8. Budgeting
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Transcript of 8. Budgeting
Universidad CuauhtémocCampus Aguascalientes
BudgetingAnálisis de Costos
Maestría en Administración
Housing30%
Utilities5%
Food20%Medical
5%
Other4%
Clothing7%
Transportation15%
Entertainment6%
Savings8%
Estimated portion of your total monthly
income that should be budgeted
Nature and Objectives of BudgetingNature and Objectives of Budgeting
Feedback
Establishing specific goalsExecuting plans to achieve the goalsPeriodically comparing actual
results to the goals
Objectives of Budgeting
PLANNING DIRECTINGCONTROLLIN
G
Nature and Objectives of BudgetingNature and Objectives of Budgeting
Continuous BudgetingContinuous Budgeting
One-Year Budget
Feb. 2006
Mar. 2006
Apr. 2006
May 2006
June 2006
July 2006
Aug. 2006
Sep. 2006
Oct. 2006
Nov. 2006
Dec. 2006
Jan. 2007
Delete on February 2007
Continuous BudgetingContinuous Budgeting
One-Year Budget
Add February 2007
Mar. 2006
Apr. 2006
May 2006
June 2006
July 2006
Aug. 2006
Sep. 2006
Oct. 2006
Nov. 2006
Dec. 2006
Jan. 2007
Feb. 2007
Static BudgetsStatic BudgetsDescription: A budget that does not
reflect potential changes in volume or activity level
Strength: It is simple—all expenses are budgeted as fixed
costsWeakness: It does not reflect
changes in revenues and expenses that occur as volumes changeTypical usage: Service organizations or
administrative departments of retailers and manufacturers
Colter Manufacturing CompanyAssembly Department Budget
For the Month Ending July 31, 2006
Direct labor $40,000Electric Power 5,000Supervisor salaries 15,000 Total department costs $60,000
Static BudgetsStatic Budgets
Flexible BudgetsFlexible BudgetsDescription: A budget that shows revenues and
expenses for a variety of volumes or activity levels
Strength: Provides information needed to analyze the impact of volume changes on actual operating results
Weakness: Requires greater research into costs—must differentiate fixed and variable costs
Typical usage: Operational departments of retailers and manufacturers whose costs change with sales and production
Colter Manufacturing CompanyAssembly Department Budget
For the Month Ending July 31, 2006
Units of production 8,000 9,000 10,000
Variable cost:Direct labor $40,000$45,000$50,000Electric power 4,000 4,500 5,000 Total variable cost $44,000$49,500$55,000
Cost per unit is $5.50 at all levels of activityCost per unit is $5.50 at all levels of activity
Variable cost:Direct labor $40,000$45,000$50,000Electric power 4,000 4,500 5,000 Total variable cost $44,000$49,500$55,000
Fixed cost:Electric power $ 1,000 $ 1,000 $ 1,000Supervisor salaries 15,000 15,000 15,000 Total fixed cost $16,000$16,000$16,000
Units of production 8,000 9,000 10,000
Colter Manufacturing CompanyAssembly Department Budget
For the Month Ending July 31, 2006
Units of production 8,000 9,000 10,000
Variable cost:Direct labor $40,000$45,000$50,000Electric power 4,000 4,500 5,000 Total variable cost $44,000$49,500$55,000
Fixed cost:Electric power $ 1,000 $ 1,000 $ 1,000Supervisor salaries 15,000 15,000 15,000 Total fixed cost $16,000$16,000$16,000
