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Unformatted text preview: w THE": UNIVERSITY" OF: TEXAS AT AUSTIN all Macomes sea-em 0:: BUSINESS ACC 312 — Spring 2011 Fundamentals of Managerial Accounting Instructor - Brian Lendecky, MPA, CPA (copyright © 2011 Brian Lendecky) March 1, 3 and 8, 2011 Chapter 7 — Operating Budgets: Bridging Planning and Control "Few businesses plan to fail, but many of those that flop failed to plan.” Purpose of Budgets Budget - a detailed plan, expressed in quantitative terms, that specifies how limited resources will be acquired and used during a given period of time. There are 3 general purposes of budgets: 1. l7ifiknm'rj Sm quo’w O‘DOVL 2. (cortix'Mi-{OA (aka Pau‘lsma commonrcawm Wt Saw; Wm new} 3m talk to 7%. Produdwé“ 4‘6"“, Who Ascot: 1L0 +«M~\ 1’9 "H40, hippgj CA’VAJA WM/WMO Ami) L’ {Ml/k 47’ “it 0‘?3+fllbx)+lb(‘ 'fcmn/ 5H,, (Li-c. 3. UDMTo‘ (‘Pflfi-GIMQACL zvfiivah'om and Cedback) bkfijvh woe, as due 5Ho‘cw9 affair/M (Mick «aba/ fox)“; CMthoqum). Hod A0 in) [Know (C jauf 50"“qu 1'3 (MU/Aj a yaafi (gr qu y I Q. uwluh'oqsh graf/ MOMLH, (Andi ‘C :10!) Jon? have, 73? , a £30530} . The Master Budget Master Budget — a comprehensive profit plan that ties together all phases of an organization’s operations. The master budget comprises many smaller budgets that are interdependent. So, let’s prepare a Master Budgetll A Master Budget consists of preparing 3 smaller budgets (Budgeted Income Statement, Cash Budget, and Budgeted Balance Sheet), which consist of even smaller budgets. ‘ ~ Budgeted Income Statement . Revenue (or Sales) Budget Production Budget Direct Materials Budget Direct Labor Budget Manufacturing Overhead Budget Cost of Goods Manufactured Budget Cost of Goods Sold Budget Selling, Marketing, General, and Administrative Costs Budget . Budgeted Income Statement QWSQWPPNH Cash Budget 1. Cash Receipts Budget 2. Cash Disbursements Budget 3. Cash Budget Budgeted Balance Sheet 1. Budgeted Balance Sheet Budgeted Income Statement Many companies prepare their budgeted Income Statement in the contribution margin format, so we’ll do that for our example. What’s the first line of the Income Statement? galeM or Reduce) What two things do you need to know to budget how much revenue you are going to have? 1. HO“; Mamy 00;}; are, you jofnj to 5%”? 2- How NULM 4'0 300 jo.’ (j “to <34 VJL par 0"”? You are the Accounting Manager for ACC 312, Inc., which makes and sells T—shirts. Let’s make a Master Budget! VACC 312 Inc. is a small company that sells T-shirts. They are just finishing up the first quarter of 2009 and are preparing their budget for the second quarter. You received the following information from your Sales and Marketing Team: Budgeted Sales April 20,000 T-shirts May 50,000 T-shirts June 30,000 T-shirts July 25,000 T-shirts August 15,000 T-shirts The budgeted selling price is $10 per T-shirt How much revenue does ACC 312 Inc. anticipate for the second quarter by month and quarter in total? Revenue Budget For the Quarter Ending June 30, 2009 Let's just work our way down the Income Statement. Now that we have our budgeted sales, what is the next line on the Income Statement after Revenue? (05i— {0C (900qu $0ch What 3 components does COGS consist of? D‘mu} Lair-tor 12“,: Ma tari'qt } MMJCQWH‘j OWCAAUKCJ Now that we know our budgeted sales, production must be adequate to meet budgeted sales and provide for sufficient ending inventory. In order to safeguard against