Bài giảng Fundamentals of cost accounting - Chapter 13: Planning and Budgeting

© 2014 by McGraw-Hill Education.  This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.  This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.  Planning and BudgetingChapter 13Learning ObjectivesLO 13-1 Understand the role of budgets in overall organization plans.LO 13-2 Understand the importance of people in the budgeting process.LO 13-3 Estimate sales.LO 13-4 Develop production and cost budgets.LO 13-5 Estimate cash flows.LO 13-6 Develop budgeted financial statements.LO 13-7 Explain budgeting in merchandising and service organizations. LO 13-8 Explain why ethical issues arise in budgeting.LO 13-9 Explain how to use sensitivity analysis to budget under uncertainty.BudgetsLO 13-1 Understand the role of budgets in overall organization plans.We focus on the planning purpose of the budgeting process. For our purposes here, a budget is simply the plan, stated in financial terms, of how the organization expects to carry out its activities and meet the financial goals established in the planning process.We show how a master budget is developed and how it fits into the overall plan for achieving organization goals. Before we investigate the details of developing a master budget, we discuss the way that strategic planning can increase competitiveness and affect global operations.LO 13-1Overall PlanA master budget is part of an overall organization plan for the next year made up of three components: the organization goals, the strategic long-range profit plan, and(3) the tactical short-range profit plan.Top managers establish broad objectives, which serve as organization goals that company employees work to achieve.It is important to detail the specific steps required to achieve the goals. These steps are expressed in a strategic long-range plan.The plan for the coming year, which is more specific than long-range plans, is called the master budget, also known as the static budget, the budget plan, or the planning budget .LO 13-1Organizational and Individual Interaction: Developing the Master Budget LO 13-1Human Element in BudgetingLO 13-2 Understand the importance of people in the budgeting process.OrganizationgoalsIndividualgoalsGoal congruenceParticipative Budgeting Use of input from lower- and middle-management employees; also called grass roots budgetingLO 13-2Sales ForecastingLO 13-3 Estimate sales. Forecasting sales is the most difficult aspect of budgeting. Sales staffMarket researchersDelphi techniqueTrend analysisEconometric modelsLO 13-3Forecasting by Sales StaffAfter evaluating the sales forecasts derived from various sources, the budgeting task force at Santiago Pants arrived at the following sales budget for the next budget year:LO 13-3Forecasting ProductionLO 13-4 Develop production and cost budgets.Beginning balanceBBTransfers inTITransfers outTO+–=Ending balanceUnits in beginninginventoryRequiredproductionBudgetedsales+–=Units in endinginventoryA production budget is a plan of resources needed to meet current sales demand and ensure that inventory levels are sufficient for future sales.LO 13-4Production Budget Management estimates that there will be 5,000 units in beginning inventory and 15,000 in ending inventory. Santiago Pants' sales budget is 160,000 units BudgetedsalesUnits in endinginventoryUnits in beginninginventory+–=RequiredproductionRearranging for required production:160,000units15,000units5,000units+–=170,000unitsLO 13-4Production BudgetLO 13-4Production CostsManufacturingoverheadDirectmaterialsDirectlaborIndirectlaborIndirectmaterialsOtherLO 13-4Direct Materials ExampleLO 13-4Direct Materials ExampleSantiago PantsEstimated ProductionMaterials DataYards needed:LO 13-4Direct Materials Example$$LO 13-4Direct Labor ExampleLO 13-4Overhead ExampleSantiago PantsSchedule of Budgeted Manufacturing OverheadFor the Budget Year Ended December 31Variable overhead needed to product 170,000 units: Indirect materials and supplies @ $0.30 per unit Materials handling @ $0.40 per unit Other indirect labor @ $0.10 per unitTotal variable overheadFixed manufacturing overhead (supervisory labor $102M, maintenance and repairs $50M, plant administration $85M, utilities $55M, depreciation $140M, insurance $30M, property taxes $60M, and other $22M)Total manufacturing overhead$ 51,000 68,000$ 17,000$136,000$544,000$680,000LO 13-4Cost of Goods Sold ExampleSantiago PantsBudgeted Statement of Cost of Goods SoldFor the Budget Year Ended December 31Beginning work-in-process inventoryManufacturing costs: Direct materials: Beginning inventory Purchases Materials available for manufacturing Less: Ending inventoryTotal direct materials costsDirect laborManufacturing overheadTotal manufacturing costsLess: Ending work-in-processCost of goods manufacturedAdd: Beginning finished goods inventoryLess: Ending finished goods inventoryCost of goods sold$ 35,000 1,715,000$1,750,000 (50,000)$1,700,000 1,870,000 680,000$ -0-$4,250,000 -0-$4,250,000 120,000a (375,000)b$3,995,000a Management estimate b Estimate: (15,000 units × $25 value of finished goods)LO 13-4Marketing and AdministrativeBudget ExampleLO 13-4Income Statement ExampleLO 13-4Cash BudgetLO 13-5 Estimate cash flows.The cash budget is a statement of cash on hand at the start of the budget period, expected cash receipts, expected cash disbursements, and the resulting cash balance at