Chpt_11_outline

Chpt_11_outline - CHAPTER 11 FINANCIAL MEASURES OF...

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CHAPTER 11 – FINANCIAL MEASURES OF PERFORMANCE First, a review of Chapter 10 Budgets – Budgets have three main benefits: 1. Planning 2. Coordination and communication 3. Benchmarking Master budget – The master budget has three main parts The operating budget includes – details the company’s value chain activities The capital expenditures budget – details the company’s plan for making capital investments (Chpt. 9) The financial budget – includes the financial statements not yet budgeted and a cash budget Preparing these is quite complicated. It is detailed in Chapter 10. A diagram of the chapter is below.
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SALES BUDGET PRODUCTION BUDGET Schedule of projected sales DIRECT MATERIALS BUDGET DIRECT LABOR BUDGET MNFG. OVERHEAD BUDGET Production schedule Production schedule Production schedule (if units is the driver ) Production schedule (if DLH is the driver ) FIXED ASSETS (CAPITAL) BUDGET Production schedule CASH BUDGET Schedule of cash outlays Schedule of cash outlays Schedule of cash outlays Capital expenditures BUDGETED INCOME STATEMENT BUDGETED BALANCE SHEET Ending inventory U n i t c o s f r C G S Schedule of projected sales Retirement and depreciation schedules BUDGET Schedule of projected sales Depreciation on production assets Assets Cash; changes in receivables, liabilities, and equity Retained earnings Selling, general , and administrative expenses Interest expense and cash outlays THE BUDGETING PROCESS: Inputs and Outputs Schedule of cash receipts Now, onto Chapter 11
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Financial performance for cost, revenue, and profit centers Cost and revenue centers tend to rely on budgets for performance measurement. Because profit centers deal with both costs and revenues, they combine cost and revenue budgets into a budgeted net income statement. Static budget For example, Kool-Time Pools predicts they will install 8 pools in the upcoming year. Each pool is expected to earn $12,000, and each pool is expected to cost $10,500 in total (DM + DL + MOH). The master budget for Kool-Time Pools is: Variance – Assume the following actual results for Kool-Time Pools: Actual Master Budget Variance # of pools 10 8 Revenue $121,000 $96,000 CoGS ($105,000) ($84,000) Gross Profit $16,000 $12,000 Variances are either favorable or unfavorable: However, if we look closely, an overall variance does not tell the whole story. In other words, the $4,000 favorable variance for Kool-Time doesn’t tell us why we did well. When creating the master budget, we made three assumptions:
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Chpt_11_outline - CHAPTER 11 FINANCIAL MEASURES OF...

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