peaks in demand,ACC 312 desires FG ending inventory to equal 20% of the following month's budgeted sales in units. On March 31, 4,000 units were in inventory How many units of Finished Goods (t-shirts) does ACC 312 Inc. anticipate making for the second quarter by month and’quarter in total? Production Budget (in units) For the Quarter Ending June 30, 2009 EQJSLLUI Um} Mir/S \ " l ,v M fih‘ firm—3% PG invest-9:7 looco 6990 Tom nautical amt; 3950.9 Less Bajl‘nnijj F0 humbly “ ‘ l W (6w) Direct Materials is done. now let's budget our Direct Labor. The VP of Production and VP of Human Resource supplied you with the following information: 1. Each T-shirt requires 0.1 hours (6 minutes) of direct labor. 2. No hourly employees work overtime. 3. ACC 312 Inc. pays their hourly employees $8 per hour. What is the cost of Direct Labor ACC 312 lnc. anticipates for the second quarter by month and quarter in total? Direct Labor Budget For the Quarter Ending June 30, 2009 (a! ”q (30 0!“er Tin/\L (03L PG QM} (BL m. 6;» PM) (fatal ”ma [6/1 ~ EWPQDJU’ {q} prLoiJf (DL (03L pear he») Direct Materials and Direct Labor are now done. The only component of COGS left is Manufacturing Overhead... You and the VP of Production have researched and calculated the following information: 9391:5903? What is the cost of Manufacturing Overhead A00 312 Inc. anticipates for the second quarter by month and quarter in total? For every unit produced, $06129 of Indirect Labor is incurred. (Variable manufacturing overhead) For every unit produced, $02792 of Indirect Material is incurred. (Variable manufacturing overhead) For every unit produced, $0.1762 of Utilities are incurred. (Variable manufacturing overhead) For every batch produced, $200 of Maintenance is incurred. (Variable manufacturing overhead) For April 41 batches will be produced, May 47 batches, and June 41 batches. Rent is $13,300 every month. (Fixed manufacturing overhead) Since we are preparing the Income Statement in the Contribution Margin format, please subtotal the variable and fixed portions of MOH. my gflocfiw L a Loo I’ We I‘erg , a. ‘> . i ', ({‘I “.5;ch (WI mi i041?” U/I/‘I ’fiw‘. UD!(ML{( L¢§(’7 Ladybird. Watch Pimych’mn Bavlfi ICUCK “rims (C‘fl' 133}. m L “50 r iméfl “Hr/(9h , if :h 14 Um? I. Mme av \/ W 5533:; NOR -fis W. l— (MI V,, 6% ”my ifli'i I. (3097, Manufacturing Overhead Budget For the Quarter Ending June 30, 2009 ., NW...“ __________ .(gllci LIN ,Wcl ’ I .669; 301V; yuarR‘QI ZQmé‘ IW/Q‘fl 3 film #24 .ZML -' 37"” liéz ”762 \ do?) Now that we have our budgeted DM, DL, and MOH, we can make our Cost of Goods Manufactured Budget Remember from Chapter 3: WIP Beginning Bal . ‘ + Direct Ma ena ml?) +Dlrect Labor +Manufacturing Overhead - Cost of Goods Manufactured WIP Ending Balance [\ot“ Fugrkw There is no beginning or ending WIP inventory for any month. What is the amount of Cost of Goods Manufactured A00 312 lnc. anticipates for the second quarter by month and quarter in total? Since we are preparing the Income Statement in the Contribution Margin format, please subtotal the variable and fixed portions of COGM. COGM Budget For the Quarter Ending June 30, 2009 Vm‘odole, (be m D l\/\ U9 UK 91mg? Lager Now that we have our budgeted Cost of Goods Manufactured Budget, we can make our Cost of Goods Sold Budget Remember from Chapter 3: FG Beginning Balance + Cost of Goods Manufactured Cost of Goods Available for Sale - Cost of Goods Sold FG Ending Balance F‘Aishw} {loom