#entor&

(((((((((((((((((((((((((((((((((((((((((((((((

Re?u!red produ%t!on !n un!ts

E7(6

45 46Budgeted sales 5,000 6,000

Desired ending inventory 1,800 2,100

Beginning inventory 1,500! 1,800!

"e#uired $rodu%tion 5,300 6,300&


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27(5A6887

2lan A 2lan B

Budgeted Sales ;68:888788:888

Des!red end!ng fn!shed goods 78:888588:888

Beg!nn!ng !n#entor& .;8:8880 .;8:8880

Re?u!red produ%t!on ;>8:88878:888


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E7/

,D(6>8 45 46 4 4> Annual

)udgeted

9ales5, B, C, !, 3,

esired=ndingIn'entory

3,5 , 5, 3,%5 3,%5

)eginning

In'entory

2%,5 23,5 2, 25, 2%,5

:equired0roduction in units

6, B,5 D, C,%5 3,B5


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* Fro the produ%t!on budget: est!ate the re?u!red raater!als needed to produ%e the est!ated un!ts

* Deter!ne the %ost o" pur%hases b& ult!pl&!ng there?u!red ra ater!als !th the ant!%!pated %ost per un!t

* $nade?uate ater!als %ould result to teporar& shutdon

D!re%t ater!als re?u!red "or produ%t!on

Des!red end!ng d!re%t ater!als

( Beg!nn!ng d!re%t ater!als

((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

Re?u!red d!re%t ater!als to be pur%hased

) Cost per un!t

((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

Total budgeted %ost o" d!re%t ater!als


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27(5A6887

2lan A 2lan B

Budgeted Sales ;68:888 788:888

Des!red end!ng fn!shed goods 78:888 588:888

Beg!nn!ng !n#entor& .;8:8880 .;8:8880

((((((((((((((((((((((((((((((((((((((((((((((((((

Re?u!red produ%t!on !n un!ts ;>8:888 78:888

) D!re%t ater!als %ost per un!t 6 6 ((((((((((((((((((((((((((((((((((((((((((((((((((

Budgeted d!re%t ater!als %ost 5:>98:888 5:9


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E7(


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E ontains the quantity and the cost of la#ornecessary to meet the roductionrequirements

E >ecessary to determine sta/ requirement toroduce the desired num#er of units

?nits to #e roduced

+ :equired direct la#or time er unit

+ irect la#or cost er hour

----------------------------------------------------

)udgeted direct la#or cost

FFFFFFFFFFFFFFFFFFFFFFFFFFFFFF


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27(5A6887

2lan A 2lan B

Budgeted Sales ;68:888 788:888


Beg!nn!ng !n#entor& .;8:8880 .;8:8880

((((((((((((((((((((((((((((((((((((((((((((((((((

Re?u!red produ%t!on !n un!ts ;>8:888 78:888

) D!re%t labor %ost per un!t 5/=8 5/=8 ((((((((((((((((((((((((((((((((((((((((((((((((((

Budgeted d!re%t labor %ost 5:558:888 5:7=:888


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E7(> Q1 Q Q! Q( TotalBudgeted production

in units 0,000 5,000 !5,000 !0,000 110,000

"e#uired direct labor

hours per unit 1) 1) 1) 1) 1)

%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%Budgeted direct labor

hours !,000 (0,000 5),000 (8,000 1-),000

+irect labor cost per

hour 15 15 1) 1) %%

%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%Budgeted direct labor

cost (80,000 )00,000 8*),000 -)8,000 ,-((,000


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E 9hows the estimated 'aria#le and (+ed costof roduction

E Garia#le manufacturing o'erhead are those

that 'aries in direct roortion to 'olume ofroduction

E ;i+ed manufacturing o'erhead are those thatremains unchanged regardless of roduction


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27(5A 6887

2lan A 2lan BBudgeted Sales ;68:888 788:888


Beg!nn!ng !n#entor& .;8:8880 .;8:8880

((((((((((((((((((((((((((((((((((((((((((((((((((((

Re?u!red produ%t!on !n un!ts ;>8:888 78:888) ar!able "g/ %ost per un!t /=8 /=8

((((((((((((((((((((((((((((((((((((((((((((((((((((

Budgeted #ar!able "g/ %ost ;8:888 >


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E7(= Q1 Q Q! Q( TotalBudgeted production

in units 10,000 1,000 1(,000 1),000 5,000

"e#uired direct labor

hours per unit 15 15 15 15 15

%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

Budgeted direct labor

hours 15,000 18,000 1,000 (,000 -8,000

2ariable $/g o3erhead (0 (0 (0 (0 (0

cost &-4145' %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

Budgeted 3ariable

$/g cost !),000 (!,00 50,(00 5-,)00 18-,00Budgeted /ied $/g )!,000 )!,000 )!,000 )!,000 5,000

cost %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

Total budgeted $/g **,000 10),00 11!,(00 10,)00 (!*,00

cost


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E 0roects the anticiated selling andadministrati'e e+enses for the #udgeteriod

E lassi(ed as to 'aria#le and (+ed selling andadministrati'e 2eriod costs

- 'aria#le selling @ administrati'e costs'aries in relation to 'olume of sales 2e.g.

sales commission, freight-out

- (+ed selling @ administrati'e costs are

#ased on assumed data


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E 0utting together all the oerating#udgets, the end result is a roection ofthe ro(ta#ility of the comany8s

oerationE >ecessary to determine whether the

comany needs to cut on the controlla#lecosts or increase the roected sales inorder to reco'er the (+ed costs and stillro'ide some ro(t for the owners.


