1. Managerial Accounting for Business Professionals ACC 330 UNIT 6 Dr. Doug Letsch

2. Clean Up Budgeting Problem P9-2B, Page 426-427 Questions

3. CLEAN UP Moving to Google Mail To see a funny bit on budgeting : http://www.hulu.com/watch/1495/saturday- night-live-snl-digital-short-business-meeting- with-rainn-wilson

4. BUDGETING The method behind proper forecasting

5. BUDGETING - BENEFITS  Plan ahead  Provides measurable objectives  Creates signal lights  Provides direction to meet goals  Enhances management’s awareness  Motivates What goes wrong with our budgets?

6. BUDGETING - TOOLS Just Another Tool

7. BUDGETING – MASTER BUDGET Sales Budget Level 1 Production Budget Level 2 Direct Materials Budget Level 3 Direct Labor budget Level 3 Selling/Admin Expense Budget Level 4 Budgeted Income Statement Level 5 Capital Expense Budget Level 6 Cash Budget Level 6 Budgeted Balance Sheet Level 6 Manufacturing OH Budget Level 3

8. BUDGETING – AN EXAMPLE P9-2B, PAGE 426-427 Durham Inc, is preparing its annual budgets for the year ending 12.31.2012. Accounting assistants furnish the following data: Product LN 35 Product LN 40 Sales budget: Anticipated volume in units 400,000 240,000 Unit selling price $ 25 $ 35 Production budget: Desired ending finished goods units 30,000 25,000 Beginning finished goods units 20,000 15,000 Direct materials budget: Direct materials per unit (pounds) 2 3 Desired ending direct materials (pounds) 50,000 20,000 Beginning direct materials (pounds) 40,000 10,000 Cost per pound $ 2 $ 3 Direct labor budget: Direct labor time per unit 0.50 0.75 Direct labor rate per hour $ 12 Budgeted income statement: Total unit cost $ 11 $ 20 Selling and administrative expense budget: Selling expenses $ 750,000 $ 590,000 Administrative Expenses $ 420,000 $ 380,000 Income Tax Rate Tax rate30% Instructions: Prepare the following budgets for the year: Show data for each product. You do not need to prepare quarterly budgets. a. Sales b. Production c. Direct Materials d. Direct Labor e. Income Statement (Note: income taxes are NOT allocated to the products.

9. BUDGETING – AN EXAMPLE P9-2B, PAGE 426-427 DURHAM INC. Sales Budget For the Year Ending December 31, 2012 Product LN 35Product LN 40Grand Total Sales budget: Anticipated volume in units 400,000 240,000 Unit selling price $ 25 $ 35 Total Sales $ 10,000,000 $ 8,400,000 $ 18,400,000 Question A:

10. BUDGETING – AN EXAMPLE P9-2B, PAGE 426-427 Question B: Product LN 35Product LN 40Total Units Production Budget Anticipated volume in units 400,000 240,000 Add: Desired Ending Finished Goods Inventory 30,000 25,000 Total Required 430,000 265,000 Less: Beg. Finished Goods Inventory 20,000 15,000 Required Production Units 410,000 250,000 660,000

11. BUDGETING – AN EXAMPLE P9-2B, PAGE 426-427 Question C: Product LN 35Product LN 40Total Units Direct Materials Budget Required Production Units (from production) 410,000 250,000 Direct materials per unit (given) 2 3 Total pounds needed for production 820,000 750,000 Add: Desired ending direct materials (given) 50,000 20,000 Total materials required 870,000 770,000 Less: Beginning direct materials (given) 40,000 10,000 Direct materials purchases 830,000 760,000 Cost per pound (given) $ 2 $ 3 Total cost of direct materials purchases $ 1,660,000 $ 2,280,000 $ 3,940,000

12. BUDGETING – AN EXAMPLE P9-2B, PAGE 426-427 Question D: Product LN 35Product LN 40Total Units Direct Labor Budget Required Production Units (from production) 410,000 250,000 Direct labor time (hours) per unit (given) 0.50 0.75 Total required direct labor hours 205,000 187,500 Direct labor cost per hour (given) $ 12.00 Total Direct Labor Cost $ 2,460,000 $ 2,250,000 $ 4,710,000

13. BUDGETING – AN EXAMPLE P9-2B, PAGE 426-427 Determining the Total Unit Cost: Product LN 35Product LN 40 Total Unit Cost Computation Direct Materials (pounds * unit cost) $ 4.00 $ 9.00 Direct Labor (hours * rate) $ 6.00 $ 9.00 Manufacturing Overhead (hours * cost) - plug $ 1.00 $ 2.00 Total Unit Cost (given) $ 11.00 $ 20.00

14. BUDGETING – AN EXAMPLE P9-2B, PAGE 426-427 Question E: Product LN 35Product LN 40Total Units Sales (from sales budget) $ 10,000,000 $ 8,400,000 $ 18,400,000 Cost of goods sold (400,000 & 240,000) 4,400,000 4,800,000 $ 9,200,000 Gross profit $ 5,600,000 $ 3,600,000 $ 9,200,000 Operating expenses Selling expenses 750,000 590,000 1,340,000 Administrative expenses 420,000 380,000 800,000 Total operating expenses $ 1,170,000 $ 970,000 $ 2,140,000 Income before income taxes $ 4,430,000 $ 2,630,000 $ 7,060,000 Income tax expense (given 30%) $ 2,118,000 Net income $ 4,942,000

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