lawmaker? \‘3 uqlucl 4t§4.3‘3 if a} 0 A i;*’ The CFO has performed some analysis for you and tells you COGS consists of 86.10% of variable costs and 13.90% of fixed costs What is the amount of Cost of Goods Sold ACC 312 Inc. anticipates for the second quarter by month and quarter in total? Since we are preparing the Income Statement in the Contribution Margin format, please subtotal the variable and fixed portions of COGS. (Hint - Find total COGS first and then just use the percentages l have above to break it down into the variable and fixed portions.) COGS Budget For the Quarter Ending June 30, 2009 April May June Quarter , Em; , .7 Fiqiglwl (Sock @251nt “loan? (0880 (acct) m, ,_ 40023 W, Uétldc {w um 497% #33; «4.5? 4.7%“ ggggg L 1: G 12 .23 PM! \vmo “Woe 263% 8736690 4, Loom {mm 3 2.02% m as; «is a.) 247 COG/3c g0! (Q, qugfi?“M~~ZE—q;( Trga'qéJ kgizéq? ,—— P Q in} fig QQ‘EM. ”30(5):; (4500c) S0365 SOGQ F (O U 6‘»ng Pi,’ 0%} q d, .5 (g L" lg (ifggw “ (71; 3 g F G r at e at“ , 4 3 $.99 wwo ., Elm “7' ‘4"‘4 a F 7 ‘ ,_ ,7 ’(v ( ( (z g-©(o( Q91 0]”) “i L) 7‘l 5 5/( a 0 @065 , K 4%@ V4'Fi“>]¢/ £2 (€7,927 WY?! 3874 ((7 {:l 17‘ «A ‘33V0 20 3'2}! ‘6‘ ”/0 @7336 COGS is now done. The last piece of the Income Statement left to do is Selling, General and Administrative expenses. You and the VP of Sales have researched the following information: 1. Variable SG&A expenses are $0.50 per unit m (not produced). 2. Fixed SG&A expenses are $70,000 per month. Selling, General, & Admin Budget For the Quarter Ending June 30, 2009 April MR Va r l' 6M9 (urea/$03 r\. Rage/led oACF 34(0) 1% (o‘xfoo SG&A 3“)qu em" om? .9 ' > What VArllflgl- 909A cwm (00090 $06106 FCXJ efigmbw fiflpl SWA 70030 70am 70am) ZlQmO ”livid gc 0430M {00199 G F 2.90 (Q96 All done!!!! Now let's just put it all together! The tax rate is 30%. Please prepare the Income Statement in the Contribution Margin format. Budgeted Income Statement For the Quarter Ending June 30, 2009 Aefil Max Auna/ Rfivmuw 1W 37190230 300006 lea‘ic C005 alga mm \mvl VWMNL 90340: lame '1ng [Bow Como (ex/\JrrLKDJHOA Mujk \OT§Z© 237(5) Mgélzcr §G©€V4 » FHA Coos raw, 10329 Wee @2930 7;)ng GWSC 70090 705290 70000 le000 _ Pmm‘d‘w N209 mam mm 239qu fine 72am, Séosrv mom fié’mw (yell (Lilo my [gqtngg (307177) $389! Zelsgm Now let's prepare the Cash Budget. What 2 "sub-budgets" ake up e Cash Budget? 1 cugk focejpg Soc 0’" 2 “3L disburse/nub dejol' Why (in my opinion) is the Cash Budget the most important budget out of all 13 budgets in this chapter? \{00 h(¢& \‘D plan 3004’ pi‘ACm (C Lg 0109} “)9” ,‘,\ advanc1_ Let's start with the Cash Receipts Budget. Below is some important information about ACC 312 lnc.: At ACC 312 Inc., all sales are on account The company's collection pattern is: 70% collected in the month of sale. 25% collected in the month following sale. 5% is uncollected. . The March 31 AIR balance of $30,000 will be collected in full in April 0399'9’NT‘ What is the cash receipts ACC 312 Inc. anticipates for the second quarter by month and quarter in total? Cash Receipts Budget For the Quarter Ending June 30, 2009 Apf“ Ma. (“Wt Mofilkm. Home 390000 zW0" FFQW'M‘) wank r40, $0030 $0000 ”—9300 Unoollalclg (a), (0000 ‘L'Saoo «Coco Total” (ask (caulofi \70000 #00056 7> «5% 403000 We now know the cash coming in, what about the cash going out? Below is some important information about ACC 312 inc.: Materials 1. One-half of a month's cotton purchases are paid for in the month of purchase; the other half is paid in the following month. 