Bài giảng Managerial Accounting - Chapter 6: Budgetary Planning

John Wiley & Sons, Inc.Prepared byKarleen Nordquist..The College of St. Benedict... and St. John’s University...with contributions byMarianne Bradford..The University of Tennessee...Gregory K. Lowry.Macon Technical Institute..Managerial Accounting Weygandt, Kieso, & KimmelChapter 6Budgetary PlanningAfter studying this chapter, you should be able to:1 Indicate the benefits of budgeting.2 State the essentials of effective budgeting.3 Identify the budgets the comprise the master budget.4 Describe the sources for preparing the budgeted income statement.5 Explain the principal sections of a cash budget.6 Indicate the applicability of budgeting in nonmanufacturing companies.Chapter 6Budgetary PlanningPreview of Chapter 6Budgeting BasicsBudgets and AccountingBenefitsEssentials of Effective BudgetingLength of Budget PeriodBudgeting ProcessBudgeting and Human BehaviorBudgeting and Long-Range PlanningThe Master BudgetBUDGETARY PLANNINGPreview of Chapter 6Preparing the Operating BudgetsSalesProductionDirect MaterialsManufacturing OverheadSelling and Administrative ExpenseBudgeted Income StatementBUDGETARY PLANNINGPreview of Chapter 6Preparing the Financial BudgetsCashBudgeted Balance SheetBudgeting in Nonmanufacturing CompaniesMerchandisingServiceNon-for-profitBUDGETARY PLANNINGBudgeting BasicsBudgeting is used as a planning tool.A budget is a formal written summary (or statement) of management’s plans for a specified time period, expressed in financial terms.It normally represents the primary means of communicating agreed-upon objectives throughout the business organization.Accounting information makes major contributions to the budgeting process.Indicate the benefits of budgeting.Study Objective 1Benefits of BudgetingThe primary benefits of budgeting are as follows:It requires all levels of management to plan ahead.It provides definite objectives for evaluating performance.It creates an early warning system for potential problems.It facilitates the coordination of activities within the business.It results in greater management awareness of the entity’s overall operations.It contributes to positive behavior patterns throughout the organization.State the essentials of effective budgeting.Study Objective 2Essentials of Effective BudgetingEffective budgeting depends on a sound organizational structure in which authority and responsibility over all phases of operations are clearly defined.Budgets based on research and analysis should result in realistic goals that will contribute to the growth and profitability of the company.The effectiveness of a budget program is directly related to its acceptance by all levels of management.Length of the Budget PeriodThe most common budget period is one year, but a budget may be prepared for any period of time.The annual budget is often supplemented by monthly and quarterly budgets.A continuous twelve-month budget results from dropping the month just ended and adding a future month. The Budgeting ProcessIn many companies, the responsibility for coordinating the preparation of the budget is assigned to a budget committee. The budget committee is headed by a budget director and usually includes the president, treasurer, chief accountant (controller), and management personnel from each major area of the company.The Budgeting ProcessThe budget is developed within the framework of a sales forecast that shows potential sales for the industry and the company’s expected share of such sales. Sales forecasting involves consideration of such factors asgeneral economic conditions,industry trends,market research studies,anticipated advertising and promotion,previous market share,changes in prices, andtechnological developments.Budgeting and Human BehaviorA budget can have a significant effect on human behavior.A budget may have a strong positive influence on a manager when:Each level of management is invited and encouraged to participate in developing the budget.The budget has the complete support of top management and it is an important basis for evaluating performance.Criticism of a manager’s performance is tempered with advice and assistance.Top management is sensitive to the behavioral implications of its actions.Budgeting and Long-Range PlansBudgeting and long-range planning are not the same.The maximum length of a budget is usually a year, while long-range planning usually encompasses at least five years.With budgeting the emphasis is on the achievement of specific short-term goals. Long-range planning is a formalized process of selecting strategies to achieve long-term goals and developing policies and plans to implement the strategies. Long-range plans contain considerably less detail than budgets.Identify the budgets that comprise the master budget.Study Objective 3The Master BudgetThe master budget is a set of interrelated