Total department costs$60,000$65,500$71,000
Colter Manufacturing CompanyAssembly Department Budget
For the Month Ending July 31, 2006
Static BudgetsStatic Budgets
Budget
Actual
Results
Overbudget
$60,000 $72,000
8,000 units
Actual
Results
$60,000 $72,000
9,000 units
$65,500
10,000 units
$71,000
Overbudget
Flexible Budget
Flexible BudgetsFlexible Budgets
Master BudgetMaster Budget
Budgeted Income Statement
Sales budgetCost of goods sold budget:Production budgetDirect materials purchases
budgetDirect labor cost budget
Selling and administrative expense budget
Elite Accessories
Budgets
SalesBudget
SalesBudget Production Budget
Expected units of sales
+ Desired units in ending inventory
– Estimated units in beginning inventory
Total units to be produced
Production Budget
Direct MaterialsPurchases Budget
Direct MaterialsPurchases Budget
Materials needed for production + Desired ending materials inventory
– Est. beginning materials inventory
Direct materials to be purchased
SalesBudget
SalesBudget
Production Budget
Direct MaterialsPurchases Budget
Direct MaterialsPurchases Budget
Direct LaborCost Budget
Direct LaborCost Budget
Factory OverheadCost Budget
Factory OverheadCost Budget
Cost of GoodsSold Budget
Cost of GoodsSold Budget
Selling & Administrative
ExpensesBudget
Selling & Administrative
ExpensesBudget
SalesBudget
SalesBudget
Elite Accessories Inc.Sales Budget
For the Year Ending December 31, 2010
Wallet:East……………….. 287,000$12.00 $ 3,444,000West………………. 241,00012.00 2,892,000 Total……………. 528,000 $ 6,336,000
Handbag:East……………….. 156,400$25.00 $ 3,910,000West………………. 123,60025.00 3,090,000 Total……………. 280,000 $ 7,000,000
Total revenue from Sales……………….. $13,336,000
Unit Sales Unit Selling Total Product and Region Volume Price Sales
Elite Accessories Inc.Production Budget
For the Year Ending December 31, 2010
Expected units to be sold528,000 280,000
From sales budgetFrom sales budget
UnitsWallet Handbag
Elite Accessories Inc.Production Budget
For the Year Ending December 31, 2010
Expected units to be sold…………. 528,000 280,000Plus desired ending inventory,
December 31, 2010……………. 80,000 60,000Total 608,000 340,000
UnitsWallet Handbag
Elite Accessories Inc.Production Budget
For the Year Ending December 31, 2010
Expected units to be sold…………. 528,000 280,000Plus desired ending inventory,
December 31, 2010……………. 80,000 60,000Total………………………………. 608,000 340,000Less estimated beginning inventory,
January 1, 2010…………………. 88,000 48,000Total units to be produced………… 520,000 292,000
UnitsWallet Handbag
Elite Accessories Inc.Direct Materials Purchases Budget
For the Year Ending December 31, 2010 Direct Materials
Leather Lining Total
Square yards required for production:Wallet (Note A)………………….. 156,000 52,000
Note A: Leather: 520,000 units x 0.30 sq. yd. per unit = 156,000 sq. yds.Lining: 520,000 units x 0.10 sq. yd. Per unit = 52,000 sq. yds.
Square yards required for production:Wallet (Note A)……..……..…….. 156,000 52,000Handbag (Note B)……………….. 365,000 146,000
Note B: Leather: 292,000 units x 1.25 sq. yd. per unit = 365,000 sq. yds.Lining: 292,000 units x 0.50 sq. yd. Per unit = 146,000 sq. yds.
