Download - Jordan Managment Accounting 51
-
8/8/2019 Jordan Managment Accounting 51
1/47
Profit Planning
-
8/8/2019 Jordan Managment Accounting 51
2/47
Learning Objective 1
Understand whyUnderstand whyorganizations budget andorganizations budget andthe processes they use tothe processes they use to
create budgets.create budgets.
-
8/8/2019 Jordan Managment Accounting 51
3/47
T he Basic Framework of
Budgeting A bud get is a detailed quantitative plan for acquiring and using financial and other resources
over a specified forthcoming time period.
1. T he act of preparing a budget is calledbud geting .
2. T he use of budgets to control anorganizations activity is known asbud getary control .
-
8/8/2019 Jordan Managment Accounting 51
4/47
P lanning and Control
Planning Planning
involvesinvolvesdevelopingdevelopingobjectives andobjectives andpreparing variouspreparing various
budgets to achievebudgets to achievethese objectives.these objectives.
Control Control
involves the stepsinvolves the stepstaken bytaken bymanagement thatmanagement thatattempt to ensureattempt to ensure
the objectives arethe objectives areattained.attained.
-
8/8/2019 Jordan Managment Accounting 51
5/47
Advantages of Budgeting
Adv antages
Define goalDefine goaland objectivesand objectives
Uncover potentialUncover potentialbottlenecksbottlenecks
CoordinateCoordinateactivitiesactivities
CommunicateCommunicate
plansplans
T hink about andT hink about and
plan for the futureplan for the future
Means of allocatingMeans of allocatingresourcesresources
-
8/8/2019 Jordan Managment Accounting 51
6/47
R esponsibility Accounting
Managers should be held responsible for Managers should be held responsible for those itemsthose items andand only only those itemsthose items
thatthatthe manager can actually controlthe manager can actually controlto a significant extent.to a significant extent.
-
8/8/2019 Jordan Managment Accounting 51
7/47
Choosing the Budget P eriod
Op erating B ud getOp erating B ud get
2005 2006 2007 2008
T he annual operating budgetT he annual operating budgetmay be divided into quarterlymay be divided into quarterlyor monthly budgets.or monthly budgets.
A continuous budget is a A continuous budget is a1212--month budget that rollsmonth budget that rollsforward one month (or quarter)forward one month (or quarter)
as the current month (or quarter)as the current month (or quarter)is completed.is completed.
-
8/8/2019 Jordan Managment Accounting 51
8/47
S elf-Imposed Budget
A budget is prepared with the full cooperation and A budget is prepared with the full cooperation andparticipation of managers at all levels. A participativeparticipation of managers at all levels. A participative
budget is also known as abudget is also known as a self self--imposed budgetimposed budget ..
S upervisor S upervisor
iddleanagement
S upervisor S upervisor
iddleanagement
Top anagement
-
8/8/2019 Jordan Managment Accounting 51
9/47
Advantages of S elf-ImposedBudgets
1.1. Individuals at all levels of the organization are viewedIndividuals at all levels of the organization are viewedas members of the team whose judgments are valuedas members of the team whose judgments are valuedby top management.by top management.
2.2. Budget estimates prepared by frontBudget estimates prepared by front- -line managers areline managers areoften more accurate than estimates prepared by topoften more accurate than estimates prepared by topmanagers.managers.
3.3. Motivation is generally higher when individualsMotivation is generally higher when individualsparticipate in setting their own goals than when theparticipate in setting their own goals than when thegoals are imposed from above.goals are imposed from above.
4.4. A manager who is not able to meet a budget imposed A manager who is not able to meet a budget imposedfrom above can claim that it was unrealistic. S elf from above can claim that it was unrealistic. S elf--imposed budgets eliminate this excuse.imposed budgets eliminate this excuse.
-
8/8/2019 Jordan Managment Accounting 51
10/47
S elf-Imposed Budgets Most companies do not rely exclusively uponMost companies do not rely exclusively upon
self self--imposed budgets in the sense that topimposed budgets in the sense that topmanagers usually initiate the budget processmanagers usually initiate the budget process
by issuing broad guidelines in terms of overallby issuing broad guidelines in terms of overallprofits or sales.profits or sales.
-
8/8/2019 Jordan Managment Accounting 51
11/47
H uman Factors in Budgeting
T he success of budgeting depends uponT he success of budgeting depends uponthree important factors:three important factors:
1.1. T op management must be enthusiasticT op management must be enthusiasticand committed to the budget process.and committed to the budget process.
2.2. T op management must not use the budgetT op management must not use the budgetto pressure employees or blame themto pressure employees or blame them
when something goes wrong.when something goes wrong.3.3. H ighly achievable budget targets areH ighly achievable budget targets areusually preferred when managers areusually preferred when managers arerewarded based on meeting budgetrewarded based on meeting budgettargets.targets.
