Transcript of Chapter7PowerPoint(1)
Slide 1PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights
reserved.
Chapter 7
BUDGETING FUNDAMENTALS
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Planning
Organization
Control
Coordination
Communication
Motivation
Operating Expenses Budget
Capital Use Budget
Financial Statement Budget
Budgeted Income Statement
Budgeted Balance Sheet
Cash Flow Budget
Cash Receipts
Cash Payments
MASTER BUDGET
C 2
The master budget typically includes individual budgets for sales,
purchases, production, various expenses, capital expenditures, and
cash. A company’s budgeting process begins with a sales budget. The
success of all subsequent steps in the process depends on an
accurate sales forecast. This slide describes the components of the
master budget for a merchandiser. The final result of the budgeting
process is a set of budgeted financial statements.
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We are going to prepare the Master Budget for Rose Company for the
first Quarter of 2013 (January, February and March)
In order to do this, we will also have to look at the month before
(December) and after (April)
MASTER BUDGET
CLASS EXAMPLE
December
30,000
70,000
100,000
January
21,000
49,000
70,000
February
27,000
63,000
90,000
March
24,000
56,000
80,000
April
18,000
42,000
60,000
Hockey Den sold 700 hockey sticks at $100 each in September 2011.
Using this pricing information and the forecasted unit sales for
the colder months of the fall season, the sales budget for the
remaining three months of the year can be prepared. The sales
budget includes January 2012 because the purchasing department
relies on estimated January sales to plan December 2011 inventory
purchases.
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ILLUSTRATION
70,000
Hockey Den sold 700 hockey sticks at $100 each in September 2011.
Using this pricing information and the forecasted unit sales for
the colder months of the fall season, the sales budget for the
remaining three months of the year can be prepared. The sales
budget includes January 2012 because the purchasing department
relies on estimated January sales to plan December 2011 inventory
purchases.
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ILLUSTRATION
70,000
90,000
Hockey Den sold 700 hockey sticks at $100 each in September 2011.
Using this pricing information and the forecasted unit sales for
the colder months of the fall season, the sales budget for the
remaining three months of the year can be prepared. The sales
budget includes January 2012 because the purchasing department
relies on estimated January sales to plan December 2011 inventory
purchases.
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ILLUSTRATION
70,000
90,000
80,000
Hockey Den sold 700 hockey sticks at $100 each in September 2011.
Using this pricing information and the forecasted unit sales for
the colder months of the fall season, the sales budget for the
remaining three months of the year can be prepared. The sales
budget includes January 2012 because the purchasing department
relies on estimated January sales to plan December 2011 inventory
purchases.
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Purchases Budget implies-Merchandising Business
How much do we need to Purchase to meet Budgeted Sales?
PURCHASES BUDGET
P 1
Once we have completed the sales budget, we can prepare the
merchandise purchases budget that will incorporate Hockey Den’s
sales demand and inventory policy. To prevent potential stock-outs
of inventory items, and to have a good selection of merchandise on
hand for its customers, Hockey Den always wants its ending
inventory for a month to be equal to 90 percent of the next month’s
sales. On September 30, 900 hockey sticks were on hand, an amount
equal to 90 percent of the 1,000 hockey sticks budgeted for October
sales.
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Jan
Feb
March
Dec
42,000
Jan
Feb
March
Dec
42,000
54,000
Jan
Feb
March
Dec
42,000
54,000
48,000
Jan
Feb
March
Dec
42,000
54,000
48,000
60,000
42,000
42,000
54,000
42,000
54,000
48,000
If inadequate, increase short-term loans.
Now that we have completed the cash receipts budget and the cash
disbursements budget for merchandise purchases, we are ready to
complete the cash budget. When preparing a cash budget, we add
expected cash receipts to the beginning cash balance and deduct
expected cash disbursements. If the expected ending cash balance is
inadequate, additional cash requirements appear in the budget as
planned increases from short-term loans. If the expected ending
cash balance exceeds the desired balance, the excess is used to
repay loans or to acquire short-term investments.
Some additional events affecting Hockey Den’s cash are displayed on
your screen. You may need to make a few notes from this information
to keep from referring back to this screen as we use this
information. We will continue with the additional information on
the next slide.
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70,000
91,000
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70,000
49,000
91,000
76,000
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70,000
49,000
63,000
91,000
76,000
87,000
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BUDGETED CASH DISBURSEMENTS-PURCHASED INVENTORY ILLUSTRATION
Dec . Purchases 54,600 x80%=43,680
Payments for Inventory are made 20% this month and 80% next
month.
Jan
Feb
March
Purchases
$45,600
52,800
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BUDGETED CASH DISBURSEMENTS-PURCHASED INVENTORY ILLUSTRATION
Dec . Purchases 54,600 x80%=43,680
Payments for Inventory are made 20% this month and 80% next
month.
Jan
Feb
March
Purchases
45,600
52,200
52,800
46,920
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BUDGETED CASH DISBURSEMENTS-PURCHASED INVENTORY ILLUSTRATION
Dec . Purchases 54,600 x80%=43,680
Payments for Inventory are made 20% this month and 80% next
month.
Jan
Feb
March
Purchases
45,600
52,200
44,400
52,800
46,920
50,640
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BUDGETED CASH DISBURSEMENTS OPERATING EXPENSES ILLUSTRATION
Salaries are paid in month earned, but commissions are paid next
month.
Depreciation is a non-cash expense and is not included. Rent,
insurance and misc. are all paid in month incurred.
Jan
Feb
March
18.750
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BUDGETED CASH DISBURSEMENTS OPERATING EXPENSES ILLUSTRATION
Salaries are paid in month earned, but commissions are paid next
month.
Depreciation is a non-cash expense and is not included. Rent,
insurance and misc. are all paid in month incurred.
Jan
Feb
March
18.750
16,750
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BUDGETED CASH DISBURSEMENTS OPERATING EXPENSES ILLUSTRATION
Salaries are paid in month earned, but commissions are paid next
month.
Depreciation is a non-cash expense and is not included. Rent,
insurance and misc. are all paid in month incurred.
Jan
Feb
March
18.750
16,750
18,250
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