Direct Materials Leather Lining Total
Elite Accessories Inc.Direct Materials Purchases Budget
For the Year Ending December 31, 2010
Square yards required for production:Wallet (Note A)……....………….. 156,000 52,000Handbag (Note B).………………. 365,000 146,000
Plus desired inventory, Dec. 31, 2010 20,000 12,000Total……………………………… 541,000 210,000
Direct Materials Leather Lining Total
Elite Accessories Inc.Direct Materials Purchases Budget
For the Year Ending December 31, 2010
Square yards required for production:Wallet (Note A) …………………. 156,000 52,000Handbag (Note B) ………………. 365,000 146,000
Plus desired inventory, Dec. 31, 2010 20,000 12,000Total……………………………… 541,000 210,000
Less estimated inventory, Jan. 1, 2010 18,000 15,000Total square yards to be produced.. 523,000 195,000
Direct Materials Leather Lining Total
Elite Accessories Inc.Direct Materials Purchases Budget
For the Year Ending December 31, 2010
Square yards required for production:Wallet (Note A)………………….. 156,000 52,000Handbag (Note B).………………. 365,000 146,000
Plus desired inventory, Dec. 31, 2010 20,000 12,000Total……………………………… 541,000 210,000
Less estimated inventory, Jan. 1, 2010 18,000 15,000Total square yards to be produced.. 523,000 195,000
Unit price (per square yard)…………. x $4.50 x $1.20Total direct materials to be purchased. $2,353,500 $234,000 $2,587,500
Direct Materials Leather Lining Total
Elite Accessories Inc.Direct Materials Purchases Budget
For the Year Ending December 31, 2010
Elite Accessories Inc.Direct Labor Cost Budget
For the Year Ending December 31, 2010
Cutting Sewing Total
Note A: Cutting Department: 520,000 units x 0.10 hr. per unit = 52,000 hrs.Sewing Department: 520,000 units x 0.25 hr. per unit = 130,000 hrs.
Hours required for production:Wallet (Note A)…………. 52,000 130,000
Cutting Sewing Total
Note A: Cutting Department: 520,000 units x 0.10 hr. per unit = 52,000 hrs.Sewing Department: 520,000 units x 0.25 hr. per unit = 130,000 hrs.
Hours required for production:Wallet (Note A)…………. 52,000 130,000Handbag (Note B)……….. 43,800 116,800
. Note B: Cutting Department: 292,000 units x 0.15 hr. per unit = 43,800 hrs.
Sewing Department: 292,000 units x 0.40 hr. per unit = 116,800 hrs
Elite Accessories Inc.Direct Labor Cost Budget
For the Year Ending December 31, 2010
Cutting Sewing Total
Hours required for production:Wallet (Note A)…………. 52,000 130,000Handbag (Note B)……….. 43,800 116,800Total……………………... 95,800 246,800
Note A: Cutting Department: 520,000 units x 0.10 hr. per unit = 52,000 hrs.Sewing Department: 520,000 units x 0.25 hr. per unit = 130,000 hrs..
Note B: Cutting Department: 520,000 units x 0.15 hr. per unit = 43,800 hrs.
Sewing Department: 520,000 units x 0.40 hr. per unit = 116,800 hrs
Elite Accessories Inc.Direct Labor Cost Budget
For the Year Ending December 31, 2010
Cutting Sewing Total
Hours required for production:Wallet (Note A)…………. 52,000 130,000Handbag (Note B)……….. 43,800 116,800Total……………………... 95,800 246,800
Hourly rate…………………… x $12.00 x $15.00Total direct labor cost………… $1,149,600 $3,702,000
$4,851,600Note A: Cutting Department: 520,000 units x 0.10 hr. per unit = 52,000 hrs.Sewing Department: 520,000 units x 0.25 hr. per unit = 130,000 hrs.
