Upload
ferdinand-macol
View
253
Download
11
Tags:
Embed Size (px)
DESCRIPTION
Chap 007 - 2e by Wild and Shaw
Citation preview
Managerial Accounting
Wild and Shaw 2010 Edition
McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All
rights reserved.
Chapter 7
Master Budgets and Performance Planning
7-3
Conceptual Learning Objectives
C1: Describe the importance and benefits of budgeting.
C2: Explain the process of budget administration.
C3: Describe a master budget and the process of preparing it.
7-4
A1: Analyze expense planning using activity-based budgeting.
Analytical Learning Objectives
7-5
P1: Prepare each component of a master budget and link each to the budgeting process.
P2: Link both operating and capital expenditures budgets to budgeted financial statements.
P3: Appendix 7A: Prepare production and manufacturing budgets.
Procedural Learning Objectives
7-6
Advantages
Communicates plansand instructions
Promotes analysis anda focus on the future
Motivates employees
Provides a basis forevaluating performance against
past or expected results
Coordinatesbusiness activities
Defines goalsand objectives
Budget ProcessC 1
7-7
Continuous or Rolling Budget
The budget may be a twelve-month budget that rolls forward one month as the current month is completed.
2009 2010 2011 2012
Budget TimingC 2
7-8
Master Budget Components
Salesbudget
MerchandisePurchases
Prepare financial budgets: cash income balance sheet
Preparecapital
expenditurebudget
Prepareselling and
generaladministrative
budgets
C 3
7-9
HOCKEY DENMonthly Sales Budget
October 2009 – January 2010
Budgeted Budgeted BudgetedUnit Sales Unit Price Total Sales
September 2009 (actual) 700 100$ 70,000$
October 2009 1,000 100$ 100,000$ November 2009 800 100 80,000 December 2009 1,400 100 140,000 Total 3,200 100$ 320,000$
January 2010 900 100$ 90,000$
Sales BudgetP1
7-10
Hockey Den buys hockey sticks for $60.00 each and maintains an ending inventory equal to 90 percent of the next month’s budgeted sales. 900 hockey sticks
are on hand on September 30.
Inventoryto be
purchased=
Budgetedending
inventory+
Budgeted cost of salesfor the period
–Budgetedbeginninginventory
Let’s prepare the purchases budget for Hockey Den.
Merchandise Purchases Budget
P1
7-11
HOCKEY DENMerchandise Purchases BudgetOctober 2009 – December 2009
October November DecemberNext month's unit sales 800 1,400 900 Ending inventory percentage × 90% × 90% × 90%Budgeted ending inventory units 720 1,260 810 Add current month's unit sales 1,000 800 1,400 Total units needed 1,720 2,060 2,210 Deduct beginning inventory units 900 720 1,260 Number of units to be purchased 820 1,340 950 Budgeted cost per unit × $ 60 × $ 60 × $ 60Budgeted cost of purchases 49,200$ 80,400$ 57,000$
Beginning inventory is last month's ending inventory.
Merchandise Purchases Budget
P1
7-12
HOCKEY DENSelling Expense Budget
October 2009 – December 2009
October November December TotalBudgeted sales 100,000$ 80,000$ 140,000$ 320,000$ Sales commission % × 10% × 10% × 10% × 10%Sales commission 10,000$ 8,000$ 14,000$ 32,000$ Sales manager salary 2,000 2,000 2,000 6,000 Total selling expenses 12,000$ 10,000$ 16,000$ 38,000$
From Hockey Den’s sales budget
Selling Expense BudgetP1
7-13
HOCKEY DENGeneral and Administrative Expense budget
October 2009 – December 2009
October November December TotalAdministrative salaries 4,500$ 4,500$ 4,500$ 13,500$ Equipment depreciation 1,500 1,500 1,500 4,500 Total 6,000$ 6,000$ 6,000$ 18,000$
General and Administrative Expense Budget
P1
7-14
CashBudget
(ExpectedReceipts &
Disbursements)
BudgetedIncome
Statement
BudgetedBalance
Sheet
Financial BudgetsP2
7-15
40% of Hockey Den’s sales are for cash.
