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B6 profit plan
1.
Profit Planning Bab 6
2.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Basic Framework of Budgeting Detail Budget Detail Budget Detail Budget Master Budget Summary of a company’s plans. Sales Production Materials
3.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Planning and Control Planning -- involves developing objectives and preparing various budgets to achieve these objectives. ControlControl -- involves the steps taken by management that attempt to ensure the objectives are attained.
4.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Advantages of Budgeting Advantages Communicating plans Think about and plan for the future Means of allocating resources Uncover potential bottlenecks Coordinate activities Define goal and objectives
5.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Responsibility Accounting Managers should be held responsible for those items — and only those items — that the manager can actually control to a significant extent.
6.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Choosing the Budget Period Operating BudgetOperating Budget 1999 2000 2001 2002 The annual operating budget may be divided into quarterly or monthly budgets.
7.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Choosing the Budget Period 1999 2000 2001 2002 Continuous orContinuous or Perpetual BudgetPerpetual Budget This budget is usually a twelve-month budget that rolls forward one month as the current month is completed.
8.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Participative Budget System Flow of Budget DataFlow of Budget Data S u p e r v is o r S u p e r v is o r M id d le M a n a g e m e n t S u p e r v is o r S u p e r v is o r M id d le M a n a g e m e n t T o p M a n a g e m e n t
9.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Budget Committee A standing committee responsible for overall policy matters relating to the budget coordinating the preparation of the budget
10.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Master Budget Sales Budget Selling and Administrative Budget
11.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Master Budget Direct Materials Budget Ending Inventory Budget Production Budget Selling and Administrative Budget Direct Labor Budget Manufacturing Overhead Budget Sales Budget
12.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Master Budget Direct Materials Budget Ending Inventory Budget Production Budget Selling and Administrative Budget Direct Labor Budget Manufacturing Overhead Budget Cash Budget Sales Budget Budgeted Financial Statements
13.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Sales Budget Detailed schedule showing expected sales for the coming periods expressed in units and dollars.
14.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Budgeting Example Royal Company is preparing budgets for the quarter ending June 30. Budgeted sales for the next five months are: April 20,000 units May 50,000 units June 30,000 units July 25,000 units August 15,000 units. The selling price is $10 per unit.
15.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Sales Budget April May June Quarter Budgeted sales (units) 20,000 50,000 30,000 100,000 Selling price per unit Total sales
16.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Sales Budget April May June Quarter Budgeted sales (units) 20,000 50,000 30,000 100,000 Selling price per unit 10$ 10$ 10$ 10$ Total sales 200,000$ 500,000$ 300,000$ 1,000,000$
17.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Production Budget SalesSales BudgetBudget ProductionProduction BudgetBudget Com pleted Production must be adequate to meet budgeted sales and provide for sufficient ending inventory.
18.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Production Budget Royal Company wants ending inventory to be equal to 20% of the following month’s budgeted sales in units. On March 31, 4,000 units were on hand. Let’s prepare the production budget.Let’s prepare the production budget.
19.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Budgeted sales 20,000 50,000 30,000 100,000 Add desired ending inventory 10,000 Total needed 30,000 Less beginning inventory 4,000 Required production 26,000 The Production Budget Budgeted sales 50,000 Desired percent 20% Desired inventory 10,000 Budgeted sales 50,000 Desired percent 20% Desired inventory 10,000
20.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Budgeted sales 20,000 50,000 30,000 100,000 Add desired ending inventory 10,000 Total needed 30,000 Less beginning inventory 4,000 Required production 26,000 The Production Budget March 31 ending inventory March 31 ending inventory
21.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Production Budget April May June Quarter Budgeted sales 20,000 50,000 30,000 100,000 Add desired ending inventory 10,000 6,000 Total needed 30,000 56,000 Less beginning inventory 4,000 Required production 26,000
22.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Budgeted sales 20,000 50,000 30,000 100,000 Add desired ending inventory 10,000 6,000 Total needed 30,000 56,000 Less beginning inventory 4,000 10,000 Required production 26,000 46,000 The Production Budget
23.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Budgeted sales 20,000 50,000 30,000 100,000 Add desired ending inventory 10,000 6,000 5,000 5,000 Total needed 30,000 56,000 35,000 105,000 Less beginning inventory 4,000 10,000 6,000 4,000 Required production 26,000 46,000 29,000 101,000 The Production Budget
24.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Expected Cash Collections All sales are on account. Royal’s collection pattern is: 70% collected in the month of sale, 25% collected in the month following sale, 5% is uncollectible. The March 31 accounts receivable balance of $30,000 will be collected in full. All sales are on account. Royal’s collection pattern is: 70% collected in the month of sale, 25% collected in the month following sale, 5% is uncollectible. The March 31 accounts receivable balance of $30,000 will be collected in full.
