Jordan Managment Accounting 52

8/8/2019 Jordan Managment Accounting 52

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Learning Objective 5

Prepare a directPrepare a directlabor budget.labor budget.


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Th e Direct Labor Budget


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Quick C h eck

Wh at would be t h e total direct labor cost for Wh at would be t h e total direct labor cost for th e quarter if t h e company follows its no layth e quarter if t h e company follows its no lay- -

off policy, but pays $15 (timeoff policy, but pays $15 (time- -andand--aa--h

alf) for h

alf) for every h our worked in excess of 1,500 h oursevery h our worked in excess of 1,500 h oursin a mont h? in a mont h? a. $79,500a. $79,500

b. $64,500b. $64,500c. $61,000c. $61,000d. $57,000d. $57,000


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Wh at would be t h e total direct labor cost for Wh at would be t h e total direct labor cost for th e quarter if t h e company follows its no layth e quarter if t h e company follows its no lay- -

off policy, but pays $15 (timeoff policy, but pays $15 (time- -andand--aa--h alf) for h alf) for every h our worked in excess of 1,500 h oursevery h our worked in excess of 1,500 h oursin a mont h? in a mont h? a. $79,500a. $79,500b. $64,500b. $64,500c. $61,000c. $61,000d. $57,000d. $57,000

Quick C h eck

April May June Quarter Labo r hou r r uir 2R ula r hou r aid 1,500 1,500 1,500 4,500 Ove r ime hou r paid - 800 - 800

Total r egula r hou r 4,500 $10 45,000$Total ove r time hou r 800 $15 1 2,000$

Total pay 57,000$


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Prepare aPrepare amanufacturingmanufacturingover h ead budget.over h ead budget.


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M anufacturing Over h ead Budget

At Royal, manufacturing over h ead is applied At Royal, manufacturing over h ead is appliedto units of product on t h e basis of direct labor to units of product on t h e basis of direct labor h

ours.h

ours.Th e variable manufacturing over h ead rate isTh e variable manufacturing over h ead rate is$ 0 per direct labor h our.$ 0 per direct labor h our.

Fixed manufacturing over h ead is $50,000 per Fixed manufacturing over h ead is $50,000 per mont h and includes $ 0,000 of noncas h costsmont h and includes $ 0,000 of noncas h costs(primarily depreciation of plant assets).(primarily depreciation of plant assets).

Lets prepare t h e manufacturing over h eadLets prepare t h e manufacturing over h eadbudget.budget.


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Direct Labor Budget.Direct Labor Budget.


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Total mfg. OH for quarter $ 51,000Total labor h ours required 5,050 = $49.70 per

h our *

* * roundedrounded


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Depreciation is a noncas h ch arge.Depreciation is a noncas h ch arge.


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Production costs per unit Quantity Cost TotalDirect materials 5.00 lbs. 0.40$ 2.00$Direct labor 0.05 hrs. 10.00$ 0.50

Manufacturing overhead 0.05 hrs. 49.70$ 2.49 4.99$Budgeted finished goods inventory

Ending inventory in unitsUnit product cost 4.99$Ending finished goods inventory ?

E nding Finis h ed Goods InventoryBudget

Total mfg. OH for quarter $ 51,000Total labor h ours required 5,050 = $49.70 per

h our *


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Production costs per unit Quantity Cost TotalDirect materials 5.00 lbs. 0.40$ 2.00$Direct labor 0.05 hrs. 10.00$ 0.50

Manufacturing overhead 0.05 hrs. 49.70$ 2.49 4.99$Budgeted finished goods inventory

Ending inventory in units 5,000 Unit product cost 4.99$Ending finished goods inventory 24,950 $

E nding Finis h ed Goods InventoryBudget

Production Budget.Production Budget.


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Prepare a selling andPrepare a selling andadministrativeadministrativeexpense budget.expense budget.


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S elling and Administrative E xpenseBudget

At Royal, th e selling and administrative expenses At Royal, t h e selling and administrative expensesbudget is divided into variable and fixed components.budget is divided into variable and fixed components.Th e variable selling and administrative expenses areTh e variable selling and administrative expenses are$0.50 per unit sold.$0.50 per unit sold.

Fixed selling and administrative expenses are $70,000Fixed selling and administrative expenses are $70,000per mont h .per mont h .Th e fixed selling and administrative expenses includeTh e fixed selling and administrative expenses include$10,000 in costs$10,000 in costs primarily depreciationprimarily depreciation th at are notth at are notcas h outflows of t h e current mont h .cas h outflows of t h e current mont h .

