1. Use only with permission of Susan Crosson Chapter 7 The Budgeting Process Fall 2007 Crosson

2. Use only with permission of Susan Crosson Learning Objectives: Why Budget? Types of Budgets Budget Process Budget Preparation

3. Use only with permission of Susan Crosson Why Budget? If you know where you are going, you’re more likely to get there…. Plan Perform Evaluate Communicate

4. Use only with permission of Susan Crosson Capital Expenditure Budgets – Multiple years – Long-lived assets Master Budgets – Fiscal year – Rolling year – Zero-based Types of Budgets

5. Use only with permission of Susan Crosson Budget Process Strategic Plan Strategic Plan Participatory Participatory Accountability Accountability Linked to Compensation Linked to Compensation

6. Use only with permission of Susan Crosson Budget Preparation Sales* Production SAG* DM Purchases* DL* OH* COGS IS* *Cash B/S See Figure 2 page 298

7. Use only with permission of Susan Crosson Sales Budget Sales in units x Selling price Sales in dollars Next Budgets— Production and SAG!

8. Use only with permission of Susan Crosson Production Budget Sales in units + Desired Ending Finished Goods in units Total Needs in units -Beginning Finished Goods in units Production in units Next Budgets— Material Purchases, Direct Labor, and Overhead!

9. Use only with permission of Susan Crosson Production Budget SE4. Prepare the following production budget for the quarter assuming the company maintains finished goods inventory equal to one half of the next month's sales. Budgeted sales for April are 7,000 units. JanuaryFebruaryMarch Desired sales in units Desired ending finished goods inventory Desired total units Desired Beginning finished goods inventory Production needs 5,000 2,000 7,000 2,500 4,500 4,0006,000

10. Use only with permission of Susan Crosson Answer: SE4. Prepare the following production budget for the quarter assuming the company maintains finished goods inventory equal to one half of the next month's sales. Budgeted sales for April are 7,000 units. JanuaryFebruaryMarch Desired sales in units Desired ending finished goods inventory Desired total units Desired Beginning finished goods inventory Production needs 5,000 2,000 7,000 2,500 4,500 4,000 3,000 7,000 2,000 5,000 6,000 3,500 9,500 3,000 6,500

11. Use only with permission of Susan Crosson Production Budget with a twist…Look and listen E8. E 8. Hard Corporation projects the following sales: May $230,000; June $250,000; July $260,000; and August $240,000. The company's cost of goods sold percentage is 65 percent and the desired inventory level is 25 percent of next month's sales. 1.The total production budgeted in dollars for June should be:_______________ 2.The total production budgeted in dollars for July should be:_______________

12. Use only with permission of Susan Crosson June Production Budget in dollars COGS in dollars =65% of $250,000 + End. FG in dollars =25%(65% of $260,000) Total Needs in dollars -Beg. FG in dollars =25%(65%of $250,000) Production costs in dollars?=_____** **Cost Of Goods Manufactured!!!

13. Use only with permission of Susan Crosson Material Purchases Budget Production in units +Desired Ending Material Inventory Total Needs in units -Beginning Material Inventory Material Purchases in units x Material cost per unit Cost of Materials Purchased Next Budget— Cash!

14. Use only with permission of Susan Crosson Cost of Goods Sold Preparation Beginning Finished Goods in $$ +Cost of Goods Manufactured in $$ Cost of Goods Available for Sale in $$ -Ending Finished Goods in $$ Cost of Goods Sold in $$ Next Budget— Income Statement

15. Use only with permission of Susan Crosson What Do You Know? Budget Preparation E4P2

16. Use only with permission of Susan Crosson Cash Budgets Cash Receipts -Cash Disbursements Change in Cash +Beginning Cash +Borrowings -Repayments________________ Desired Ending Cash Balance

17. cash budget Look and listen SE9. Alberta Limited needs a cash budget for the month of November. The following information is available: The cash balance on November 1 is $6,000. Sales for October and November are $80,000 and $60,000 respectively. Cash collections on sales are 30 percent in the month of sale, 65 percent in the following month, and 5 percent uncollectible. General expenses are budgeted to be $25,000 for November (depreciation represents $2,000 of this amount). Inventory purchases will total $30,000 in October and $40,000 in November. Half of the inventory purchases are always paid for in the month of purchase. The remainder are paid for in the following month. Office furniture costing $4,000 will be purchased for cash in November, and sales commissions are budgeted at $12,000 for November. The company must maintain a minimum ending cash balance of $4,000 and can borrow from the bank in multiples of $100. All loans are repaid after 60 days. Prepare a cash budget in good form for Alberta Limited for November.

18. Use only with permission of Susan Crosson Answer: Cash Receipts=$ -Cash Disbursements=$ Change in Cash=$ +Beginning Cash $6,000 +Borrowings $? -Repayments $0_________________ Desired Ending Cash Balance >$4,000

19. Use only with permission of Susan Crosson What Do You Know? Cash Budgets SE7 SE8 E11 E12 E13 E14

20. Use only with permission of Susan Crosson Homework P2P3