25.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Expected Cash Collections
26.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Expected Cash Collections
27.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Expected Cash Collections
28.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Expected Cash Collections
29.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Direct Materials Budget At Royal Company, five pounds of material are required per unit of product. Management wants materials on hand at the end of each month equal to 10% of the following month’s production. On March 31, 13,000 pounds of material are on hand. Material cost $0.40 per pound. Let’s prepare the direct materials budget.Let’s prepare the direct materials budget. At Royal Company, five pounds of material are required per unit of product. Management wants materials on hand at the end of each month equal to 10% of the following month’s production. On March 31, 13,000 pounds of material are on hand. Material cost $0.40 per pound. Let’s prepare the direct materials budget.Let’s prepare the direct materials budget.
30.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Production 26,000 46,000 29,000 101,000 Materials per unit Production needs Add desired ending inventory Total needed Less beginning inventory Materials to be purchased The Direct Materials Budget From production budget From production budget
31.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Direct Materials Budget April May June Quarter Production 26,000 46,000 29,000 101,000 Materials per unit 5 5 5 5 Production needs 130,000 230,000 145,000 505,000 Add desired ending inventory Total needed Less beginning inventory Materials to be purchased
32.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Production 26,000 46,000 29,000 101,000 Materials per unit 5 5 5 5 Production needs 130,000 230,000 145,000 505,000 Add desired ending inventory 23,000 Total needed 153,000 Less beginning inventory Materials to be purchased The Direct Materials Budget 10% of the following month’s production 10% of the following month’s production
33.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Production 26,000 46,000 29,000 101,000 Materials per unit 5 5 5 5 Production needs 130,000 230,000 145,000 505,000 Add desired ending inventory 23,000 Total needed 153,000 Less beginning inventory 13,000 Materials to be purchased 140,000 The Direct Materials Budget March 31 inventory March 31 inventory
34.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Direct Materials Budget April May June Quarter Production 26,000 46,000 29,000 101,000 Materials per unit 5 5 5 5 Production needs 130,000 230,000 145,000 505,000 Add desired ending inventory 23,000 14,500 11,500 11,500 Total needed 153,000 244,500 156,500 516,500 Less beginning inventory 13,000 23,000 14,500 13,000 Materials to be purchased 140,000 221,500 142,000 503,500
35.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Production 26,000 46,000 29,000 101,000 Materials per unit 5 5 5 5 Production needs 130,000 230,000 145,000 505,000 Add desired ending inventory 23,000 14,500 11,500 11,500 Total needed 153,000 244,500 156,500 516,500 Less beginning inventory 13,000 23,000 14,500 13,000 Materials to be purchased 140,000 221,500 142,000 503,500 The Direct Materials Budget
36.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Expected Cash Disbursement for Materials Royal pays $0.40 per pound for its materials. One-half of a month’s purchases are paid for in the month of purchase; the other half is paid in the following month. The March 31 accounts payable balance is $12,000. Let’s calculate expected cashLet’s calculate expected cash disbursements.disbursements. Royal pays $0.40 per pound for its materials. One-half of a month’s purchases are paid for in the month of purchase; the other half is paid in the following month. The March 31 accounts payable balance is $12,000. Let’s calculate expected cashLet’s calculate expected cash disbursements.disbursements.