60% are credit sales (collected in full in the month following sale).
Let’s prepare the cash receipts budget for Hockey Den.
Budgeted Cash ReceiptsP2
7-16
HOCKEY DENCash Receipts Budget
October 2009 – December 2009
September October November DecemberBudgeted sales 70,000$ 100,000$ 80,000$ 140,000$ Accounts receivable 42,000$ 60,000$ 48,000$ 84,000$ Cash receipts from:Cash sales 40,000$ 32,000$ 56,000$ Collection of receivablesTotal cash receipts
40% of sales60% of sales
Budgeted Cash ReceiptsP2
From Hockey Den’s sales budget60 percent of September sales are collected in October
7-17
HOCKEY DENCash Receipts Budget
October 2009 – December 2009
September October November DecemberBudgeted sales 70,000$ 100,000$ 80,000$ 140,000$ Accounts receivable 42,000$ 60,000$ 48,000$ 84,000$ Cash receipts from:Cash sales 40,000$ 32,000$ 56,000$ Collection of receivables 42,000 60,000 48,000 Total cash receipts 82,000$ 92,000$ 104,000$
Budgeted Cash ReceiptsP2
7-18
Hockey Den’s purchases of merchandise are entirely on account.
Full payment is made in the month following purchase.
The September 30 balance of Accounts Payable is $58,200.
Let’s look at cash disbursementsfor purchases for Hockey Den.
Cash Disbursements for Purchases
P2
7-19
HOCKEY DENCash Disbursements for Purchases
October 2009 - December 2009
October payments (September 30 balance) 58,200$ November payments (October purchases) 49,200 December payments (November purchases) 80,400
From merchandise purchases budget
Cash Disbursements for Purchases
P2
7-20
Hockey Den: Will pay a cash dividend of $3,000 in November. Will purchase $25,000 of equipment in
December. Has an income tax liability of $20,000 from the
previous quarter that will be paid in October. Has a September 30 cash balance of $20,000. Has an agreement with its bank for loans at the
end of each month to enable a minimum cash balance of $20,000. Continue
Cash BudgetP2
7-21
Hockey Den: Pays interest equal to one percent of the prior
month’s ending loan balance. Repays loans when the ending cash balance
exceeds $20,000. Owes $10,000 on this loan arrangement on
September 30. Has 40 percent income tax rate. Will pay taxes for current quarter next year.
Let’s prepare the cash budget for Hockey Den.
Cash BudgetP2
7-22
HOCKEY DENCash Budget
October 2009 - December 2009
October November DecemberBeginning cash balance 20,000$ Receipts from customers 82,000 92,000 104,000 Total cash available 102,000$ DisbursementsPayments for merchandise 58,200$ 49,200$ 80,400$ Sales commissionsSales salariesAdministrative salariesIncome taxesDividendsInterestEquipment purchaseTotal disbursementsPreliminary balance
From Cash Disbursementsfor Purchases
P2 From Cash Receipts Budget
7-23
HOCKEY DENCash Budget
October 2009 - December 2009
October November DecemberBeginning cash balance 20,000$ Receipts from customers 82,000 92,000 104,000 Total cash available 102,000$ DisbursementsPayments for merchandise 58,200$ 49,200$ 80,400$ Sales commissions 10,000 8,000 14,000 Sales salaries 2,000 2,000 2,000 Administrative salariesIncome taxesDividendsInterestEquipment purchaseTotal disbursementsPreliminary balance
From Selling Expense Budget
P2
7-24
HOCKEY DENCash Budget
October 2009 - December 2009
October November DecemberBeginning cash balance 20,000$ Receipts from customers 82,000 92,000 104,000 Total cash available 102,000$ DisbursementsPayments for merchandise 58,200$ 49,200$ 80,400$ Sales commissions 10,000 8,000 14,000 Sales salaries 2,000 2,000 2,000 Administrative salaries 4,500 4,500 4,500 Income taxes 20,000 DividendsInterest 100 Equipment purchaseTotal disbursements 94,800$ Preliminary balance 7,200$
.01 × $10,000
Because Hockey Denmaintains a minimum
cash balance of $20,000,the company must
borrow $12,800.
