Chapter 6 (wk5)

Chapter 6 (wk5) - Master Budget and Responsibility...

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1 Chapter 6 Master Budget and Responsibility Accounting Understand what a master budget is and explain its benefits. Budgeting Cycle Performance planning Providing a frame of reference Investigating variations Corrective action Planning again The Master Budget Master Budget Operating Decisions Financial Decisions Describe the advantages of budgets. What are the Advantages of Budgets? Compels strategic planning Provides a framework for judging performance #1 #2
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2 What are the Advantages of Budgets? Motivates employees and managers Promotes coordination and communication #3 #4 Strategy, Planning, and Budgets Strategy Analysis Long-run Planning Short-run Planning Long-run Budgets Short-run Budgets Time Coverage of Budgets Budgets typically have a set time period (month, quarter, year). This time period can itself be broken into subperiods. The most frequently used budget period is one year. Businesses are increasingly using rolling budgets. Prepare the operating budget and its supporting schedules. Operating Budget Example Hawaii Diving expects 1,100 units to be sold during the month of August 2004. Selling price is expected to be $240 per unit. How much are budgeted revenues for the month? 1,100 × $240 = $264,000 Operating Budget Example Two pounds of direct materials are budgeted per unit at a cost of $2.00 per pound, $4.00 per unit. Three direct labor-hours are budgeted per unit at $7.00 per hour, $21.00 per unit. Variable overhead is budgeted at $8.00 per direct labor-hour, $24.00 per unit. Fixed overhead is budgeted at $5,400 per month.
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3 Operating Budget Example Variable nonmanufacturing costs are expected to be $0.14 per revenue dollar. Fixed nonmanufacturing costs are $7,800 per month. Production Budget Example Budgeted sales (units) Target ending finished goods inventory (units) Beginning finished goods inventory (units) Budgeted production (units) + = Production Budget Example Assume that target ending finished goods inventory is 80 units. Beginning finished goods inventory is 100 units. How many units need to be produced? Production Budget Example Hawaii Diving Production Budget for the Month of August 2004 Units required for sales 1,100 Add ending inv. of finished units 80 Total finished units required 1,180 Less beg. inv. of finished units 100 Units to be produced 1,080 Direct Materials Usage Budget Each finished unit requires 2 pounds of direct materials at a cost of $2.00 per pound.
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Chapter 6 (wk5) - Master Budget and Responsibility...

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