37.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Expected Cash Disbursement for Materials April May June Quarter Accounts pay. 3/31 12,000$ 12,000$ April purchases May purchases June purchases Total cash disbursements
38.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Accounts pay. 3/31 12,000$ 12,000$ April purchases 50% x $56,000 28,000 28,000 50% x $56,000 28,000$ 28,000 May purchases June purchases Total cash disbursements 40,000$ Expected Cash Disbursement for Materials 140,000 lbs. × $.40/lb. = $56,000
39.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Expected Cash Disbursement for Materials April May June Quarter Accounts pay. 3/31 12,000$ 12,000$ April purchases 50% x $56,000 28,000 28,000 50% x $56,000 28,000$ 28,000 May purchases 50% x $88,600 44,300 44,300 50% x $88,600 44,300$ 44,300 June purchases Total cash disbursements 40,000$ 72,300$
40.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Expected Cash Disbursement for Materials April May June Quarter Accounts pay. 3/31 12,000$ 12,000$ April purchases 50% x $56,000 28,000 28,000 50% x $56,000 28,000$ 28,000 May purchases 50% x $88,600 44,300 44,300 50% x $88,600 44,300$ 44,300 June purchases 50% x $56,800 28,400 28,400 Total cash disbursements 40,000$ 72,300$ 72,700$ 185,000$
41.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Direct Labor Budget At Royal, each unit of product requires 0.05 hours of direct labor. The Company has a “no layoff” policy so all employees will be paid for 40 hours of work each week. In exchange for the “no layoff” policy, workers agreed to a wage rate of $10 per hour regardless of the hours worked (No overtime pay). For the next three months, the direct labor workforce will be paid for a minimum of 1,500 hours per month. Let’s prepare the direct labor budget.Let’s prepare the direct labor budget. At Royal, each unit of product requires 0.05 hours of direct labor. The Company has a “no layoff” policy so all employees will be paid for 40 hours of work each week. In exchange for the “no layoff” policy, workers agreed to a wage rate of $10 per hour regardless of the hours worked (No overtime pay). For the next three months, the direct labor workforce will be paid for a minimum of 1,500 hours per month. Let’s prepare the direct labor budget.Let’s prepare the direct labor budget.
42.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Direct Labor Budget From production budget
43.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Direct Labor Budget
44.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Direct Labor Budget Higher of labor hours required or labor hours guaranteed. Higher of labor hours required or labor hours guaranteed.
45.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill The Direct Labor Budget
46.
© The McGraw-Hill
Companies, Inc., 2000Irwin/McGraw-Hill Manufacturing Overhead Budget Royal Company uses a variable manufacturing overhead rate of $1 per unit producedproduced. Fixed manufacturing overhead is $50,000 per month and includes $20,000 of noncash costs (primarily depreciation of plant assets). Let’s prepare the manufacturingLet’s prepare the manufacturing overhead budget.overhead budget.
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Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Production in units 26,000 46,000 29,000 101,000 Variable mfg. OH rate 1$ 1$ 1$ 1$ Variable mfg. OH costs 26,000$ 46,000$ 29,000$ 101,000$ Fixed mfg. OH costs Total mfg. OH costs Less noncash costs Cash disbursements for manufacturing OH Manufacturing Overhead Budget From production budget
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Companies, Inc., 2000Irwin/McGraw-Hill Manufacturing Overhead Budget April May June Quarter Production in units 26,000 46,000 29,000 101,000 Variable mfg. OH rate 1$ 1$ 1$ 1$ Variable mfg. OH costs 26,000$ 46,000$ 29,000$ 101,000$ Fixed mfg. OH costs 50,000 50,000 50,000 150,000 Total mfg. OH costs 76,000 96,000 79,000 251,000 Less noncash costs Cash disbursements for manufacturing OH
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Companies, Inc., 2000Irwin/McGraw-Hill Manufacturing Overhead Budget April May June Quarter Production in units 26,000 46,000 29,000 101,000 Variable mfg. OH rate 1$ 1$ 1$ 1$ Variable mfg. OH costs 26,000$ 46,000$ 29,000$ 101,000$ Fixed mfg. OH costs 50,000 50,000 50,000 150,000 Total mfg. OH costs 76,000 96,000 79,000 251,000 Less noncash costs 20,000 20,000 20,000 60,000 Cash disbursements for manufacturing OH 56,000$ 76,000$ 59,000$ 191,000$ Depreciation is a noncash charge.Depreciation is a noncash charge.