P2
7-25
HOCKEY DENCash Budget
October 2009 - December 2009
October November DecemberPreliminary balance 7,200$ Additional borrowing 12,800 Loan repaymentEnding cash balance 20,000$ Ending loan balance 22,800$
Ending cash balance for October is the beginning November balance.
Cash Budget ContinuedP2
7-26
HOCKEY DENCash Budget
October 2009 - December 2009
October November DecemberBeginning cash balance 20,000$ 20,000$ Receipts from customers 82,000 92,000 104,000 Total cash available 102,000$ 112,000$ DisbursementsPayments for merchandise 58,200$ 49,200$ 80,400$ Sales commissions 10,000 8,000 14,000 Sales salaries 2,000 2,000 2,000 Administrative salaries 4,500 4,500 4,500 Income taxes 20,000 Dividends 3,000 Interest 100 228 Equipment purchaseTotal disbursements 94,800$ 66,928$ Preliminary balance 7,200$ 45,072$
.01 × $22,800Cash balanceis sufficientto repay the
$22,800 loan.
P2
7-27
HOCKEY DENCash Budget
October 2009 - December 2009
October November DecemberBeginning cash balance 20,000$ 20,000$ 22,272$ Receipts from customers 82,000 92,000 104,000 Total cash available 102,000$ 112,000$ 126,272$ DisbursementsPayments for merchandise 58,200$ 49,200$ 80,400$ Sales commissions 10,000 8,000 14,000 Sales salaries 2,000 2,000 2,000 Administrative salaries 4,500 4,500 4,500 Income taxes 20,000 Dividends 3,000 Interest 100 228 Equipment purchase 25,000 Total disbursements 94,800$ 66,928$ 125,900$ Preliminary balance 7,200$ 45,072$ 372$
P2
7-28
HOCKEY DENCash Budget
October 2009 - December 2009
October November DecemberPreliminary balance 7,200$ 45,072$ 372$ Additional borrowing 12,800 19,628 Loan repayment (22,800) Ending cash balance 20,000$ 22,272$ 20,000$ Ending loan balance 22,800$ $ 0 19,628$
Cash Budget ContinuedP2
7-29
HOCKEY DENBudgeted Income Statement
For Three Months Ended December 31, 2009
Sales (3,200 units @ $100) 320,000$ Cost of goods sold (3,200 units @ $60) 192,000 Gross profit 128,000$ Operating expenses: Sales commissions 32,000$ Sales salaries 6,000 Administrative salaries 13,500 Equipment depreciation 4,500 Interest expense 328 56,328 Net income before taxes 71,672$ Income tax expense 28,669 Net income 43,003$
From the Sales BudgetP2
From the Merchandise Purchases Budget
7-30
HOCKEY DENBudgeted Income Statement
For Three Months Ended December 31, 2009
Sales (3,200 units @ $100) 320,000$ Cost of goods sold (3,200 units @ $60) 192,000 Gross profit 128,000$ Operating expenses: Sales commissions 32,000$ Sales salaries 6,000 Administrative salaries 13,500 Equipment depreciation 4,500 Interest expense 328 56,328 Net income before taxes 71,672$ Income tax expense 28,669 Net income 43,003$
From the SellingExpense Budget
P2
7-31
HOCKEY DENBudgeted Income Statement
For Three Months Ended December 31, 2009
Sales (3,200 units @ $100) 320,000$ Cost of goods sold (3,200 units @ $60) 192,000 Gross profit 128,000$ Operating expenses: Sales commissions 32,000$ Sales salaries 6,000 Administrative salaries 13,500 Equipment depreciation 4,500 Interest expense 328 56,328 Net income before taxes 71,672$ Income tax expense 28,669 Net income 43,003$
From the General and Administrative Expense Budget
Depreciation is a non-cash expense.
