Chapter 21 Budgeting.ppt - Benefts oF Budgeting It requires...

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Benefits of Budgeting It requires all levels of management can plan ahead and formalize goals It provides clear objectives for evaluation of performance at all levels It can be an early warning system for potential problems It facilitates the coordination of activities It results in greater management awareness of the entity's overall operations It motivates personnel 2014 KD Hatheway-Dial
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Master Budget Sales Budget Manufacturing Overhead Budget Direct Labor Budget Production Budget Ending Inventory Budget Direct Material Budget Budgeted Balance Sheet Cash Budget Selling and Administrative Expense Budget Budgeted Income Statement Exhibit 1~ Master Budget 2014 KD Hatheway-Dial
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Sales Budget THE COMPANY Sales Budget For the quarter ending June 30, 201X April May June Total Budgeted Sales in units 5,000 6,200 4,000 15,200 Selling price per unit $18.00 $18.00 $18.00 $18.00 Total Budgeted Sales $90,000 $111,60 0 $72,000 $273,6 00 5,000 x $18.00 = $90,000 Exhibit 2~Sales Budget 2014 KD Hatheway-Dial
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Cash Collections Budget The Company Cash Collections Budget For the quarter ending June 30, 201X April May June Total Accounts Receivable – Beginning Balance $25,300 $25,300 April Sales $45,000 $45,000 $90,000 May Sales $55,800 $55,800 $111,60 0 June Sales $36,000 $36,000 Total Cash Collections $70,300 $100,800 $91,800 $262,90 0 Cash from sales is collected 50% in the month of sales and 50% in the following month April Sales $90,000 x 50% Exhibit 3~ Cash Collections Budget From March 30 th Balance Sheet 2014 KD Hatheway-Dial
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Problem – Collections budget Silver Company makes a product that is very popular as a Mother’ s Day gift. Thus peak sales occur in May of each year as shown From past experience, the company has learned that 20% of a month’ s sales are collected the month of sale, another 70% the month following sale and the remaining 10% are collected in the second month following sale. Bad Debt are negligible and can be ignored. February sales totaled $230,000 and March sales totaled $200,000 Prepare a schedule of expected cash collections from sales by month and in total for the second quarter (Garrison, Management Accounting 13 th edition) April May June Total Budgeted Sales all on account $300,000 $500,000 $200,000 1,000,00 0 2014 KD Hatheway-Dial
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Production Budget THE COMPANY Production Budget For the quarter ending June 30, 201X April May June Total Budgeted Sales in units 5,000 6,200 4,000 15,20 0 Add desired ending inventory 1,240 800 880 880 Total Needs 6,240 7,000 4,880 16,08 0 Less beginning inventory (840) (1,240 ) (800) (840)
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