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Companies, Inc., 2000Irwin/McGraw-Hill Ending Finished Goods Inventory Budget Now, Royal can complete the ending finished goods inventory budget. At Royal, manufacturing overhead is applied to units of product on the basis of direct labor hours. Let’s calculate ending finished goodsLet’s calculate ending finished goods inventory.inventory. Now, Royal can complete the ending finished goods inventory budget. At Royal, manufacturing overhead is applied to units of product on the basis of direct labor hours. Let’s calculate ending finished goodsLet’s calculate ending finished goods inventory.inventory.
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Companies, Inc., 2000Irwin/McGraw-Hill Production costs per unit Quantity Cost Total Direct materials 5.00 lbs. 0.40$ 2.00$ Direct labor Manufacturing overhead Budgeted finished goods inventory Ending inventory in units Unit product cost Ending finished goods inventory Ending Finished Goods Inventory Budget Direct materials budget and information
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Companies, Inc., 2000Irwin/McGraw-Hill Production costs per unit Quantity Cost Total Direct materials 5.00 lbs. 0.40$ 2.00$ Direct labor 0.05 hrs. 10.00$ 0.50 Manufacturing overhead Budgeted finished goods inventory Ending inventory in units Unit product cost Ending finished goods inventory Ending Finished Goods Inventory Budget Direct labor budget
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Companies, Inc., 2000Irwin/McGraw-Hill Production costs per unit Quantity Cost Total Direct materials 5.00 lbs. 0.40$ 2.00$ Direct labor 0.05 hrs. 10.00$ 0.50 Manufacturing overhead 0.05 hrs. 49.70$ 2.49 4.99$ Budgeted finished goods inventory Ending inventory in units Unit product cost 4.99$ Ending finished goods inventory Ending Finished Goods Inventory Budget Total mfg. OH for quarter $251,000 Total labor hours required 5,050 hrs. = $49.70 per hr.* *rounded
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Companies, Inc., 2000Irwin/McGraw-Hill Production costs per unit Quantity Cost Total Direct materials 5.00 lbs. 0.40$ 2.00$ Direct labor 0.05 hrs. 10.00$ 0.50 Manufacturing overhead 0.05 hrs. 49.70$ 2.49 4.99$ Budgeted finished goods inventory Ending inventory in units 5,000 Unit product cost 4.99$ Ending finished goods inventory 24,950$ Ending Finished Goods Inventory Budget Production Budget
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Companies, Inc., 2000Irwin/McGraw-Hill Selling and Administrative Expense Budget At Royal, variable selling and administrative expenses are $0.50 per unit sold. Fixed selling and administrative expenses are $70,000 per month. The fixed selling and administrative expenses include $10,000 in costs – primarily depreciation – that are not cash outflows of the current month. Let’s prepare the company’s selling and administrative expense budget. At Royal, variable selling and administrative expenses are $0.50 per unit sold. Fixed selling and administrative expenses are $70,000 per month. The fixed selling and administrative expenses include $10,000 in costs – primarily depreciation – that are not cash outflows of the current month. Let’s prepare the company’s selling and administrative expense budget.
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Companies, Inc., 2000Irwin/McGraw-Hill Selling and Administrative Expense Budget April May June Quarter Budgeted sales 20,000 50,000 30,000 100,000 Variable selling and admin. rate 0.50$ 0.50$ 0.50$ 0.50$ Variable expense 10,000$ 25,000$ 15,000$ 50,000$ Fixed selling and admin. expense 70,000 70,000 70,000 210,000 Total expense 80,000 95,000 85,000 260,000 Less noncash expenses Cash disburse- ments for selling & admin.
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Companies, Inc., 2000Irwin/McGraw-Hill Selling and Administrative Expense Budget April May June Quarter Budgeted sales 20,000 50,000 30,000 100,000 Variable selling and admin. rate 0.50$ 0.50$ 0.50$ 0.50$ Variable expense 10,000$ 25,000$ 15,000$ 50,000$ Fixed selling and admin. expense 70,000 70,000 70,000 210,000 Total expense 80,000 95,000 85,000 260,000 Less noncash expenses 10,000 10,000 10,000 30,000 Cash disburse- ments for selling & admin. 70,000$ 85,000$ 75,000$ 230,000$
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Companies, Inc., 2000Irwin/McGraw-Hill The Cash Budget Royal: Maintains a 16% open line of credit for $75,000. Maintains a minimum cash balance of $30,000. Borrows on the first day of the month and repays loans on the last day of the month. Pays a cash dividend of $49,000 in April. Purchases $143,700 of equipment in May and $48,300 in June paid in cash. Has an April 1 cash balance of $40,000. Royal: Maintains a 16% open line of credit for $75,000. Maintains a minimum cash balance of $30,000. Borrows on the first day of the month and repays loans on the last day of the month. Pays a cash dividend of $49,000 in April. Purchases $143,700 of equipment in May and $48,300 in June paid in cash. Has an April 1 cash balance of $40,000.
