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Profit Planning,
Activity-Based
Budgeting and e-
Budgeting
Budget
Budget Planning
a detailed plan, Facilitating
expressed in Communication and
quantitative terms, Coordination
that specifies how Allocating Resources
resources will be Controlling Profit and
acquired and used Operations
during a specified Evaluating Performance
period of time. and Providing Incentives
Types of Budgets
Income
Statement
Budgeted
Financial
Statements
Balance Statement of
Sheet Cash Flows
Types of Budgets
Detail
Budget
Detail
Materials
Budget
Detail
Production
Budget
Master
Budget
Covering all Sales
phases of
a companys
operations.
Components of Master
Budgets
Operating Budget building blocks leading to
the creation of the Budgeted Income
Statement
Financial Budget building blocks based on
the Operating Budget that lead to the creation
of the Budgeted Balance Sheet and the
Budgeted Statement of Cash Flows
Continuous or
1999Rolling Budget2000 2001 2002
This
This budget
budget is
is usually
usually aa twelve-month
twelve-month
budget
budget that
that rolls
rolls forward
forward one
one month
month
as
as the
the current
current month
month is
is completed.
completed.
Learning
Objective
2
Ending
Inventory Production
Budget Budget
Work in Process
and Finished
Goods
Cash Budget
Budgeted Income
Statement
Budgeted Balance
Sheet
Budgeted Statement
of Cash Flows
Learning
Objective
3
Activity-Based
Activity-Based
Cost Budgeting
Budgeting (ABB)
(ABB)
Cost objects:
objects: Forecast
Forecast of
of products
products
products
products and
and services
services and
and services
services to
to be
be
produced,
produced, and
and produced
produced andand
customers
customers served.
served. customers
customers served.
served.
Learning
Objective
4
Sales Production
Budget Budget
t ed
e
pl
om
C
The
The management
management of of Breakers,
Breakers, Inc.
Inc. wants
wants
ending
ending inventory
inventory to
to be
be equal
equal to
to 20%
20% ofof the
the
following
following months
months budgeted
budgeted sales
sales inin units.
units.
On
On March
March 31,
31, 4,000
4,000 units
units were
were on
on hand.
hand.
Lets
Lets prepare
prepare the
the production
production budget.
budget.
Production Budget
From sales
budget
Production Budget
Production Budget
March 31
ending inventory
Production Budget
Production Budget
Direct-Material Budget
At
At Breakers,
Breakers, five
five pounds
pounds of of material
material areare required
required
per
per unit
unit of
of product.
product.
Management
Management wants wants materials
materials onon hand
hand at at the
the end
end
of
of each
each month
month equal
equal to
to 10%
10% ofof the
the following
following
months
months production.
production.
On
On March
March 31,
31, 13,000
13,000 pounds
pounds ofof material
material areare on
on
hand.
hand. Material
Material cost
cost $.40
$.40 per
per pound.
pound.
Lets
Lets prepare
prepare the
the direct
direct materials
materials budget.
budget.
Direct-Material Budget
From our
production
budget
Direct-Material Budget
March 31
inventory
Direct-Material Budget
Direct-Material Budget
From our
production
budget
Direct-Labor Budget
Direct-Labor Budget
At
At Breakers,
Breakers, variable
variable selling
selling and
and administrative
administrative
expenses
expenses areare $0.50
$0.50 per
per unit
unit sold.
sold.
Fixed
Fixed selling
selling and
and administrative
administrative expenses
expenses are
are
$70,000
$70,000 per
per month.
month.
The
The $70,000
$70,000 fixed
fixed expenses
expenses include
include $10,000
$10,000 in in
depreciation
depreciation expense
expense that
that does
does not
not require
require aa cash
cash
outflows
outflows for
for the
the month.
month.
Selling and Administrative
Expense Budget
From our
Sales budget
Selling and Administrative
Expense Budget
Selling and Administrative
Expense Budget
Cash Receipts Budget
At
At Breakers,
Breakers, all
all sales
sales are
are on
on account.
account.
The
The companys
companys collection
collection pattern
pattern is:is:
70%
70% collected
collected in in the
the month
month of of sale,
sale,
25%
25% collected
collected in in the
the month
month following
following sale,
sale,
5%
5% is
is uncollected.
uncollected.
The
The March
March 3131 accounts
accounts receivable
receivable balance
balance of
of
$30,000
$30,000 will
will be
be collected
collected inin full.
full.
Cash Receipts Budget
Cash Receipts Budget
Cash Disbursement Budget
Breakers
Breakers pays
pays $0.40
$0.40 per
per pound
pound for
for its
its materials.
materials.
One-half
One-half ofof aa months
months purchases
purchases areare paid
paid for
for in
in the
the
month
month ofof purchase;
purchase; the
the other
other half
half is
is paid
paid in
in the
the
following
following month.
month.
No
No discounts
discounts areare available.
available.
The
The March
March 31 31 accounts
accounts payable
payable balance
balance is is
$12,000.
$12,000.
Cash Disbursement Budget
From our
Overhead Budget
Cash Budget
(Collections and Disbursements)
From our
Selling and Administrative
Expense Budget
Cash Budget
(Collections and Disbursements)
To maintain a cash
balance of $30,000,
Breakers must borrow
$35,000 on its line of credit.
Cash Budget
(Financing and Repayment)
Breakers must
borrow an
addition $13,800
to maintain a
cash balance
of $30,000.
Cash Budget
(Financing and Repayment)
Cash Budget
(Collections and Disbursements)
Cost of Budgeted
Goods Income
Manufact- Statement
t ed
l e
uredm
p and
CoSold
11,500 lbs. at
$.40 per lb.
5,000 units at
$4.60 per unit.
50% of June
purchases
of $56,800
Learning
Objective
5
Ending
Inventory Production
Budget Budget
Work in Process
and Finished
Goods
When the interactions of the elements
of the master
Ending Direct budget
Directare Overhead
expressedSelling
as and
Inventory Materials Labor Administrative
Budget a set of mathematical
Budget Budget relations,
Budget it Budget
becomes a financial planning model
Direct Materials
Firms
Firms with
with international
international operations
operations face
face special
special
problems
problems when
when preparing
preparing aa budget.
budget.
Fluctuations
Fluctuations in
in foreign
foreign currency
currency exchange
exchange rates.
rates.
High
High inflation
inflation rates
rates in
in some
some foreign
foreign countries.
countries.
Differences
Differences in
in local
local economic
economic conditions.
conditions.
Learning
Objective
7
Distribution
Distribution Preliminary
Preliminary
and
and customer
customer design.
design.
service.
service.
Detailed
Detailed design
design
Production.
Production. and
and testing.
testing.
Learning
Objective
8
M id d le M id d le
M anagem ent M anagem ent
S u p e rv is o r S u p e rv is o r S u p e rv is o r S u p e rv is o r