Chapter 41 Cash, Short-term Investments and Accounts Receivable Chapter 4

Chapter 13 The Master Budget

Chapter 133 Learning Objectives Chapter 13 Assess the importance of budgeting. Prepare a master budget. Discuss the uses of a rolling budget. Explain how standard costs are used in preparing budgets and assessing responsibility. Calculate material and labor variances for purposes of control and performance evaluation.

Chapter 134 The process of budgeting is the interpretation of future plans into monetary amounts so that progress toward organizational goals can be determined. A budget is a financial plan for the future. Budgeting

Chapter 135 Top Down Participatory Ways of Budgeting

Chapter 136 Master Budget Operating Budgets Sales Budget Production Budget Purchases Budget Direct Labor Budget Overhead Budget Capital Budget Cash Budget Cash Collections from Sales Cash Payments for Purchases Budgeted Financial Statements Cost of Goods Manufactured Income Statement Balance Sheet Statement of Cash Flows

Flow of Budgeted Information through the Master Budget Chapter 137

Fast-Food Funthings Projected Balance Sheet December 31, 2009 Chapter 138 In order to prepare the master budget for the first quarter of 2010, we need the December 31, 2009 balance sheet.

Sales Budget Chapter 139 The sales budget is prepared in both units and dollars.

Chapter 1310 a. $5,600,000 b. $5,100,000 c. $6,200,000 d. $4,300,000 Best Company sells a product for $60. Best reports finished goods on hand on January 1, 2010, of 32,000 units and desires a Dec. 31, 2010 inventory of 25,000. Best plans to sell 85,000 units during Best will budget total sales for 2010 at:

Chapter 1311 a. $5,600,000 b. $5,100,000 c. $6,200,000 d. $4,300,000 Best Company sells a product for $60. Best reports finished goods on hand on January 1, 2010, of 32,000 units and desires a Dec. 31, 2010 inventory of 25,000. Best plans to sell 85,000 units during Best will budget total sales for 2010 at:

Production Budget Chapter 1312 The production budget is used to calculate how many items need to be manufactured in a particular period.

Chapter 1313 a. 85,000 units. b. 92,000 units. c. 78,000 units. d. 57,000 units. Best Company sells a product for $20. Best reports finished goods on hand on January 1, 2010, of 32,000 units and desires a Dec. 31, 2010 inventory of 25,000. Best plans to sell 85,000 units during Budget production for 2010 amounts to:

Chapter 1314 a. 85,000 units. b. 92,000 units. c. 78,000 units. d. 57,000 units. Best Company sells a product for $20. Best reports finished goods on hand on January 1, 2010, of 32,000 units and desires a Dec. 31, 2010 inventory of 25,000. Best plans to sell 85,000 units during Budget production for 2010 amounts to:

Purchases Budget Chapter 1315 The purchases budget is prepared to determine quantities of raw material to buy to complete the budgeted production, given the quantities of material in the beginning and ending Direct Material Inventory.

Direct Labor Budget Chapter 1316 Given expected production, direct labor requirements are calculated on the direct labor budget.

Chapter 1317 a. $2,340,000. b. $2,550,000. c. $2,760,000. d. $1,710,000. Best Company sells a product for $20. Best reports finished goods on hand on January 1, 2010, of 32,000 units and desires a Dec. 31, 2010 inventory of 25,000. Best plans to sell 85,000 units during Assuming each unit requires 1.5 hours of direct labor and labor costs $20 per hour, the total direct labor budget for 2010 amounts to:

Chapter 1318 a. $2,340,000. b. $2,550,000. c. $2,760,000. d. $1,710,000. Best Company sells a product for $20. Best reports finished goods on hand on January 1, 2010, of 32,000 units and desires a Dec. 31, 2010 inventory of 25,000. Best plans to sell 85,000 units during Assuming each unit requires 1.5 hours of direct labor and labor costs $20 per hour, the total direct labor budget for 2010 amounts to:

Chapter 1319 The overhead budget is used to compute overhead costs for budgeted production levels. Fast-Food Funthings has chosen to combine its production overhead budget and its selling and adm. budget into a single overhead budget. Overhead Budget

Capital Budget Chapter 1320 If the company plans to make any purchases of plant assets during the master budget period, those amounts are included in a capital budget.