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E7(;

6ales !0,000 80 ,(00,000

.ost o/ good sold7

+irect $aterials !0,000 5 !00,000

+irect labor !0,000 ! 1 1,080,000

Manu/acturing o3erhead !0,000 ! ) 5(0,000Total cost o/ good sold 1,*0,000

ross Pro/it (80,000

9ess selling : ad$inistrati3e epenses 00,000

;perating pro/it 80,000

et pro/it 1*),000


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! % 3

9er'ice

)illa#le

Hours

:ate 4otal)illa#l

eHours

:ate 4otal

)illa#le

Hours

:ate 4otal

)illa#le

Hours

:ate 4otal

Aud. %,%

B !5,!,6

B !!%,

%,

B !,%,

B !6C,

4a+ 3,

C %,

%,

C !D%,

%,

C !6,

%,5

C %,

ons.

!,5

D !35,!,5

D !35,

!,5

D !35,!,5

D !35,

4otal 6,B

5%D,5,5

3D,

5,5

35,6,

53,A>>?AL

9er'ice)illa#leHours

:ate 4otal

Auditing C,% B 5B,

4a+ D,D C BD%,

onsulting

6, D 5,

4otal %,! !,D6,


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aital e+enditures #udget

ash #udget

)udgeted #alance sheet


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E 9hows the anticiated cash *ows

E onsidered to #e the most imortant#udget

E 4hree sections

- cash receits

- cash dis#ursements

- (nancing


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E 9hows the anticiated cash *ows

E onsidered to #e the most imortant #udget

E ontri#utes to e/ecti'e cash management

2e.g. it tells manager whether there is a needfor (nancing

E 4hree sections

- cash receits

- cash dis#ursements

- (nancing


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ash receits section- cash sales

- collection of accounts recei'a#le

2roected #ased on e+erience e.g.5 collected in the month of sales,

3 in month following the month of

sale and % in the %nd month following

the month of sales- other receits 2di'idends, sale of

in'estments, (+ed assets and issuance

of stocs


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ash dis#ursements section

- cash ayments for direct materials,

direct la#or manufacturing o'erhead

and selling @ administrati'e e+ense

- other ayments 2di'idends, ta+es,

in'estments and acquisition of (+edassets


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;inancing section

- e+ected #orrowings and reaymentof

the #orrowed funds and interests

- when there is cash de(ciency or when

the cash #alance has reached #eyond

the comany8s minimum #alance

requirements


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)eginning cash #alance

Add cash receits 2itemi7ed

------------------------------------------

4otal cash a'aila#le

Less cash dis#ursement 2itemi7ed

-------------------------------------------

=+cess 2de(ciency cash

;inancing--------------------------------------------

:equired ending cash #alance

FFFFFFFFFFFFFFFFFFF


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ash receits 2itemi7ed

Less cash ayments 2itemi7ed

-------------------------------------------

=+cess 2de(ciency cash

Add cash #eginning

-------------------------------------------

ash ending

Add (nancing J Less in'estment--------------------------------------------

:equired cash #alance J Minimum cash #alance

FFFFFFFFFFFFFFFFFFF


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=D-D 2=+ected collection fromcustomers Kanuary ;e#ruary March

ash sales 2 C, CC, !C,

ollection of credit sales

Month of sale 2! !%, !3,% !6,%

Month /. month of sale 25 6, 66,

%nd month /. month of sale 236 3,%

4otal cash collection D%, !6!,% %33,

ash urchases 25 !5, !B,5 %,50ayment of credit urchases

Month of urchase 2 6, B, C,%

Month /. month of urchase 26 D, !,5

4otal cash ayments %!, 33,5 3D,%

0in Martini ash )udget uarter ! %C


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0in Martini ash )udget uarter !, %C

ash receits

ollections from customers !C,

9ale of equiment 3,5 !C3, ash ayments

irect materials !,

irect la#or B,

Manufacturing o'erhead 35,9elling and administrati'e e+. 5,

0urchase of securities !%, %3,

=+cessJ2e(ciency of cash 2!D,5

ash #eginning 3!,ash ending !!,5

;inancing !3,5

:equired cash #alance %5,


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=D-!! Kanuary ;e#ruary

)eginning cash #alance 6, 3!,Add cash receits

ollections from customers !, !6,

9ale of mareta#le securities !,

4otal cash a'aila#le !56, !D!,

Less cash ayments

irect materials 6, C,

irect la#or 3, 5,

Manufacturing o'erhead 2net of dereciation %,3,

9elling @ administrati'e e+enses !5, %,

4otal cash ayments !%5, !B5,

=+cess of a'aila#le cash o'er ayments 3!, !6,

;inancing 2#an loan D,

=nding cash #alance 3!, %5,

FFFFFFFFFFFFFFFFFFFFF


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E 0roection of the (nancial osition for the #udgetederiod

E 9ome data can #e referred from the re'ious year8s#alance sheet 2(+ed asset lus the #udgetedacquisition @ disosal if any dereciation long-

term lia#ilities stocholders8 equity section

E


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BALA3CE S,EET

urrent assets urrent lia#ilities

ash +++ Accounts aya#le +++

Accounts recei'a#le +++ Income ta+ aya#le +++

In'entory +++ Accrued e+enses +++

4otal current assets +++ 4otal current

lia#ilities

+++

>on-current assets >on-current lia#ilities +++

=quiment +++ 4otal lia#ilities +++

Less accum. e. ++++++

=quity

;urniture @ (+ture +++ )eginning #alance +++

Less accum. e. ++++++

Additionalin'estment

+++

4otal non-currentassets

+++ >et incomeJ2loss +++

lesson 6 budgetary planning

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