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Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Beginning cash balance 40,000$ Add cash collections 170,000 Total cash available 210,000 Less disbursements Materials 40,000 Direct labor Mfg. overhead Selling and admin. Equipment purchase Dividends Total disbursements Excess (deficiency) of cash available over disbursements The Cash Budget Schedule of Expected Cash Collections Schedule of Expected Cash Collections Schedule of Expected Cash Disbursements Schedule of Expected Cash Disbursements
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Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Beginning cash balance 40,000$ Add cash collections 170,000 Total cash available 210,000 Less disbursements Materials 40,000 Direct labor 15,000 Mfg. overhead 56,000 Selling and admin. 70,000 Equipment purchase Dividends Total disbursements Excess (deficiency) of cash available over disbursements The Cash Budget Direct Labor Budget Manufacturing Overhead Budget Selling and Administrative Expense Budget
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Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Beginning cash balance 40,000$ Add cash collections 170,000 Total cash available 210,000 Less disbursements Materials 40,000 Direct labor 15,000 Mfg. overhead 56,000 Selling and admin. 70,000 Equipment purchase - Dividends 49,000 Total disbursements 230,000 Excess (deficiency) of cash available over disbursements (20,000)$ The Cash Budget Because Royal maintains a cash balance of $30,000, the company must borrow on its line-of-credit
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Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Excess (deficiency) of Cash available over disbursements (20,000)$ Financing: Borrowing 50,000 Repayments - Interest - Total financing 50,000 Ending cash balance 30,000$ 30,000$ -$ -$ Financing and Repayment Ending cash balance for April is the beginning May balance.
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Companies, Inc., 2000Irwin/McGraw-Hill The Cash Budget April May June Quarter Beginning cash balance 40,000$ 30,000$ Add cash collections 170,000 400,000 Total cash available 210,000 430,000 Less disbursements Materials 40,000 72,300 Direct labor 15,000 23,000 Mfg. overhead 56,000 76,000 Selling and admin. 70,000 85,000 Equipment purchase - 143,700 Dividends 49,000 - Total disbursements 230,000 400,000 Excess (deficiency) of cash available over disbursements (20,000)$ 30,000$
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Companies, Inc., 2000Irwin/McGraw-Hill Financing and Repayment Because the ending cash balance is exactly $30,000, Royal will not repay the loan this month. April May June Quarter Excess (deficiency) of Cash available over disbursements (20,000)$ 30,000$ Financing: Borrowing 50,000 - Repayments - - Interest - - Total financing 50,000 - Ending cash balance 30,000$ 30,000$
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Companies, Inc., 2000Irwin/McGraw-Hill The Cash Budget April May June Quarter Beginning cash balance 40,000$ 30,000$ 30,000$ 40,000$ Add cash collections 170,000 400,000 335,000 905,000 Total cash available 210,000 430,000 365,000 945,000 Less disbursements Materials 40,000 72,300 72,700 185,000 Direct labor 15,000 23,000 15,000 53,000 Mfg. overhead 56,000 76,000 59,000 191,000 Selling and admin. 70,000 85,000 75,000 230,000 Equipment purchase - 143,700 48,300 192,000 Dividends 49,000 - - 49,000 Total disbursements 230,000 400,000 270,000 900,000 Excess (deficiency) of cash available over disbursements (20,000)$ 30,000$ 95,000$ 45,000$
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Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Beginning cash balance 40,000$ 30,000$ 30,000$ 40,000$ Add cash collections 170,000 400,000 335,000 905,000 Total cash available 210,000 430,000 365,000 945,000 Less disbursements Materials 40,000 72,300 72,700 185,000 Direct labor 15,000 23,000 15,000 53,000 Mfg. overhead 56,000 76,000 59,000 191,000 Selling and admin. 70,000 85,000 75,000 230,000 Equipment purchase - 143,700 48,300 192,000 Dividends 49,000 - - 49,000 Total disbursements 230,000 400,000 270,000 900,000 Excess (deficiency) of cash available over disbursements (20,000)$ 30,000$ 95,000$ 45,000$ The Cash Budget At the end of June, Royal has enough cash to repay the $50,000 loan plus interest at 16%. At the end of June, Royal has enough cash to repay the $50,000 loan plus interest at 16%.
