Dutchess Community College ACC 204 Managerial Accounting Quiz Prep Chapter 9

Transcription

1 Dutchess Community College ACC 204 Managerial Accounting Quiz Prep Chapter 9 Budgetary Planning Peter Rivera March 2011 Disclaimer This Quiz Prep is provided as an outline of the key concepts from the chapter. It is not intended to be comprehensive or exhaustive. Quizzes may include material from the classroom lectures, the text or the homework assignments. ACC 204 Chapter 9 1

2 Primary Benefits of Budgeting The primary benefits of budgeting are: (1) It requires all levels of management to plan ahead and to formalize goals on a recurring basis. (2) It provides definite objectives for evaluating performance at each level of responsibility. (3) It creates an early warning system for potential problems, so that management can make changes before things get out of hand. continued Primary Benefits of Budgeting (4) It facilitates the coordination of activities within the business by correlating the goals of each segment with overall company objectives. (5) It results in greater management awareness of the entity s overall operations and the impact of external factors such as economic trends. (6) It motivates personnel throughout the organization to meet planned objectives. ACC 204 Chapter 9 2

3 Components of the Master Budget Direct Materials Budget Sales Budget Production Budget Direct Labor Budget Manufacturing Overhead Budget Operating Budgets Selling & Administration Budget Budgeted Income Statement Capital Expenditure Budget Cash Flow Budget Budgeted Balance Sheet Financial Budgets Sales Budget Sales Budgets consists of Quantity (units) Unit Selling Price 1 Q 2 Q 3 Q 4 Q Year Expected Unit Sales 3,000 3,500 4,000 4,500 15,000 x Unit Selling Price = Total Sales $ 180, , , , ,000 Yellow boxes in the schedules indicate inputs. All other numbers are either calculated or carried forward from a previous schedule The Unit Selling Price for the year = Total Sales for the Year Total Expected Units for the year ACC 204 Chapter 9 3

4 Production Budget From Sales Budget The 1Q from the next year is needed for the 4Q Desired Ending Inventory Calculation 1 Q 2 Q 3 Q 4 Q Year Next Yr 1Q Expected Unit Sales 3,000 3,500 4,000 4,500 5,000 Add: Desired Ending % 20% 20% 20% 20% Add: Desired Ending Q ,000 Less: Beginning Inv = Production Quantity 3,100 3,600 4,100 4,600 15,400 Balance Sheet The Beginning Inventory for a quarter = the Ending Inventory from the previous quarter Typically, the Desired Ending Inventory is a % of the next period s sales; e.g., 1Q 20% x 2Q Sales of 3,500 = 700 Direct Materials Budget From Production Budget 1 Q 2 Q 3 Q 4 Q Year Next Yr 1Q Units to be Produced 3,100 3,600 4,100 4,600 x Direct Material per Unit = Total DM needed 6,200 7,200 8,200 9,200 10,200 Add: Desired Ending % 10% 10% 10% 10% Add: Desired Ending Q ,020 Less: Beginning Inventory = RM Purchased 6,300 7,300 8,300 9,300 x Cost per RM = Total Cost of DM Purchase 25,200 29,200 33,200 37, ,800 Balance Sheet Similar process as in the Production Budget The 1Q from the next year is needed for the 4Q Desired Ending Inventory Calculation ACC 204 Chapter 9 4

5 Labor Budget From Production Budget 1 Q 2 Q 3 Q 4 Q Units to be Produced 3,100 3,600 4,100 4,600 x Direct Labor Hours per Unit = Total # of Direct Labor Hours 6,200 7,200 8,200 9,200 x Direct Labor Cost per Hour = Total Labor Cost 62,000 72,000 82,000 92, ,000 Manufacturing Overhead Budget The Manufacturing Overhead Budget has 2 parts: Variable Costs Fixed Costs ACC 204 Chapter 9 5