Lets prepare t h e companys selling andLets prepare t h e companys selling andadministrative expense budget.administrative expense budget.


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Calculate t h e selling and administrativeCalculate t h e selling and administrativecas h expenses for t h e quarter.cas h expenses for t h e quarter.


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Quick C h eck

Wh at are t h e total cas h disbursements for Wh at are t h e total cas h disbursements for selling and administrative expenses for t h eselling and administrative expenses for t h equarter ? quarter ? a. $180,000a. $180,000b. $ 30,000b. $ 30,000

c. $110,000c. $110,000d. $ 70,000d. $ 70,000


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. ,. ,

Wh at are t h e total cas h disbursements for Wh at are t h e total cas h disbursements for selling and administrative expenses for t h eselling and administrative expenses for t h e

quarter ?

quarter ?

a. $180,000a. $180,000b. $ 30,000b. $ 30,000c. $110,000c. $110,000d. $ 70,000d. $ 70,000

Quick C h eck


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Prepare a cas h Prepare a cas h budget.budget.


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Format of t h e Cas h Budget

Th e cas h budget is divided into four sections:Th e cas h budget is divided into four sections:

1.1. Cas h receipts listing all cas h inflows excludingCas h receipts listing all cas h inflows excludingborrowing;borrowing;

.. Cas h disbursements listing all paymentsCas h disbursements listing all paymentsexcluding repayments of principal and interest;excluding repayments of principal and interest;

3.3. Cash

excess or deficiency; andCash

excess or deficiency; and4.4. Th e financing section listing all borrowings,Th e financing section listing all borrowings,

repayments and interest.repayments and interest.


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Th e Cas h Budget

S ch edule of E xpectedS ch edule of E xpected

Cas h Collections.Cas h Collections.


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Th e Cas h Budget

Direct Labor Direct Labor Budget.Budget.

M anufacturingM anufacturing

Over h

ead Budget.Over h

ead Budget.

S elling and AdministrativeS elling and AdministrativeE xpense Budget.E xpense Budget.

S ch edule of E xpectedS ch edule of E xpectedCas h Disbursements.Cas h Disbursements.


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Th e Cas h Budget

Because Royal maintainsBecause Royal maintains

a cash

balance of $30,000,a cash

balance of $30,000,th e company must borrowth e company must borrow$50,000 on its line$50,000 on its line- -of of--credit.credit.


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Th e Cas h Budget


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Quick C h eck

Wh at is t h e excess (deficiency) of cas h Wh at is t h e excess (deficiency) of cas h available over disbursements for June ? available over disbursements for June ? a. $ 85,000a. $ 85,000b. $(10,000)b. $(10,000)c. $ 75,000c. $ 75,000

d. $ 95,000d. $ 95,000


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Wh at is t h e excess (deficiency) of cas h Wh at is t h e excess (deficiency) of cas h available over disbursements for June ? available over disbursements for June ? a. $ 85,000a. $ 85,000b. $(10,000)b. $(10,000)c. $ 75,000c. $ 75,000

d. $ 95,000d. $ 95,000

Quick C h eck


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Th e Budgeted IncomeS

tatementCash

BudgetBudgeted

Income

Statement

After we complete the cash budget,After we complete the cash budget,we can prepare the budgeted incomewe can prepare the budgeted income

statement for Royal.statement for Royal.


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Prepare a budgetedPrepare a budgetedincome statement.income statement.


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Th e Budgeted IncomeS

tatementRoyal ompany

Budgeted Income StatementFor the Three Months Ended June 30

Sales (100,000 units @ $10) 1,000,000$ost of goods sold (100,000 @ $4.99) 499,000

Gross margin 501,000 Selling and administrative expenses 260,000 Operating income 241,000 Interest expense 2,000

Net income 239,000$

S ales Budget.S ales Budget.

E nding Finis h edE nding Finis h ed

Goods Inventory.Goods Inventory.

S elling andS elling and Administrative Administrative

E xpense Budget.E xpense Budget.

Cas h Budget.Cas h Budget.


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Prepare aPrepare abudgeted balancebudgeted balances h eet.s h eet.


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Th e Budgeted Balance S h eet

Royal reported t h e following accountRoyal reported t h e following accountbalances prior to preparing itsbalances prior to preparing its

budgeted financial statements:budgeted financial statements:LandLand -- $50,000$50,000Common stockCommon stock - - $ 00,000$ 00,000

Retained earningsRetained earnings - - $146,150$146,150E quipmentE quipment -- $175,000$175,000


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Jordan Managment Accounting 52