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Companies, Inc., 2000Irwin/McGraw-Hill April May June Quarter Excess (deficiency) of Cash available over disbursements (20,000)$ 30,000$ 95,000$ 45,000$ Financing: Borrowing 50,000 - - 50,000 Repayments - - (50,000) (50,000) Interest - - (2,000) (2,000) Total financing 50,000 - (52,000) (2,000) Ending cash balance 30,000$ 30,000$ 43,000$ 43,000$ Financing and Repayment $50,000 × 16% × 3/12 = $2,000 Borrowings on April 1 and repayment of June 30.
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Companies, Inc., 2000Irwin/McGraw-Hill The Budgeted Income Statement Cash Budget Budgeted Income Statement Com pleted After we complete the cash budget,After we complete the cash budget, we can prepare the budgeted incomewe can prepare the budgeted income statement for Royal.statement for Royal.
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Companies, Inc., 2000Irwin/McGraw-Hill The Budgeted Income Statement Royal Company Budgeted Income Statement For the Three Months Ended June 30 Sales (100,000 units @ $10) 1,000,000$ Cost of goods sold (100,000 @ $4.99) 499,000 Gross margin 501,000 Selling and administrative expenses 260,000 Operating income 241,000 Interest expense 2,000 Net income 239,000$
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Companies, Inc., 2000Irwin/McGraw-Hill The Budgeted Balance Sheet Royal reported the following account balances on June 30 prior to preparing its budgeted financial statements: Land - $50,000 Building (net) - $175,000 Common stock - $200,000 Retained earnings - $146,150 Royal reported the following account balances on June 30 prior to preparing its budgeted financial statements: Land - $50,000 Building (net) - $175,000 Common stock - $200,000 Retained earnings - $146,150
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Companies, Inc., 2000Irwin/McGraw-Hill Royal Company Budgeted Balance Sheet June 30 Current assets Cash 43,000$ Accounts receivable 75,000 Raw materials inventory 4,600 Finished goods inventory 24,950 Total current assets 147,550 Property and equipment Land 50,000 Building 175,000 Equipment 192,000 Total property and equipment 417,000 Total assets 564,550$ Accounts payable 28,400$ Common stock 200,000 Retained earnings 336,150 Total liabilities and equities 564,550$ 25%of June sales of $300,000 25%of June sales of $300,000 5,000 units at $4.99 each 5,000 units at $4.99 each 11,500 lbs. at $0.40/lb. 11,500 lbs. at $0.40/lb. 50% of June purchases of $56,800 50% of June purchases of $56,800
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Companies, Inc., 2000Irwin/McGraw-Hill Royal Company Budgeted Balance Sheet June 30 Current assets Cash 43,000$ Accounts receivable 75,000 Raw materials inventory 4,600 Finished goods inventory 24,950 Total current assets 147,550 Property and equipment Land 50,000 Building 175,000 Equipment 192,000 Total property and equipment 417,000 Total assets 564,550$ Accounts payable 28,400$ Common stock 200,000 Retained earnings 336,150 Total liabilities and equities 564,550$ Beginning balance 146,150$ Add: net income 239,000 Deduct: dividends (49,000) Ending balance 336,150$
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Companies, Inc., 2000Irwin/McGraw-Hill Zero-Base Budgeting Managers are required to justify all budgeted expenditures, not just changes in the budget from the previous year. The baseline is zero rather than last year’s budget.
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Companies, Inc., 2000Irwin/McGraw-Hill International Aspects of Budgeting Multinational companies face special problems when preparing a budget. Fluctuations in foreign currency exchange rates. High inflation rates in some foreign countries. Differences in local economic conditions. Local governmental policies.
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Companies, Inc., 2000Irwin/McGraw-Hill End of Chapter 9End of Chapter 9
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