2. No discounts are available. 3. The March 31 NP balance of $12,000 consists entirely of cotton purchases. Other Cash Disbursements 1. ACC 312 Inc. plans to purchase $143,700 of equipment in May and $48,300 in June (both paid in cash). 2. ACC 312 lnc. plans to pay a cash dividend of $25,000 in April 3. DL, MOH, and SG&A costs are paid in the same month incurred. 4. The $260,000 of expenses on the SG&A budget consists of $10,000 a month of depreciation, which of course does not involve any cash payments. 5. ACC 312 Inc. pays their taxes in the month after they are incurred. Taxes were $10,346 in March. Cash Disbursements Budget For the Quarter Ending June 30, 2009 April Mu Jone M ataiab MAW/k pul’cMuSC—S 116139 A? r” F0 r( ‘4“th Zgaff) Zgw Mug PU’CM‘IS as ”443$ Kl C} 300 Sum Pucckkx.) zgvbo T0111“ M6| L014“; ‘70 :1,st W063i!) 71300 7Z7“) , l‘C 3 000 OK L0" Eq UI'QMQ‘Q' 90".“ng ‘ “[3100 C} (67706 (“I '7. Do (9 9 V} v n‘c‘m .L 2. 5000 1 5: one D L ' 20900 7? c, 7500 27200 $0800 (MGR 4:17:19: 7W4] 95M \733‘60 36’ A 7(qu 63°95 790636) 2? oma Tfixe') lewd, 72m $5057. 71657 ((094 ngk di‘g‘mmm “7911, “{ch02. 22770;} W W7 Now let's combine the Cash Receipts Budget and the Cash Disbursements Budget and see when and if we need any financing! Or if we will have excess cash we can invest! Below is some important information about ACC 312 lnc.: 1. ACC 312 lnc. has an open line of credit with Wells Fargo for $75,000 2. The interest rate on the Wells Fargo line of credit is 12%. 3. To ensure against emergencies and checks bouncing, ACC 312 Inc. maintains a minimum cash balance of at least $30,000. 4. Wells Fargo will let ACC 312 Inc. have a negative cash balance during the month as long as it is not negative on the close of business on the last day of the month. 5. Loans from the line of credit can only take place on the last day of the month. 6. Repayments of the line of credit can only take place on the last day of the month. 7. Interest is paid in the month the loan is paid back. 8. ACC 312 Inc. has a 4/1/09 cash balance of $90,000. 9. Loans must be made and paid back in $1,000 increments (not including interest). Cash Budget For the Quarter Ending June 30, 2009 A?“ l Maj AOOL Q09 IW (45k ‘ E¢j. 64. («SA tulle dd l’lqooa wooed? "735003 “"$600 («sit Au‘slwnui 1‘s «m, H llotoz ”32'? 133 Woo, 037 Caskv— EN) bq‘, $457% 2767‘” “37ch3 PM (Dad (\j Cask Borrow I” 3009 b hm ”WAX O amt O 39> ’ Mil/3, Finally, I agree with the book that the budgeted balance sheet is a topic beyond the scope of this class. Factors Influencing the Budgeting Process Decision-Making Centralized decision-making— in.) \U\ Jibq WWWfiQMM/i/ «MA/Kb} meglr . M ’ " i, " ~ ' UbijDKb Decentralized decision-making— fliU—(Slom~ Mal/KIA ‘3 (Ad‘gc‘w M ”l J! Jig/12c: [S with ralquahk 0,9349 M‘HSQ 001(3- Knomiezfita; Responsibility Centers 1. Cost Center — the manager is accountable for costs only. 2. Revenue Center — the manager is accountable for revenues only. 3. Profit Center —— the manager is accountable for revenues and costs. 4. Investment Center — the manager is accountable for investments, revenues, and costs. Developing the Budget Top-down budgeting — upper management finalize the budget with limited input from lower organizations levels. Bottom-up (or participative) budgeting - encourages organization-wide input into the budget process. ...
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