-
8/8/2019 Jordan Managment Accounting 51
12/47
T he Budget Committee
A standing committee responsible A standing committee responsible
for for overall policy matters relating to theoverall policy matters relating to thebudgetbudget
coordinating the preparation of thecoordinating the preparation of thebudgetbudget
-
8/8/2019 Jordan Managment Accounting 51
13/47
T he Master Budget: An Overview
Pro du ctionBud get
Pro du ctionBud get
Selling an d
Adm
inistrativ
eBud get
Selling an d
Adm
inistrativ
eBud get
DirectMaterialsBud get
DirectMaterialsBud get
Man u fact u ringOv erhea d
Bud get
Man u fact u ringO v erhea d
Bud get
DirectLa b or
Bud get
DirectLa b or
Bud get
CashBud get
CashBud get
SalesBud getSales
Bud get
Bud
geted
Financial Statem
entsBud
geted
Financial Statem
ents
En d ingFinishe d Goo d s
Bud get
En d ingFinishe d Goo d s
Bud get
-
8/8/2019 Jordan Managment Accounting 51
14/47
Learning Objective 2
P repare a sales budget,P repare a sales budget,including a schedule of including a schedule of
expected cash collections.expected cash collections.
-
8/8/2019 Jordan Managment Accounting 51
15/47
Budgeting Example R oyal Company is preparing budgets for R oyal Company is preparing budgets for
the quarter ending Junethe quarter ending June 30 30..Budgeted sales for the next five monthsBudgeted sales for the next five months
are:are:Ap rilAp ril 2020,,000000 u nitsu nitsMayMay 5050,,000000 u nitsu nitsJ u neJ u ne 3030,,000000 u nitsu nitsJ u lyJ u ly 2525,,000000 u nitsu nitsAu g u stAu g u st 1515,,000000 u nits.u nits.
T he selling price is $T he selling price is $1010 per unit.per unit.
-
8/8/2019 Jordan Managment Accounting 51
16/47
T he S ales BudgetT he individual months of April, May, and June aresummed to obtain the total projected sales in units
and dollars for the quarter ended June 30 th
-
8/8/2019 Jordan Managment Accounting 51
17/47
Expected Cash Collections
All sales are on account. All sales are on account.R oyals collection pattern is:R oyals collection pattern is:
70% collected in the month of sale,70% collected in the month of sale,25% collected in the month following25% collected in the month followingsale,sale,
5% uncollectible.5% uncollectible.T he March 31 accounts receivableT he March 31 accounts receivablebalance of $30,000 will be collected inbalance of $30,000 will be collected infull.full.
-
8/8/2019 Jordan Managment Accounting 51
18/47
Expected Cash Collections
-
8/8/2019 Jordan Managment Accounting 51
19/47
Expected Cash Collections
From the Sales Budget for April.From the Sales Budget for April.
-
8/8/2019 Jordan Managment Accounting 51
20/47
Expected Cash Collections
From the Sales Budget for May.From the Sales Budget for May.
-
8/8/2019 Jordan Managment Accounting 51
21/47
Q uick Check
What will be the total cash collections for theWhat will be the total cash collections for thequarter?quarter?a. $a. $700700,,000000b. $b. $220220,,000000c. $c. $190190,,000000
d. $d. $905905,,000000
-
8/8/2019 Jordan Managment Accounting 51
22/47
What will be the total cash collections for theWhat will be the total cash collections for thequarter?quarter?a. $a. $700700,,000000b. $b. $220220,,000000c. $c. $190190,,000000
d. $d. $905905,,000000
Q uick Check
-
8/8/2019 Jordan Managment Accounting 51
23/47
Expected Cash Collections
-
8/8/2019 Jordan Managment Accounting 51
24/47
Learning Objective 3
P repare aP repare aproduction budget.production budget.
-
8/8/2019 Jordan Managment Accounting 51
25/47
T he P roduction Budget
Pro du ctionPro du ctionBud getBud get
SalesSalesBud getBud get
an dan dEx p ecte dEx p ecte dCashCash
CollectionsCollections
P roduction must be adequate to meet budgetedP roduction must be adequate to meet budgetedsales and provide for sufficient ending inventory.sales and provide for sufficient ending inventory.
-
8/8/2019 Jordan Managment Accounting 51
26/47
T he P roduction Budget
T he management at R oyal CompanyT he management at R oyal Companywants ending inventory to be equal towants ending inventory to be equal to 20%20%
of the following months budgeted sales inof the following months budgeted sales inunits.units.
On March 31, 4,000 units were on hand.On March 31, 4,000 units were on hand.
Lets prepare the production budget.Lets prepare the production budget.
