Ch 09 PowerPoint Presentation 3rd Edition

Ch 09 PowerPoint Presentation 3rd Edition - Chapter 9 The...

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Unformatted text preview: Chapter 9 The Operating Budget ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 1 ­ Benefits of Budgeting LO1 Describe some of the benefits of the operating budget. • Budgeting serves as a guide. Budgeting • Helps organizations allocate resources. Helps • It encourages communication and coordination. It • Budgeting sets performance standards Budgeting or benchmarks. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 2 Operating Budget LO2 Describe the three budgeted financial statements contained in the operating budget and the other budgets that support the budgeted financial statements. • The operating budget is a set of The estimated financial statements. • It includes several detailed schedules It that provide the backup documentation for the financial statements. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 3 LO2 Contents of Operating Budget Budgeted Balance Sheet Budgeted Income Statement Budgeted Statement of Cash Flows ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 4 LO2 Supporting Schedules Sales Budget Production or Purchases Budget Cost of Goods Sold or Cost of Services Budget ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 5 LO2 Supporting Schedules Selling and Administrative Expense Budget Cash Budget ≠ Budgeted Statement of Cash Flows ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 6 LO2 Interrelationship Among the Budgets ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 7 Different Approaches to Budgeting LO3 Explain the differences between product cost for a merchandiser and for a manufacturer. • Perpetual budgeting is also called continual budgeting. is • The operating budget is continually updated and extended. The • As one month or quarter ends, another month or quarter As is added to the end of the budget. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 8 LO3 Different Approaches to Budgeting • In incremental budgeting, the prior incremental year’s budget is used as a starting point for the current year. • Only the changes (increments) Only need to be justified. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 9 LO3 Different Approaches to Budgeting • Zero-based budgeting is an alternative is to incremental budgeting. • Each year, the full amount of each Each budget item needs to be justified. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 10 LO3 Different Approaches to Budgeting • Top-down budgeting occurs when the occurs budget is prepared by the top executives. • Lower management and employees Lower work to meet the budget. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 11 LO3 Different Approaches to Budgeting • Many top-down budgets are Many also imposed budgets. • Top managers set the budget Top amounts without any input from the lower-level managers. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 12 LO3 Different Approaches to Budgeting • Bottom-up budgeting is a budget Bottom-up prepared by the lower-level managers of the firm. • This is a participative budget. This ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 13 Sales Forecast LO4 Describe the role of the sales forecast in the budgeting process. • All of the different parts of the operating budget All depend upon the sales forecast, thus it is often called the cornerstone of the budget. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 14 LO4 The Sales Forecast as the Cornerstone of Budgeting Budgeted Balance Sheet Budgeted Statement of Cash Flows Selling and Administrative Budget Cash Budget Budgeted Income Statement Sales Forecast Sales Budget Production Budget Cost of Goods Sold Budget ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 15 LO4 Factors Affecting the Accuracy of the Sales Forecast • General economy: General Inflation, recession, etc.? • Industry conditions: Industry Strength or weakness? • Actions of competitors: Actions Increase or decrease market share? • Technological developments: Technological Cutting edge or being left behind? ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 16 Preparing a Master Operating Budget LO5 Prepare various budgets included in the operating budget. • Marcy’s Surf Shop sells only Marcy’s one product, surfboards. • The fiscal year ends June 30. The • We will prepare the operating We budget for the quarter ending September 30, 2010. