ACC 202 Chapter 8
ACC 202 Chapter 8 ACC 202
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This 3 page Class Notes was uploaded by Marissa Sarlls on Sunday January 10, 2016. The Class Notes belongs to ACC 202 at University of Kentucky taught by Jana Wilhelm in Spring 2016. Since its upload, it has received 14 views. For similar materials see Managerial Accounting (202, Wilhelm) in Accounting at University of Kentucky.
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Date Created: 01/10/16
Chapter 8: Master Budgeting What is a Budget? Budget—a detailed plan for the future that is usually expressed in formal quantitative terms o Planning—developing goals and preparing various budgets to achieve those goals o Control—gathering feedback to ensure plan is properly executed or modified as needed Responsibility accounting—idea that a manager should be help responsible for those items—and only those items—that the manager can actually control to a significant extent o Each line item (revenue or cost) in budget is responsibility of manager responsible for subsequent deviations btwn budgeted goals and actual goals o Personalizes account info Continuous or perpetual budget—a 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed. o One month (or quarter) is added to the end of the budget as each month (or quarter) comes to a close Self-imposed budget or participative budget—a budget that is prepared with the full cooperation and participation of managers at all levels (advantages on page 345) o Limitations: Lower-level managers may make suboptimal budgeting recommendations Self-imposed budgeting may allow lower-level managers to create too much budgetary slack (easy to attain) Master Budget: An Overview Master budget—consists of a number of separate but interdependent budgets that formally lay out the company’s sales, production, and financial goals. It culminates in a cash budget, a budgeted income statement, and a budgeted balance sheet (Exhibit 8.1 pg 346) Step 1: Sales Budget o Sales budget—a detailed schedule showing the expected sales for the budget period This is the foundation for the master budget o Cash budget—a detailed plan showing how cash resources will be acquired and used Preparing Master Budget Documents needed for master budget: 1. Sales budget, including a schedule of expected cash collections 2. Production budget (a merchandise purchases budget would be used in a merchandising company) 3. Direct materials budget, including a schedule of expected cash disbursements for purchases of materials 4. Direct labor budget 5. Manufacturing overhead budget 6. Ending finished goods inventory budget 7. Selling and administrative expense budget 8. Cash budget 9. Budgeted income statement 10. Budgeted balance sheet, which estimates a company’s assets, liabilities, and stockholders equity Production budget—lists the number of units that must be produced to satisfy sales needs and to provide for the desired ending finished goods inventory; influenced by desired level of FG inventory Budgeted unit sales Add desired units of ending FG inventory Total Needs Less units of beginning FG inventory Required production in units Merchandise purchase budget—a detailed plan used by a merchandising company that shows the amount of foods that must be purchased from suppliers during the period Usually accompanied by a schedule of expected cash disbursements for merch purchases Budgeted COGS (or unit sales) Add desired ending merchandise inventory Total needs Less beginning merchandise inventory Required purchases Direct materials budget—details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories Required production in units of FG Units of raw materials needed per unit of finished goods Units of raw materials needed to meet production Add desired units of ending raw materials inventory Total units of raw materials needed Less units of beginning raw materials inventory Units of raw materials to be purchased Unit cost of raw materials Cost of raw materials to be purchased Direct labor budget—shows the direct labor-hours required to satisfy the production budget DL requirement for each qtr = #of units to be produced each qtr x DLhrs required per unit Manufacturing OH budget—a detailed plan showing the production costs, other than direct materials and direct labor, that will be incurred over a specified time period Separated into variable and fixed components o Variable component = budgeted DLhrs x variable rate o Capacity determines fixed costs but once figured out, those rates are actually fixed o Noncash depreciation charges are deducted from the total budgeted mnfg OH to determine the expected cash disbursements predeterminedOHrate totalbudgeted mnfgOH total budgeted DLhrs for year Ending FG inventory budget—a budget showing the dollar amount of unsold FG inventory that will appear on the ending balance sheet Used to compute the cost of unsold units Selling & Admin expense budget—a detailed schedule of planned expenses that will be incurred in areas other than mnfg during a budget period Divided into variable and fixed components o Budgeted var. S&A = budgeted cases sold x var. S&A expense per case Cash budget 1. Receipts section (cash inflows) 2. Disbursements section (all cash payments planned) 3. Cash excess or deficiency section Beginning cash balance Add cash receipts Total cash available Less cash disbursements Excess (deficiency) of cash available over disbursements 4. Financing section (borrowings and principal and interest repayments) Required borrowings at the beginning of X quarter Desired ending cash balance Plus deficiency of cash available over disbursements Minimum required borrowings *Assume that the company will repay the loan plus accumulated interest on the last day of the final period included in the cash budget Budgeted Income Statement (serves as a benchmark for company) Sales Less: COGS Gross Margin Less: Sell&Admin Exp. NOI Less: Interest Expense NI Production and Sell&Admin budgets depend on how many units are to be sold
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