P2
7-32
HOCKEY DENBudgeted Income Statement
For Three Months Ended December 31, 2009
Sales (3,200 units @ $100) 320,000$ Cost of goods sold (3,200 units @ $60) 192,000 Gross profit 128,000$ Operating expenses: Sales commissions 32,000$ Sales salaries 6,000 Administrative salaries 13,500 Equipment depreciation 4,500 Interest expense 328 56,328 Net income before taxes 71,672$ Income tax expense 28,669 Net income 43,003$ From the Cash Budget
P2
7-33
HOCKEY DENBudgeted Income Statement
For Three Months Ended December 31, 2009
Sales (3,200 units @ $100) 320,000$ Cost of goods sold (3,200 units @ $60) 192,000 Gross profit 128,000$ Operating expenses: Sales commissions 32,000$ Sales salaries 6,000 Administrative salaries 13,500 Equipment depreciation 4,500 Interest expense 328 56,328 Net income before taxes 71,672$ Income tax expense 28,669 Net income 43,003$
$71,672 × .40
P2
7-34
Hockey Den reports the following account balances on September 30 prior to preparing its budgeted financial statements: Equipment $200,000 Accumulated depreciation $ 36,000 Common stock $150,000 Retained earnings $ 41,800
Let’s prepare the budgeted balancesheet for Hockey Den.
Preparing a BudgetedBalance Sheet
P2
7-35
HOCKEY DENBudgeted Balance Sheet
December 31, 2009
AssetsCash 20,000$ Accounts receivable 84,000 Inventory 48,600 Equipment 225,000$ Less accumulated depreciation 40,500 184,500 Total assets 337,100$
Liabilities and EquityLiabilities Accounts payable 57,000$ Income taxes payable 28,669 Bank loan payable 19,628 105,297$ Stockholders' equity Common stock 150,000$ Retained earnings 81,803 231,803 Total liabilities and equity 337,100$
From the Cash Budget
P2
7-36
HOCKEY DENBudgeted Balance Sheet
December 31, 2009
AssetsCash 20,000$ Accounts receivable 84,000 Inventory 48,600 Equipment 225,000$ Less accumulated depreciation 40,500 184,500 Total assets 337,100$
Liabilities and EquityLiabilities Accounts payable 57,000$ Income taxes payable 28,669 Bank loan payable 19,628 105,297$ Stockholders' equity Common stock 150,000$ Retained earnings 81,803 231,803 Total liabilities and equity 337,100$
From the MerchandisePurchases Budget
P2
7-37
HOCKEY DENBudgeted Balance Sheet
December 31, 2009
AssetsCash 20,000$ Accounts receivable 84,000 Inventory 48,600 Equipment 225,000$ Less accumulated depreciation 40,500 184,500 Total assets 337,100$
Liabilities and EquityLiabilities Accounts payable 57,000$ Income taxes payable 28,669 Bank loan payable 19,628 105,297$ Stockholders' equity Common stock 150,000$ Retained earnings 81,803 231,803 Total liabilities and equity 337,100$
From the Budgeted Income Statement
P2
7-38
HOCKEY DENBudgeted Balance Sheet
December 31, 2009
AssetsCash 20,000$ Accounts receivable 84,000 Inventory 48,600 Equipment 225,000$ Less accumulated depreciation 40,500 184,500 Total assets 337,100$
Liabilities and EquityLiabilities Accounts payable 57,000$ Income taxes payable 28,669 Bank loan payable 19,628 105,297$ Stockholders' equity Common stock 150,000$ Retained earnings 81,803 231,803 Total liabilities and equity 337,100$
From the Cash Budget
P2
7-39
HOCKEY DENBudgeted Balance Sheet
December 31, 2009
AssetsCash 20,000$ Accounts receivable 84,000 Inventory 48,600 Equipment 225,000$ Less accumulated depreciation 40,500 184,500 Total assets 337,100$
Liabilities and EquityLiabilities Accounts payable 57,000$ Income taxes payable 28,669 Bank loan payable 19,628 105,297$ Stockholders' equity Common stock 150,000$ Retained earnings 81,803 231,803 Total liabilities and equity 337,100$
Beginning retained earnings 41,800$ Add net income 43,003 Deduct dividends (3,000) Ending retained earnings 81,803$
P2
7-40
Activity-Based Budgeting Activity-based budgeting is based on
activities rather than traditional items such as salaries, supplies, depreciation, and utilities.
A1
7-41
End of Chapter 7