6 Manufacturing Overhead Budget In this example, The Variable Manufacturing Overhead is assumed to be allocated based on Direct Labor Hours as calculated in the Direct Labor Budget. 1 Q 2 Q 3 Q 4 Q Year Total # of Direct Labor Hours 6,200 7,200 8,200 9,200 Variable Indirect materials $ 1.00 $ 1.00 $ 1.00 $ 1.00 Indirect Labor $ 1.40 $ 1.40 $ 1.40 $ 1.40 Utilities $ 0.40 $ 0.40 $ 0.40 $ 0.40 Maintenance $ 0.20 $ 0.20 $ 0.20 $ 0.20 Total variable costs $ 3.00 $ 3.00 $ 3.00 $ 3.00 Indirect materials 6,200 7,200 8,200 9,200 30,800 Indirect Labor 8,680 10,080 11,480 12,880 43,120 Utilities 2,480 2,880 3,280 3,680 12,320 Maintenance 1,240 1,440 1,640 1,840 6,160 Total variable costs 18,600 21,600 24,600 27,600 92,400 Manufacturing Overhead Budget 1 Q 2 Q 3 Q 4 Q Total variable costs 18,600 21,600 24,600 27,600 92,400 + Fixed Costs Supervisory Salaries 20,000 20,000 20,000 20,000 80,000 Depreciation 3,800 3,800 3,800 3,800 15,200 Prop Taxes & Insurance 9,000 9,000 9,000 9,000 36,000 Maintenance 5,700 5,700 5,700 5,700 22,800 Total Fixed Costs 38,500 38,500 38,500 38, ,000 Total OH 57,100 60,100 63,100 66, ,400 / Direct Labor Hours 6,200 7,200 8,200 9,200 30,800 OH Rate per hour $ 8.00 ACC 204 Chapter 9 6

7 Selling & Administrative Expense Budget Similar to the Manufacturing Overhead Budget, the Selling & Administrative Expense Budget has 2 parts: Variable Costs Fixed Costs Selling & Administrative Expense Budget In this example, The Variable Selling & Administrative Expenses are assumed to be based on Sales Units as calculated in the Sales Budget. 1 Q 2 Q 3 Q 4 Q Budgeted Sales in Units 3,000 3,500 4,000 4,500 15,000 Variable Expense x Selling Commissions Rate = Selling Commissions 9,000 10,500 12,000 13,500 45,000 + x Freight-out Rate = Freight-out Cost 3,000 3,500 4,000 4,500 15,000 Total Variable 12,000 14,000 16,000 18,000 60,000 ACC 204 Chapter 9 7

8 Selling & Administrative Expense Budget 1 Q 2 Q 3 Q 4 Q Total Variable 12,000 14,000 16,000 18,000 60,000 + Fixed Expenses Advertising 5,000 5,000 5,000 5,000 20,000 Sales Salaries 15,000 15,000 15,000 15,000 60,000 Office Salaries 7,500 7,500 7,500 7,500 30,000 Depreciation 1,000 1,000 1,000 1,000 4,000 Property Taxes & Insurance 1,500 1,500 1,500 1,500 6,000 Total Fixed 30,000 30,000 30,000 30, ,000 Total Selling & Administrative 42,000 44,000 46,000 48, ,000 Budgeted Income Statement Sales Budget Sales Revenues $ 900,000 COGS per Unit Direct Materials $ 8.00 Direct Labor $ Maufacturing Overhead $ Total COGS Per Unit $ Estimated Total # of Units Sold 15,000 - COGS $ 660,000 = Gross Profit 240,000 - Selling & Administrative Expenses 180,000 = Operating Income 60,000 - Interest Exp 100 = Income Before Taxes 59,900 - Income Tax Expense 12,000 = Net Income $ 47,900 Direct Materials Budget: 2 RM per $4 Direct Labor Budget: 2 Hrs per $10 Manufacturing Overhead Budget: 2 Hrs per $8 Production Budget Selling & Administration Budget ACC 204 Chapter 9 8