budgets that constitutes a plan of action for a specified time period. The individual budgets included in a master budget are shown on the next slide.Hayes Company, which sells a single product, Kitchen-mate, will be used as an example.Components of the Master BudgetSales BudgetProduction BudgetDirect Labor BudgetSelling & Administrative Expense BudgetBudget Income StatementCash BudgetBudgeted Balance SheetCapital Expenditure BudgetDirect Labor BudgetDirect Labor BudgetOperatingBudgetsFinancialBudgetsIllustration 6-2Two Classes of Budgets in the Master BudgetOperating budgets include the individual budgets that culminate in the preparation of the budgeted income statement.Financial budgets include the cash budget and the budgeted balance sheet. These budgets focus primarily on the cash resources needed to fund expected operations and planned capital expenditures.Preparing the Operating Budgets:Sales BudgetThe sales budget is the first budget prepared. Each of the other budgets depends on the sales budget.It is derived from the sales forecast, and it represents management’s best estimate of sales revenue for the budget period. Preparing the Operating Budgets:Sales BudgetThe sales budget is prepared by multiplying the expected unit sales volume for each product by its anticipated unit selling price.For Hayes Company, sales volume is expected to be 3,000 units in the first quarter with 500-unit increments in each succeeding year. Based on a sales price of $60 per unit, the sales budget for the year by quarters is shown below:Hayes CompanySales BudgetFor the Year Ending December 31, 1999Expected unit salesUnit selling priceTotal sales 1 3,000 x $60$180,000 2 3,500 x $60$210,000 3 4,000 x $60$240,000 4 4,500 x $60$270,000 Year 15,000 x $60$900,000 Quarter Illustration 6-3The production budget shows the units that must be produced to meet anticipated sales. A realistic estimate of ending inventory is essential in scheduling production requirements.The production requirements formula is:Preparing the Operating Budgets:Production BudgetDesired Ending Finished Goods UnitsBeginning Finished Goods UnitsBudgeted Sales UnitsRequired Production UnitsIllustration 6-4Preparing the Operating Budgets:Production BudgetHayes believes it can meet future sales requirements by maintaining an ending inventory equal to 20% of the next quarter’s budgeted sales volume. For example, the ending finished goods inventory for the first quarter is 700 units (20% x anticipated second-quarter sales of 3,500 units). The production budget is shown on the next slide.Preparing the Operating Budgets:Production BudgetHayes CompanyProduction BudgetFor the Year Ending December 31, 1999Expected unit sales (sales budget)Add: Desired ending FG unitsaTotal required unitsLess: Beginning FG unitsRequired production units 1 3,000  700 3,700  600c3,100 Quarter Illustration 6-5 2 3,500 8004,300 7003,600 3 4,000 9004,900 8004,100 4 4,500  1,000b5,500  900 4,600 Year 15,400a20% of next quarter’s salesbExpected 2000 first-quarter sales, 5000 units x 20%c20% of estimated first-quarter 1999 sales unitsThe direct materials budget contains both the quantity and cost of direct materials to be purchased. It is derived from the direct materials units required for production (per production budget) plus the desired ending direct materials units less the beginning direct materials units.Desired Ending Direct Materials UnitsBeginning Direct Materials UnitsDirect Materials Units Required for ProductionRequired Direct Materials Purchases UnitsIllustration 6-6Preparing the Operating Budgets:Direct Materials BudgetPreparing the Operating Budgets:Direct Materials BudgetBecause of its close proximity to its suppliers, Hayes Company has found that an ending inventory of raw materials equal to 10% of the next quarter’s production is sufficient.The manufacture of each Kitchen-mate requires 2 pounds of raw materials and the expected cost per pound is $4.The direct materials budget is shown on the next slide.Preparing the Operating Budgets:Direct Materials BudgetHayes CompanyDirect Materials BudgetFor the Year Ending December 31, 1999Units to be produced (from production budget)Direct materials per unitTotal pounds needed for productionAdd: Desired ending DMTotal materials requiredDirect materials purchasesCost per poundTotal cost of DM purchases 1 3,100  x 2 6,200  720 6,920  620c6,300 x $4 $25,200 Quarter Illustration 6-7a10% of next quarter’s productionbEstimated 2000 first-quarter pounds needed for production, 10,200 x 10%c10% of estimated first-quarter 1999 pounds needed for production 2 3,600  x 2 7,200  820 8,020  720 7,300 x $4 $29,200 3 4,100  x 2 8,200  920 9,120  820 8,300 x $4 $33,200 4 4,600  x 2 9,200  1,020b10,220  920 9,300 x $4 $37,200 Year $124,800Preparing the Operating Budgets:Direct Labor BudgetThe direct labor budget contains the quantities (hours) and cost