the end of the budget period. Cash receipts: – Collection of accounts receivable – Cash sales – Sales of assets – Borrowing – Issuing stock – OtherLO 13-5Cash BudgetSome cash disbursements: – Materials purchases – Manufacturing costs – Operating activities – Debt repayment – Acquisition of new assets – Income taxes – Dividends – Other activitiesLO 13-5Cash BudgetSantiago PantsCash Budget For the Budget Year Ended December 31Cash balance beginning of periodReceipts: Collections on accounts Collections employee loans Total receiptsLess: Disbursements: Payments for accounts payable Direct labor Manufacturing overhead less noncash depreciation charges Marketing and administrative costs less noncash charges Payments for federal income taxes Dividends Reduction in long-term debt Acquisition of new assets Total disbursementsBudgeted ending cash balance$6,840,000 100,000 1,694,000 1,870,000 540,000 1,422,000 350,000 30,000 23,000 1,470,000$ 830,000 6,940,000 7,399,000$ 371,000LO 13-5Cash Collections ExampleSantiago PantsMonthly Collection ExperienceSales on CreditExpected Sales for Three MonthsLO 13-5Cash Collections ExampleSantiago PantsMultiperiod Schedule of Cash CollectionsFor the Quarter Ended March 31Beginning accounts receivable, January 1, $540,000January sales, $500,000aFebruary sales, $450,000bMarch sales, $600,000c Total cash collections$540,000 100,000$640,000$375,000 90,000$465,000$337,500 120,000$457,500January$ 540,000 475,000 427,500 120,000$1,562,500MonthFebruaryMarchTotal forQuartera 20% collected in January, 75% collected in February, and 5% not collectedb 20% collected in February, 75% collected in March, and 5% not collectedc 20% collected in March, 75% collected in April, and 5% not collectedLO 13-5Cash Disbursements ExampleSantiago PantsMonthly Disbursements for Purchases ExperienceCash disbursement for current month's purchases 50%Cash disbursement for prior month's purchases 48Cash discounts taken 2Total cash disbursement for purchases 100%Expected Purchases for Three MonthsJanuary sales $120,000February sales $200,000March sales $250,000LO 13-5Cash Disbursements ExampleSantiago PantsMultiperiod Schedule of Cash DisbursementsFor the Quarter Ended March 31Beginning accounts payable, January 1, $256,000January purchases, $120,000aFebruary purchases, $200,000bMarch purchases, $250,000cAdditional cash payments Total cash disbursements$256,000 60,000 250,000$566,000$ 57,600 100,000 250,000$407,600$ 96,000 125,000 250,000$471,000January$ 256,000 117,600 196,000 125,000 750,000$1,444,600MonthFebruaryMarchTotal forQuartera 50% paid in January, 48% paid in February, and 2% discounts takenb 50% paid in February, 48% paid in March, and 2% discounts takenc 50% paid in March, 48% paid in April, and 2% discounts takenLO 13-5Budgeted Balance Sheet ExampleLO 13-6 Develop budgeted financial statements.AssetsCurrent assets: Cash Accounts receivable Inventories Other current assets Total current assetsLong-term assets: Property, plant, equipment Less: Accumulated depreciationTotal assetsBudget Year$ 830 540 155 161$1,686 1,866 (1,246)$2,306$ 6,940 7,200 4,265 -0- $18,405 1,470 (220)$19,651$ 7,399 6,840 3,995 100$18,334 -0- -0- $18,334$ 371 900 425 61$1,757 3,336 (1,470)$3,623BalanceJan 1AdditionsSubtractionsBalanceDec 31Santiago PantsBudget Balance SheetFor the Budget Year Ended December 31 ($000)LO 13-6Budgeted Balance Sheet ExampleLiabilities and Shareholders EquityCurrent liabilities: Accounts payable Taxes payable Current portion of long-term debt Total current liabilitiesLong-term liabilitiesTotal liabilitiesShareholders' equity Common stock Retained earningsTotal shareholdersTotal liabilities and shareholders equityBudget Year$ 256 187 23$ 466 258$ 724$ 437 1,145$1,582$2,306$1,715 550 23$2,288 -0- $2,288$ -0- 1,149$1,149$3,437$1,694 350 23$2,067 23$2,090$ -0- 30 30$2,120$ 277 387 23$ 687 235$ 922$ 437 2,264$2,701$3,623BalanceJan 1AdditionsSubtractionsBalanceDec 31Santiago PantsBudget Balance SheetFor the Budget Year Ended December 31 ($000)LO 13-6Assembling the Master Budgetfor a Manufacturing FirmLO 13-6Budgeting in Service OrganizationsMarketing andadministrativecost budgetSales forecastBudgeted costof servicesBudgetedincomestatementCash budgetBudgetedbalance sheetsLO 13-7 Explain budgeting in merchandising and service organizations. LO 13-7Budgeting Retail and Wholesale OrganizationsPurchasesMarketing andadministrativecost budgetSales forecastBudgetedincomestatementCash budgetBudgetedbalance sheetsLO 13-7Budgeting Retail and Wholesale OrganizationsCastro Audio & Video, Inc.Estimated Information for Retail OperationsLO 13-7Budgeting Retail and Wholesale OrganizationsLO 13-7Ethical Problems in BudgetingLO 13-8 Explain why ethical issues arise in budgeting.Budgets can create serious ethical issues for many people. The company must recognize the trade-off between encouraging unbiased reporting by managers and the use of budget information in performance evaluation and rewards.LO 13-8Budgeting Under UncertaintyLO 13-9 Explain how to use sensitivity analysis to budget under uncertainty.Budgets allow management to explore many alternatives.Spreadsheets are helpful in preparing budgets and quantifying “what-if” conditions. Questions like what if labor costs are 10 percent higher (or lower) than projected? LO 13-9Alternative Budgeting ScenariosSantiago Pants Alternative Budget ScenariosLO 13-9End of Chapter 13