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 17 LO5 Sales Forecast and Sales Budget MARCY’S SURF SHOP Sales Forecast and Sales Budget For the Quarter Ended September 30, 2010 Jul Forecasted sales in units 30 Selling price $ 200 Budgeted sales dollars $6,000 Aug $ Sep 50 40 200 $ 200 $10,000 $8,000 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones Total $ 120 200 $24,000 9 ­ 18 LO5 Cost of Goods Sold Budget MARCY’S SURF SHOP Cost of Goods Sold Budget For the Quarter Ended September 30, 2010 Jul Forecasted sales in units 30 Unit cost $ 120 Budgeted cost of goods sold $3,600 Aug Sep 50 $ 120 40 $ 120 $ $6,000 $4,800 $14,400 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones Total 120 120 9 ­ 19 LO5 Selling and Administrative Expense Budget MARCY’S SURF SHOP Selling and Administrative Expense Budget For the Quarter Ended September 30, 2010 Jul Salaries and wages Rent Depreciation Others Total Aug Sep Total $1,600 200 100 800 $2,700 $2,000 200 100 1,000 $3,300 $1,800 200 104 900 $3,004 $5,400 600 304 2,700 $9,004 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 20 LO5 Budgeted Income Statement MARCY’S SURF SHOP Budgeted Income Statement For the Quarter Ended September 30, 2010 Jul $6,000 Sales Cost of goods sold 3,600 Gross profit $2,400 S&A expenses 2,700 Net income $ (300) Aug Sep $10,000 $8,000 Total $24,000 6,000 4,800 $ 4,000 $3,200 3,300 3,004 $ 700 $ 196 14,400 $ 9,600 $ 9,004 $ 596 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 21 LO5 Purchases Budget MARCY’S SURF SHOP Purchases Budget For the Quarter Ended September 30, 2010 Jul 30 Forecasted unit sales Desired ending inventory 20 Total units needed 50 Beginning inventory –8 Units to be purchased 42 Cost per unit $ 120 Cost of purchases $5,040 Aug 50 Sep 40 Total 120 16 66 – 20 46 $ 120 $5,520 24 64 – 16 48 $ 120 $5,760 24 144 –8 136 $120 $16,320 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 22 LO5 Cash Budget • Cash receipts from sales tend to be Cash collected 30% in the month of sale, 60% in the following month, and 10% in the second month following the sale. • May credit sales were $4,500 and May June credit sales were $6,000. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 23 LO5 Cash Receipts Schedule MARCY’S SURF SHOP Cash Receipts Schedule For the Quarter Ended September 30, 2010 Jul Aug Sep Total Credit sales collected: From accts. receivable: May credit sales ($4,500) $ 450 $ 450 Jun credit sales ($6,000) 3,600 $ 600 4,200 From new credit sales: Jul ($4,500) 1,350 2,700 $ 450 4,500 Aug ($7,500) 2,250 4,500 6,750 Sep ($6,000) 1,800 1,800 Receipts for credit sales $5,400 $5,550 $6,750 $17,700 Cash sales 1,500 2,500 2,000 6,000 Budgeted cash receipts $6,900 $8,050 $8,750 $23,700 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 24 LO5 Cash Budget • We assume that Marcy pays We for the surfboards in the month following the purchase. • Purchases of merchandise Purchases in June totaled $5,200. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 25 LO5 Cash Payments Schedule MARCY’S SURF SHOP Cash Payments Schedule For the Quarter Ended September 30, 2010 Purchases S&A expense: Salaries and wages Rent Other S&A expense Purchases Budgeted cash payments Jul $5,200 Aug $5,040 Sep $5,520 Total $15,760 1,600 200 800 2,000 200 1,000 240 1,800 200 900 5,400 600 2,700 $7,800 $8,480 $8,420 $24,700 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 26 LO5 Cash Budget MARCY’S SURF SHOP Cash Budget For the Quarter Ended September 30, 2010 Beg. cash balance Cash receipts Cash available Cash payments Bal. before borrowing Borrowing/(repayment) Ending cash balance Jul $2,170 6,900 $9,070 7,800 1,270 630 $1,900 Aug $1,900 8,050 $9,950 8,480 $1,470 $ 430 $1,900 Sep Total $ 1,900 $ 2,170 8,750 23,700 $10,650 $25,870 8,420 24,700 $ 2,230 $ 1,170 (330) 730 $ 1,900 $ 1,900 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 27 Management by Exception LO7 Describe the appropriate use of the operating budget in the overall management process. • The focus is primarily on large variances. The • Managers should be working every day Managers to control costs and run their operations more efficiently. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 28 End of Chapter 9 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 9 ­ 29 ­ ...
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