-
8/8/2019 Jordan Managment Accounting 51
27/47
T he P roduction Budget
-
8/8/2019 Jordan Managment Accounting 51
28/47
T he P roduction Budget
March 31March 31ending inventoryending inventory
B ud gete d ay sales 50,000 esire d en d ing in v entory % 20%esire d en d ing in v entory 10,000
-
8/8/2019 Jordan Managment Accounting 51
29/47
Q uick Check
What is the required production for May?What is the required production for May?a. 56,000 unitsa. 56,000 unitsb. 46,000 unitsb. 46,000 unitsc. 62,000 unitsc. 62,000 unitsd. 52,000 unitsd. 52,000 units
-
8/8/2019 Jordan Managment Accounting 51
30/47
What is the required production for May?What is the required production for May?a. 56,000 unitsa. 56,000 unitsb. 46,000 unitsb. 46,000 unitsc. 62,000 unitsc. 62,000 unitsd. 52,000 unitsd. 52,000 units
Q uick Check
-
8/8/2019 Jordan Managment Accounting 51
31/47
T he P roduction Budget
-
8/8/2019 Jordan Managment Accounting 51
32/47
T he P roduction Budget
Assumed ending inventory. Assumed ending inventory.
-
8/8/2019 Jordan Managment Accounting 51
33/47
Learning Objective 4
P repare a direct materialsP repare a direct materialsbudget, including abudget, including a
schedule of expected cashschedule of expected cashdisbursements for disbursements for
purchases of materials.purchases of materials.
-
8/8/2019 Jordan Managment Accounting 51
34/47
T he Direct Materials Budget AtR oyal Company, At R oyal Company, f ive poundsf ive pounds of materialof material
are required per unit of product.are required per unit of product.Management wants materials on hand at theManagement wants materials on hand at theend of each month equal toend of each month equal to 10%10% of theof thefollowing months production.following months production.
On March 31, 13,000 pounds of material areOn March 31, 13,000 pounds of material areon hand. Material cost ison hand. Material cost is $0.40 $0.40 per pound.per pound.
Lets prepare the direct materials budget.Lets prepare the direct materials budget.
-
8/8/2019 Jordan Managment Accounting 51
35/47
T he Direct Materials Budget
From production budgetFrom production budget
-
8/8/2019 Jordan Managment Accounting 51
36/47
T he Direct Materials Budget
-
8/8/2019 Jordan Managment Accounting 51
37/47
T he Direct Materials Budget
Calculate the materials toCalculate the materials tobe purchased in May.be purchased in May.
March 31 inventoryMarch 31 inventory
10% of following monthsproduction needs.
-
8/8/2019 Jordan Managment Accounting 51
38/47
Q uick Check
H ow much materials should be purchased inH ow much materials should be purchased inMay?May?a. 221,500 poundsa. 221,500 poundsb. 240,000 poundsb. 240,000 poundsc. 230,000 poundsc. 230,000 pounds
d. 211,500 poundsd. 211,500 pounds
-
8/8/2019 Jordan Managment Accounting 51
39/47
H ow much materials should be purchased in May?H ow much materials should be purchased in May?a. 221,500 poundsa. 221,500 pounds
b. 240,000 poundsb. 240,000 poundsc. 230,000 poundsc. 230,000 poundsd. 211,500 poundsd. 211,500 pounds
Q uick Check
-
8/8/2019 Jordan Managment Accounting 51
40/47
T he Direct Materials Budget
-
8/8/2019 Jordan Managment Accounting 51
41/47
T he Direct Materials Budget
Assumed ending inventory Assumed ending inventory
-
8/8/2019 Jordan Managment Accounting 51
42/47
Expected Cash Disbursement for Materials
R oyal paysR oyal pays $ $0 0..40 40 per pound per pound for its materials.for its materials.OneOne--hal f hal f of a months purchases is paid for inof a months purchases is paid for inthe month of purchase; the other half is paidthe month of purchase; the other half is paidin the following month.in the following month.T he MarchT he March 3131 accounts payable balance isaccounts payable balance is$$1212,,000000..
Lets calculate expected cash disbursements.Lets calculate expected cash disbursements.
-
8/8/2019 Jordan Managment Accounting 51
43/47
Expected Cash Disbursement for Materials
-
8/8/2019 Jordan Managment Accounting 51
44/47
Expected Cash Disbursement for Materials
140140,,000000 lbs.lbs. $.$.4040/lb. = $/lb. = $5656,,000000
Compute the expected cashCompute the expected cashdisbursements for materialsdisbursements for materials
for the quarter.for the quarter.
-
8/8/2019 Jordan Managment Accounting 51
45/47
Q uick Check
What are the total cash disbursements for theWhat are the total cash disbursements for thequarter?quarter?
a. $185,000a. $185,000b. $ 68,000b. $ 68,000c. $ 56,000c. $ 56,000
d. $201,400d. $201,400
-
8/8/2019 Jordan Managment Accounting 51
46/47
What are the total cash disbursements for theWhat are the total cash disbursements for thequarter?quarter?a. $185,000a. $185,000b. $ 68,000b. $ 68,000c. $ 56,000c. $ 56,000d. $201,400d. $201,400
Q uick Check
-
8/8/2019 Jordan Managment Accounting 51
47/47
Expected Cash Disbursement for Materials