of direct labor necessary to meet production requirements.At Hayes Company, two hours of direct labor are required to produce each unit of finished goods, and the anticipated hourly wage rate is $10. The direct labor budget is shown below:Hayes CompanyDirect Labor BudgetFor the Year Ending December 31, 1999Units to be produced (from production budget)Direct labor time per unitTotal required direct labor hoursDirect labor cost per hourTotal direct labor cost 1 3,100 x 26,200 x $10$62,000 Quarter 2 3,600 x 27,200 x $10$72,000 3 4,100 x 28,200 x $10$82,000 4 4,600 x 29,200 x $10$92,000 Year $308,000Illustration 6-8The manufacturing overhead budget on the next slide shows the expected manufacturing overhead costs for the budget period. This budget distinguishes between fixed and variable overhead costs.The fixed cost amounts are assumed, and Hayes expects the following variable costs per direct labor hour:indirect materials: $1.00indirect labor: $1.40utilities: $0.40maintenance: $0.20Preparing the Operating Budgets:Manufacturing Overhead BudgetPreparing the Operating Budgets:Manufacturing Overhead BudgetHayes CompanyManufacturing BudgetFor the Year Ending December 31, 1999Variable Costs Indirect materials Indirect labor Utilities Maintenance Total variableFixed costs Supervisory salaries Depreciation Property tax and insurance MaintenanceTotal manufacturing overhead 1 $ 6,2008,6802,480 1,240 18,60020,0003,8009,000 5,700 38,500$57,100 Quarter Illustration 6-9 Year $246,400 2 $ 7,20010,0802,880 1,440 21,60020,0003,8009,000 5,700 38,500$60,100 3 $ 8,20011,4803,280 1,640 24,60020,0003,8009,000 5,700 38,500$63,100 4 $ 9,20012,8803,680 1,840 27,60020,0003,8009,000 5,700 38,500$66,1009,2008,2007,2006,20030,800Direct Labor hours$ 8.00Manufacturing overhead rate per direct labor hour ($246,400  30,000)The selling and administrative expense budget on the next slide is a projection of anticipated operating expenses. This budget also distinguishes between fixed and variable costs.Once again, the fixed cost amounts are assumed, and Hayes expects the following variable costs per unit sold (from sales budget):sales commissions: $3.00freight-out: $1.00Preparing the Operating Budgets:Selling & Administrative BudgetPreparing the Operating Budgets:Selling & Administrative BudgetHayes CompanySelling & Administrative BudgetFor the Year Ending December 31, 1999Variable Costs Sales commissions Freight-out Total variableFixed costs Advertising Sales salaries Depreciation Property taxes and insurance Total fixedTotal selling and administrative expenses 1 $ 9,000 3,000 12,0005,00015,0007,5001,000 1,500 30,000$42,000 Quarter Illustration 6-10 Year $180,000 2 $ 10,500 3,500 14,0005,00015,0007,5001,000 1,500 30,000$44,000 3 $ 12,000 4,000 16,0005,00015,0007,5001,000 1,500 30,000$46,000 4 $ 13,500 4,500 18,0005,00015,0007,5001,000 1,500 30,000$48,000Describe the sources for preparing the budgeted income statement.Study Objective 4Budgeted Income StatementThe budgeted income statement is the important end-product in preparing operating budgets. This budget indicates the expected profitability of operations and it provides a basis for evaluating company performance.Hayes’ budgeted income statement is prepared with data from all of the detailed operating budgets and the following additional information:Interest expense is expected to be $100.Income tax expense is expected to be $12,000.Budgeted Income StatementHayes CompanyBudgeted Income StatementFor the Year Ending December 31, 1999Illustration 6-12SalesCost of goods sold (15,000 x $44)Gross profitSelling & administrative expensesIncome from operationsInterest expenseIncome before income taxesIncome tax expenseNet income$900,000 660,000240,000 180,00060,000 10059,900 12,000$ 47,900Explain the principal sections of a cash budget.Study Objective 5Preparing the Financial Budgets:Cash BudgetThe cash budget shows anticipated cash flows.Because cash is so vital in a company, this budget is often considered to be the most important output in preparing financial budgets.A cash budget contributes to more effective cash management.The cash budget contains three sections:cash receipts.cash disbursements.financing.Preparing the Financial Budgets:Basic Form of Cash BudgetThe cash receipts section includes expected receipts from cash sales,collections from customers, interest and dividends, and proceeds from sales of assets and stock.Any CompanyCash BudgetBeginning cash balanceAdd: Cash receipts (itemized)Total cash availableLess: Cash disbursements (itemized)Excess (deficiency) of available cash over cash disbursementsFinancingEnding cash balance$x,xxx x,xxxx,xxx x,xxxx,xxx x,xxx$x,xxxIllustration 6-13The cash disbursements section shows expected payments for direct materials, direct labor, manufacturing overhead, selling & administrative expenses, income taxes, dividends, and assets.The financing