Managerial Accounting Ch 10

Sales budget

# of unit sales x sales price per unit = total sales revenue [For each month] Also indicates type of sale: cash or credit (%)

Manufacturing Overhead Budget

highly dependent on cost behavior -> separted into variable costs (IDM, IDL, utilities) and fixed costs (depreciation, insurance, and property taxes) Units to Producted x Variable Indirect Material/Labor per unit = Total Variable Costs 1. Units to Be Produced from Production Budget 2. Multiple by each variable cost 3. = Total Variable costs 4. Plus each fixed cost 5. Variable + Fixed = Total MOH

Developing Budgets: Participative Budgeting (pros/cons)

participative budgeting involves the participation of many levels of management to create the budget PRO: lower-level managers are closer to the action (know details) PRO: participating increases managers' acceptance/motivation CON: process becomes more complex and time consuming CON: managers may intentionally build slack into the budget

Developing Budgets: budget committee

review the submitted budgets, remove unwarranted slack, and revise and approve the final budget.

Operating Expense Budget

All costs incurred in every area of the value chain - except - production must be expensed as operating expenses in the period in which they are incurred (PERIOD COSTS)' Some operating expenses are VARIABLE costs, based on how many units will be sold (not produced) Ex - Sales Commision, Shipping Costs, Bad Debt Expense Many other costs (e.g., depreciation, insurance, and property taxes on the factory; some indirect labor salaries; some minimum of factory utilities) are FIXED costs

zero-based budgeting

all managers begin with a budget of zero and must justify every dollar they put in the budget. BUT is time-consuming and labor intensive

Operating budgets:

all of the budgets needed to run the daily operations of the company - culminating in a budgeted income statement . Sales, Product, DL, DM, MOH, Operating Expenses, Budgeted Income Statement

Developing Budgets: Why include slack into the budget?

(1) because of uncertainty about the future, (2) to make their performance look better when actual results are compared against budgeted amounts at the end of the period (3) to have the resources they need in the event of mandatory budget cuts.

Cash payments budget

*WHEN does the company for all of its costs? Covers ALL costs - production costs AND operating expenses net 30 - one month lag 1.

Budgeted Income Statement

1. Calculate COGS Number of Unit Sales x Manufacturing Cost per Unit = COGS Manufacturing Sales Revenue - COGS = Gross Profit - Operating Expenses = Operating Income

Operating Expense Budget

1. Units to Be Produced from Production Budget 2. Multiple by each variable moh cost 3. = Total Variable costs 4. Plus each fixed moh cost 5. Variable + Fixed Costs

Cash collections budget

Based on collection history, companies estimate how much (i.e., what %) of credit sales they expect to collect in X months after the sale and how much bad debt expense

Master Budget for Merchandiser

Budgeted Sales Rev --> COGS, inventory, and purhcases budget --> Operating Expenses Budget -> Budgeted Income Statement --> Capital Expenditures Budget --> Cash Budgets --> Budgeting Balance Sheey

Safety Stock

Desired Ending Inventory or when Company wants to produce extra units "just in case" of good/bad unplanned events Ex. Tucson Tortilla wants to maintain ending inventory equal to 10% of next month's expected sales

Direct Materials Budget

Each type of direct material has its own budget Quanity of DM Needed for Production + Desired DM Ending Inventory = Total Quanity of DM Needed - DM Beginning Inventory = Quantity of DM to Purchase 1. Units of DM Needed for Production from Production Budget 2. Multiply (x) by Quantity (lbs) of DM needed per unit - Quarter column is not total but same as rest 3. = Total Quantity (lbs) needed for production 4. Plus Desired Ending Inv (% of next/last months Quantity Needed for production) - Quarter column is last inventory 5. = Total Quantity (lbs) needed 6. - Beg Inv [from desired ending inv] 7. = Quantity to purchase 8. Multiply (x) cost per pound 9. = Total Cost of DM purchases

Master Budget

It is the comprehensive planning document for the entire organization that consists of all of the supporting budgets

What is budgeting used for?

Managers use budgeting for planning for the future and controlling revenues and expenses related to the those plans

What is the starting point for shorter-term budgets?

Many companies use the prior year's budgeted figures or actuals as a starting point, then modify for changes in market, labor contratct, inflation etc

What are the benefits of budgeting? PCB

Planning - forces managers to spend time planning for the future, rather than only concerning themselves with daily operations. Communications and Coordination increase Benchmarking motivates employees and helps managers evaluate performance

Master Budget for manufacturing company

Sales Budget --> Operating Expense Budget --> Budgeted Income Statement --> Capital Expenditure Budget --> Cash Budget --> Budgeted Balance Sheet

Order of Master Budget for Manufacturing Company

Sales Budget --> Production Budget --> DM Budget, DL Budget, MOH Budget --> Operating Expenses Budget --> Budgeted Income Statement --> Capital Expenditures Budget --> Cash Collection, Cash Payments, Combined Cash Budget --> Budgeted Balance Sheet

Capital Expenditures Budget

Shows the company's intentions to invest in new property, plant, or equipment (capital investments). When significant, can affect depreciation, interest expense, dividend payments

Production Budget

Units Needs for Sales + Desired Ending Inventory = Total Units Needed - Units in Beginning Inventory = Units to Produce 1. Unit Sales Needed from Sales Budget 2. + Desired Ending Inventory [% of Unit Sales of next/last month] --> Quarter column is the last months ending inventory 3. = Total Needed Quarter column is quarter total sales + quarter desired ending inv 4. - Beginning Inventory (take from previous month's desired ending inventory_ 5. = Number of units to produce

Direct Labor Budget

Units to Be Produced x DL Hours per Unit = Total DL Hours Required x DL Cost per Hour = Total Direct Labor Cost 1. Units to Be Produced from Production Budget 2. Multiply by Direct Labor hours per unit 3. = Total hours required 4. Multiple by Direct Labor cost per hour 5. Direct Labor cost per hour No safety stock because you cannot have safety on humans or labor

Developing Budgets: Top-Down Budgeting

budgeting method where senior management prepares a high-level budget for the company

benefits of budgeting: Benchmarking

budgets provide a benchmark that motivates employees and helps managers performance .

variance

difference between actual and budgeted figures, is used to evaluate how well the manager controlled operations and to determine whether the plan needs to be revised.

Strategic planning

involves setting long-term goals that may extend 5 to 10 years into the future.

Rolling budget

is a budget that is continuously updated so that the next 12 months of operations are always budgeted.

benefits of budgeting.: Coordination and Communication

the budget coordinates a company's activities value chain across the entire . Different departments will need to communicate with each other to achieve the budget

Financial budgets:

the capital expenditures budget and the cash budgets - culminating in a budgeted balance sheet Ca