Information for the Cash Budget Chapter 1321 After all the preceding budgets have been developed, a cash budget can be constructed. However, the sales and purchases budgets must first be converted to a cash basis before the cash budget can be prepared. We need to prepare two schedules: Schedule of Cash Collections from Sales Schedule of Cash Payments for Purchases These schedules are shown on the following slides.

Schedule of Cash Collections from Sales Chapter 1322

Chapter 1323 a. $60,000. b. $40,000. c. $127,500. d. $85,000. Best Company began operations on January 1, Best anticipates credit sales to be collected as follows: 50% in the month of sale, 30% in month after sale, and 20% in the following month. Credit sales are as follows: January, $200,000; February, $225,000; and March, $285,000. The cash collected in March from January credit sales amounts to:

Chapter 1324 a. $60,000. b. $40,000. c. $127,500. d. $85,000. Best Company began operations on January 1, Best anticipates credit sales to be collected as follows: 50% in the month of sale, 30% in month after sale, and 20% in the following month. Credit sales are as follows: January, $200,000; February, $225,000; and March, $285,000. The cash collected in March from January credit sales amounts to:

Chapter 1325 a. $212,500. b. $152,500. c. $167,500. d. $172,500. Best Company began operations on January 1, Best anticipates credit sales to be collected as follows: 50% in the month of sale, 30% in month after sale, and 20% in the following month. Credit sales are as follows: January, $200,000; February, $225,000; and March, $285,000. The total cash collected in February from credit sales amounts to:

Chapter 1326 a. $212,500. b. $152,500. c. $167,500. d. $172,500. Best Company began operations on January 1, Best anticipates credit sales to be collected as follows: 50% in the month of sale, 30% in month after sale, and 20% in the following month. Credit sales are as follows: January, $200,000; February, $225,000; and March, $285,000. The total cash collected in February from credit sales amounts to:

Schedule of Cash Payments for Purchases Chapter 1327

Cash Budget Chapter 1328

Budgeted Financial Statements Chapter 1329 The last component of the master budget is the preparation of pro forma financial statements for the period. Fast-Food Funthings prepares the following budgeted financial statements: Pro Forma Cost of Goods Manufactured Schedule Pro Forma Income Statement Pro Forma Balance Sheet Pro Forma Statement of Cash Flows

Chapter Pro Forma Cost of Goods Manufactured Schedule

Pro Forma Income Statement Chapter 1331

Pro Forma Balance Sheet Chapter 1332

Chapter 1333 Pro Forma Statement of Cash Flows

Chapter 1334 Variance Analysis A standard is simply a norm or average. A standard cost is the budgeted cost to make one unit of product (or perform one unit of service). Variance analysis is the process of determining the standard-to-actual differences and assessing whether that difference is favorable or unfavorable.

Material Variances Chapter 1335 Material variances indicate how close actual material usage and cost were to standard material usage and cost. We will calculate two variances for direct materials: a.MATERIAL PRICE VARIANCE b.MATERIAL QUANTITY VARIANCE To calculate material variances, three costs are needed:

Material Variances Chapter 1336 Material variances indicate how close actual material usage and cost were to standard material usage and cost. We will calculate two variances for direct materials: a.MATERIAL PRICE VARIANCE b.MATERIAL QUANTITY VARIANCE To calculate material variances, three costs are needed:

Material Variance Calculations Chapter 1337

Material Variances for Fast-Food Funthings Chapter 1338

Labor Variance Calculations Chapter 1339

Labor Variances for Fast-Food Funthings Chapter 1340 Labor variances are analyzed in a similar manner to materials variances. We will calculate two variances for direct labor: a.LABOR RATE VARIANCE b.LABOR EFFICIENCY VARIANCE

Chapter 1341 June Company reports the following information for the first quarter of 2010: Units produced24,600 units Standard pounds per unit2.5 pounds Standard labor hours per unit2 hours Total number of pounds used in production60,000 pounds Standard cost per pound$8.50 Actual cost per labor hour$10.25 Actual cost per pound$8.80 Standard cost per labor hour$10.15 Total number of direct labor hours worked49,000 hours Calculate all variances for materials and labor for June Co.

Chapter 1342 MPV = ($ $8.50) X 60,000 = $18,000 U MQV = $8.50 X (60,000 lbs. – 61,500 lbs) = $12,750 F LRV = ($ $10.15) X 49,000 hours = $4,900 U LEV = $10.15 X (49,000 hours – 49,200 hours) = $2,030 F

Chapter 1343 THE END!