section shows expected borrowings and the repayment of borrowed funds plus interest. This section is needed when there is a cash deficiency or when the cash balance is below management’s minimum required balance.Collections from CustomersPreparing a schedule of cash collections from customers is useful in preparing a cash budget. Assume that Hayes’ credit sales per the Sales Budget (amounts shown in parentheses below) are collected 60% in the quarter sold and 40% in the following quarter. Accounts Receivable of $60,000 at December 31, 1998 are expected to be collected in full the first quarter of 1999.Accounts receivable, 12/31/98First quarter ($180,000)Second quarter ($240,000)Third quarter ($240,000)Fourth quarter ($270,000)Total collections 1 $ 60,000 108,000$168,000 Quarter 2 $ 72,000 126,000$198,000 3 $ 84,000 144,000$228,000 4 $ 96,000 162,000$258,000Schedule of Expected Collections from CustomersIllustration 6-14Payments for Direct MaterialsPreparing a schedule of payments for direct materials is also useful in preparing a cash budget. Assume that Hayes’ purchases of direct materials per the Direct Materials Budget (amounts shown in parentheses below) are paid 50% in the quarter purchased and 50% in the following quarter. Accounts Payable of $10,600 at December 31, 1998 are expected to be paid in full the first quarter of 1999.Accounts payable, 12/31/98First quarter ($180,000)Second quarter ($240,000)Third quarter ($240,000)Fourth quarter ($270,000)Total collections 1 $ 10,600 12,600$23,200 Quarter 2 $ 12,600 14,600$27,200 3 $ 14,600 16,600$31,200 4 $ 16,600 18,600$35,200Schedule of Expected Payments for Direct MaterialsIllustration 6-14Other Assumptions for Hayes Company Cash BudgetThe January 1, 1999, cash balance is expected to be $38,000.Management wishes to maintain a $15,000 minimum cash balance.Marketable securities are expected to be sold for $2,000 cash in the first quarter.All direct labor is paid in the quarter incurred.All manufacturing overhead and selling & administrative expenses except depreciation are paid in the quarter incurred.Management plans to purchase a new truck in the second quarter for $10,000 cash.The company makes equal quarterly payments of its estimated annual income taxes.Loans are repaid in the first subsequent quarter in which there is sufficient cash.Hayes CompanyCash BudgetFor the Year Ending December 31, 1999Beginning cash balanceAdd: Receipts Collections from customers Sale of securities Total receiptsTotal available cashLess: Disbursements Direct materials Direct labor Manufacturing overhead Selling & administrative expenses Purchase of truck Income tax expense Total disbursementsExcess (deficiency) of available cash over disbursementsFinancing Borrowings Repayments (plus $100 interest)Ending cash balance 1 $ 38,000168,000 2,000 170,000 208,00023,20062,00053,30041,0000 3,000 182,50025,5000 0$ 25,500 Quarter Illustration 6-16 4 $ 19,400258,000 0 258,000 277,40035,20092,00062,30047,0000 3,000 239,50037,9000 0$ 37,900 3 $ 15,000228,000 0 228,000 243,00031,20082,00059,30045,0000 3,000 220,50022,5000 3,100$ 19,400 2 $ 25,500198,000 0 198,000 223,50027,20072,00056,30043,00010,000 3,000 211,50012,0003,000 0$ 15,000Budgeted Balance SheetThe budgeted balance sheet is a projection of financial position at the end of the budget period. It is developed from the budgeted balance sheet for the preceding year and the budgets for the current year.Pertinent data for Haye’s balance sheet which follows are: Building and equipment $182,000Accumulated depreciation 28,000Common stock 225,000Retained earnings 46,480Hayes CompanyBudgeted Balance SheetDecember 31, 1999Illustration 6-17Cash (Cash budget)Accounts receivable (Schedule of collections from customers)Finished goods inventory (Production budget x $44)Raw materials inventory (DM budget x $4)Buildings & Equipment (Beg balance on previous slide plus new truck on Cash budget))Less: Accumulated Depreciation (Beg balance on previous slide plus depr exp from MO and S&A exp budgets)Total assets$ 192,000 48,000$ 37,900108,00044,0005,080 144,000$337,980Accounts payable (Schedule of payments) Common stock (previous slide)Retained earnings (Beginning balance on previous slide plus NI from Budgeted income statement)Total liabilities and stockholders’ equity$ 18,600225,000 94,380$337,980ASSETSLIABILITIES AND STOCKHOLDERS’ EQUITYIndicate the applicability of budgeting in nonmanufacturing companiesStudy Objective 6Budgeting in Nonmanufacturing CompaniesBudgeting is not limited to manufacturing companies.Budgets may also be used in profit planning by:merchandising companies.service enterprises.not-for-profit organizations.Budgeting in Merchandising CompaniesThe major differences between the budgets of a merchandising company and a manufacturing company are that a merchandiser:uses a merchandise purchases budget instead of a production budget, and