Chapter 9 - Budgeting1
Chapter 9 - Budgeting1
Chapter 9 - Budgeting1
CHAPTER 9
Budgeting
Nature of a Budget
15-3
Planning.
Facilitating Communication and Coordination.
Allocating Resources.
Managing Financial and Operational Performance.
Evaluating Performance and Providing Incentives.
Individual
Long-range
strategic plan
Individual goals
and values
Anticipated
conditions
Individual
beliefs
Master
budget
Strategic
evaluation
Actual period
results
Performance
evaluation
Types of Budgets
Master budget (profit plan)
a comprehensive profit plan that covers all phases of an
organizations operation.
Pro-forma (projected) financial statements
similar to historical statements, except that they project the
future.
Capital budget
Focuses on the acquisition of long-term assets
Sales
Sales of
of Services
Services or Goods
Goods
Ending
Ending
Inventory
Inventory
Budget
Budget
Production
Production
Budget
Budget
Work
Work in
in Process
Process
and
and Finished
Finished
Goods
Goods
Ending
Ending
Inventory
Inventory
Budget
Budget
Direct
Direct Materials
Materials
Direct
Direct
Materials
Materials
Budget
Budget
Direct
Direct
Labor
Labor
Budget
Budget
Overhead
Overhead
Budget
Budget
Cash
Cash Budget
Budget
Budgeted Balance
Sheet
Budgeted Statement
of Cash Flows
Selling
Selling and
and
Administrative
Budget
Budgeted Income
Statement
Sales Forecast
Sales Forecasting the process of predicting sales of
services or goods.
The master budget begins with a sales forecast.
Items to consider in sales forecasts:
Production Budget
Sales
Budget
m
o
C
pl
ed
t
e
Production
Budget
Forecasting Production
Rearrange the basic inventory formula as follows . . .
Units in
Required
beginning + production
inventory
in units
Sales
in
Units
Units in
ending
=
inventory
Sales
in
Units
Units in
ending
inventory
Expected
beginning
inventory
Direct-Materials Budget
Direct materials needed for the budget period can be
determined as follows . . .
Required
materials
purchases
Materials
used in
=
+
production
Ending
materials
inventory
Beginning
materials
inventory
Direct-Materials Budget
At Collegiate Apparel 1.5 yards of fabric are required per
unit of product.
Management wants fabric on hand at the end of each
quarter to be 10% of next quarters raw materials
required. On January 1stst, 2,100 yards of fabric are onhand. During the first quarter of 20x2, Collegiate
expects 21,000 yards of fabric to be required.
Each yard of fabric cost the company $2.
Lets prepare the direct materials budget.
Direct-Materials Budget
Budget Department
15-20
preparation.
Publishes assumptions for the basis of budgets.
Facilitate communications among departments.
Makes analyses and budget recommendations.
Administers budget revisions.
Analyzes performance against budget.
Participative Budgeting
Participative Budgeting the use of input from lowerand middle-management employees.
I think sales
will increase by
10% next year.
Critics of Budgeting
15-26