Acct 2 (Ch 9 Lecture)

Acct 2 (Ch 9 Lecture) - Jul 2006 MAF Profit Planning Profit...

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Unformatted text preview: Jul 2006 MAF Profit Planning Profit Planning 9 9 Chapter Nine 2 Jul 2006 MAF Introduction All entities whether profit making or non profit making require budgets for planning and control purposes 3 Jul 2006 MAF Purposes of Budgets Budget a detailed plan, expressed in quantitative terms, that specifies how resources will be acquired and used during a specified period of time. Planning Planning Facilitating Facilitating Communication and Communication and Coordination Coordination Allocating Resources Allocating Resources Controlling Profit and Controlling Profit and Operations Operations Evaluating Performance Evaluating Performance and Providing Incentives and Providing Incentives 4 Jul 2006 MAF Types of Budgets Detail Detail Budget Budget Detail Detail Budget Budget Detail Detail Budget Budget Master Master Budget Budget Covering all phases of a companys operations. S a l e s Production M a t e r i a l s 5 Jul 2006 MAF Types of Budgets 1999 2000 2001 2002 Continuous or Continuous or Rolling Budget Rolling Budget This budget is usually a twelve-month budget that rolls forward one month as the current month is completed. L o n g R a n g e B u d g e t s L o n g R a n g e B u d g e t s Capital budgets with acquisitions that normally cover several years. 6 Jul 2006 MAF The Master Budget Direct Materials Budget Ending Inventory Budget Production Budget Selling and Administrative Budget Direct Labor Budget Manufacturing Overhead Budget Cash Budget Sales Budget Budgeted Financial Statements 7 Jul 2006 MAF Example Royal Company is preparing budgets for the quarter ending June 30. Budgeted sales for the next five months are: April 20,000 units May 50,000 units June 30,000 units July 25,000 units August 15,000 units. The selling price is $10 per unit. 8 Jul 2006 MAF The Sales Budget April May June Quarter Budgeted sales (units) 20,000 50,000 30,000 100,000 Selling price per unit 10 $ 10 $ 10 $ 10 $ Total sales 200,000 $ 500,000 $ 300,000 $ 1,000,000 $ 9 Jul 2006 MAF The Production Budget Royal Company wants ending inventory to be equal to 20% of the following months budgeted sales in units. On March 31, 4,000 units were on hand. Lets prepare the production budget. Lets prepare the production budget. 10 Jul 2006 MAF April May June Quarter Budgeted sales 20,000 50,000 30,000 100,000 Add desired ending inventory 10,000 6,000 5,000 5,000 Total needed 30,000 56,000 35,000 105,000 Less beginning inventory 4,000 10,000 6,000 4,000 Required production 26,000 46,000 29,000 101,000 The Production Budget 11 Jul 2006 MAF Expected Cash Collections All sales are on account. Royals collection pattern is: 70% collected in the month of sale, 25% collected in the month following sale, 5% is uncollectible....
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Acct 2 (Ch 9 Lecture) - Jul 2006 MAF Profit Planning Profit...

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