Note B: Cutting Department: 520,000 units x 0.15 hr. per unit = 43,800 hrs.Sewing Department: 520,000 units x 0.40 hr. per unit = 116,800 hrs
Elite Accessories Inc.Direct Labor Cost Budget
For the Year Ending December 31, 2010
Elite Accessories Inc.Factory Overhead Cost Budget
For the Year Ending December 31, 2010
Indirect factory wages……………………... $ 732,800Supervisory salaries………………………... 360,000Power and light…………………………….. 306,000Depreciation of plant and equipment………. 288,000Indirect materials…………………………… 182,800Maintenance………………………………... 140,280Insurance and property taxes………………. 79,200Total factory overhead cost………………... $2,089,080
Elite Accessories Inc.Cost of Goods Sold Budget
For the Year Ending December 31, 2010
Note A: Leather: 18,000 sq. yds. x $4.50 per sq. yd $81,000Lining: 15,000 sq. yds. x $1.20 per sq. yd 18,000 Direct materials inventory,
January 1, 2010 $99,000
Note A: Leather: 18,000 sq. yds. x $4.50 per sq. yd $81,000Lining: 15,000 sq. yds. x $1.20 per sq. yd 18,000 Direct materials inventory,
January 1, 2010 $99,000
Finished goods inventory, January 1 ,2010….. $ 1,095,600Work in process inventory, January 1, 2010… $ 214,400Direct materials:
Direct materials inventory, January 1, 2010 (Note A)…………………………………. $ 99,000
Finished goods inventory, January 1 ,2010…. $ 1,095,600Work in process inventory, January 1, 2010... $ 214,400Direct materials:
Direct materials inventory, January 1, 2010 (Note A)…………………………………. $ 99,000Direct materials purchases (Slide 27)…….. 2,587,500Cost of direct materials available for use…. $2,686,500Less direct materials inventory, December 31, 2010 (Note B)……………. 104,400
Elite Accessories Inc.Cost of Goods Sold Budget
For the Year Ending December 31, 2010
Note B: Leather: 20,000 sq. yds. x $4.50 per sq. yd $ 90,000Lining: 12,000 sq. yds. x $1.20 per sq. yd 14,400
Direct materials inventory, December 31, 2010 $104,400
Note B: Leather: 20,000 sq. yds. x $4.50 per sq. yd $ 90,000Lining: 12,000 sq. yds. x $1.20 per sq. yd 14,400
Direct materials inventory, December 31, 2010 $104,400
Finished goods inventory, January 1 ,2010…. $ 1,095,600Work in process inventory, January 1, 2010... $ 214,400Direct materials:
Direct materials inventory, January 1, 2010 (Note A)…………………………………. $ 99,000Direct materials purchases (Slide 27)…….. 2,587,500Cost of direct materials available for use…. $2,686,500Less direct materials inventory, December 31, 2010 (Note B)……………. 104,400Cost of direct materials placed in production $2,582,100
Direct labor (Slide 31)………………………. 4,851,600Factory overhead (Slide 32)………………….. 2,089,080Total manufacturing costs……………………. 9,522,780Total work in process during period…………. $9,737,180
Elite Accessories Inc.Cost of Goods Sold Budget
For the Year Ending December 31, 2010
Less work in process inventory, December 31, 2010 220,000Cost of goods manufactured………………………... 9,517,180Cost of finished goods available for sale…………... $10,612,780Less finished goods inventory, December 31, 2010.. 1,565,000Cost of goods sold………………………………….. $ 9,047,780
Finished goods inventory, January 1 ,2010………... $ 1,095,600
Work in process inventory, January 1, 2010……….. $ 214,500Total manufacturing costs………………………….. 9,522,780Total work in process during period……………….. $9,737,180
Elite Accessories Inc.Cost of Goods Sold Budget
For the Year Ending December 31, 2010
Elite Accessories Inc.Selling and Administrative Expenses Budget
For the Year Ending December 31, 2010
Selling expenses:Sales salaries expense…………………………. $715,000Advertising expense…………………………... 360,000Travel expense…………………………………. 115,000
Total selling expenses………………………...$1,190,000
Administrative expenses:Officers’ salaries expense………………………. $360,000Office salaries expense…………………………. 258,000Office rent expense……………………………...34,500Office supplies expense…………………………. 17,500Miscellaneous administrative expense………….. 25,000
Total administrative expenses………………… 695,000
Total selling and administrative expenses…………$1,885,000
Revenue from sales (slide 19) $13,336,000Cost of goods sold (slide 36) 9,047,780Gross profit $ 4,288,220Selling & administrative expenses:
Selling expenses (slide 37) $1,190,000Administrative expenses (slide 37) 695,000 Total sell. & Admin. Expenses
1,885,000Income from operations $ 2,403,220Other income:
Interest revenue $ 98,000Other expense:
Interest expense 90,000 8,000Income before income tax $ 2,411,220Income tax 600,000Net income $ 1,811,220
Elite Accessories Inc.Budgeted Income Statement
For the Year Ending December 31, 2010
Universidad CuauhtémocCampus Aguascalientes
Análisis de CostosMaestría en Administración