9 Capital Expenditure Budget 1 Q 2 Q 3 Q 4 Q Year PP&E, Beginning 182, , , ,000 + Purchases: Truck 10,000 10,000 - Disposals - = PP&E, Ending 182, , , ,000 Cash Budget Vtá{ \á ^ Çz4 This example assumes that the company wishes to maintain a minimum cash balance of $15,000. They will plan to borrow when the estimated available cash is below this and plan to repay any borrowings when there is more than the minimum amount. There are 2 preliminary schedules that must be calculated: Collection of Accounts Receivable Payment of Accounts Payable ACC 204 Chapter 9 9

10 Other assumptions include: Cash Budget Short Term Investments of $2,000 are to be sold in 1 Q Direct Labor is paid in the current quarter Manufacturing Overhead in paid in the current quarter; NOTE that Depreciation is NOT a cash expenditure Selling & Administration Expenses are paid in the current quarter; NOTE that Depreciation is NOT a cash expenditure Income Taxes are paid on an equal quarterly basis Cash Budget Collection of Accounts Receivable In this example it is assumed that 60% of accounts receivable are collected in the current quarter with the remainder in the next quarter, e.g.: 1Q Sales = 180,000 * 60% = 108,000 in 1Q 180,000 Total 108,000 in 1Q = 72,000 in 2Q Assumption % collected in current Q = 60% 1 Q 2 Q 3 Q 4 Q Accts Receivable Opening 60,000 1Q 108,000 72,000 2Q 126,000 84,000 3Q 144,000 96,000 4Q 162,000 Total Collections 168, , , ,000 ACC 204 Chapter 9 10

11 Cash Budget Payment of Accounts Payable In this example it is assumed that 50% of accounts payable are paid in the current quarter with the remainder in the next quarter, e.g.: 1Q Purchases = 25,200 * 50% = 12,600 in 1Q 25,200 Total 12,600 in 1Q = 12,600 in 2Q Assumption % paid in current Q = 50% Accounts Payable opening 10,600 1Q 12,600 12,600 2Q 14,600 14,600 3Q 16,600 16,600 4Q 18,600 Total Payments 23,200 27,200 31,200 35,200 Balance Sheet Cash Budget 1 Q 2 Q 3 Q 4 Q Beginning Cash Balance 38,000 25,500 15,000 19,400 ADD: Receipts Collection of Accounts Receivable 168, , , ,000 Sale of Securities 2, Total Receipts 170, , , ,000 Total Available Cash 208, , , ,400 LESS: Disbursements Direct Materials 23,200 27,200 31,200 35,200 Direct Labor 62,000 72,000 82,000 92,000 Manufacturing Overhead: Cash 53,300 56,300 59,300 62,300 Selling & Admin Expenses: Cash 41,000 43,000 45,000 47,000 Purchase of Truck 10,000 Income Tax Expense 3,000 3,000 3,000 3,000 Total Disbursements 182, , , ,500 Excess (Deficiency) of Cash 25,500 12,000 22,500 37,900 Financing Borrowings - 3, Repayments + $100 interest - - 3,100 - Ending Cash Balance 25,500 15,000 19,400 37,900 The Beginning Cash = Ending Cash from previous Q AR Schedule AP Schedule DL Budget Man. OH Budget LESS Depreciation S & A Budget LESS Depreciation Total Tax $12,000 / 4 Borrowing to maintain minimum $15,000 Repay loan + interest ACC 204 Chapter 9 11

12 Capital Expenditure Budget Budgeted Balance Sheet Cash Budget Cash $ 37,900 Accounts Receivable 108,000 Inventory: Finished Goods 44,000 Inventory: Raw materials 4,080 PP&E 192,000 Less: Accumulated Depreciation 48,000 = Net PP&E 144,000 Total Assets $ 337,980 Accounts Payable 18,600 Common Stock 225,000 Retained Earnings: Beginning 46,480 + Net Income 47,900 = Retained Earnings: Ending 94,380 Total Liabilities & Equity $ 337,980 AR Schedule 4Q Prod. Budget Q x Est. Unit Cost 4Q RM Budget Q x Unit Cost Accum. Depreciation Beginning (given) $ 28,800 + Prod Depreciation + S&A Depreciation AP Schedule Budgeted Income Statement Balance Sheet ACC 204 Chapter 9 12