E-Budgeting

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Profit Planning, Activity-Based Budgeting and e-Budgeting by Khaliq Uz Zaman Shaikh on Aug 28, 2008
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Profit Planning, Activity-Based Budgeting and e-Budgeting

17. Direct-Material Budget At Breakers, 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 $.40 per pound. Let’s prepare the direct materials budget. 18. Direct-Material Budget From our production budget 19. Direct-Material Budget 10% of the following month’s production 20. Direct-Material Budget March 31 inventory 21. Direct-Material Budget
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22. Direct-Material Budget 23. Direct-Labor Budget At Breakers, each unit of product requires 0.1 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 $8 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 3,000 hours per month. Let’s prepare the direct labor budget. 24. Direct-Labor Budget From our production budget 25. Direct-Labor Budget 26. Direct-Labor Budget This is the greater of labor hours required or labor hours guaranteed. 27. Direct-Labor Budget 28. Overhead Budget Here is Breakers’ Overhead Budget for the quarter. 29. Selling and Administrative Expense Budget At Breakers, variable selling and administrative expenses are $0.50 per unit sold . Fixed selling and administrative expenses are $70,000 per month. The $70,000 fixed expenses include $10,000 in depreciation expense that does not require a cash outflows for the month. 30. Selling and Administrative Expense Budget From our Sales budget 31. Selling and Administrative Expense Budget 32. Selling and Administrative Expense Budget
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33. At Breakers, all sales are on account. The company’s collection pattern is: 70% collected in the month of sale, 25% collected in the month following sale, 5% is uncollected. The March 31 accounts receivable balance of $30,000 will be collected in full. Cash Receipts Budget 34. Cash Receipts Budget 35. Cash Receipts Budget
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36. Cash Disbursement Budget Breakers 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. No discounts are available. The March 31 accounts payable balance is $12,000. 37. Cash Disbursement Budget 140,000 lbs. × $.40/lb. = $56,000
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38. Cash Disbursement Budget 39. Cash Disbursement Budget Continued Breakers: Maintains a 12% open line of credit for $75,000. Maintains a minimum cash balance of $30,000. Borrows and repays loans on the last day of the month. Pays a cash dividend of $25,000 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 . 40. Cash Disbursement Budget Continued From our Cash Receipts Budget 41. Cash Disbursement Budget Continued From our Cash Disbursements Budget 42. Cash Disbursement Budget Continued From our Direct Labor Budget 43. Cash Disbursement Budget Continued From our Overhead Budget 44. Cash Disbursement Budget Continued From our Selling and Administrative Expense Budget 45. Cash Disbursement Budget Continued To maintain a cash balance of $30,000, Breakers must borrow $35,000 on its line of credit. 46. Cash Disbursement Budget Financing and Repayment Ending cash balance for April is the beginning May balance. 47. Cash Disbursement Budget Continued Breakers must borrow an addition $13,800 to maintain a cash balance of $30,000. 48. Cash Disbursement Budget Financing and Repayment 49. Cash Disbursement Budget Continued At the end of June, Breakers has enough cash to repay the $48,800 loan plus interest at 12%. 50. Cash Disbursement Budget Financing and Repayment 51. Cash Disbursement Budget Continued 52. Cash Disbursement Budget Financing and Repayment 53. Budgeted Income Statement Completed After we complete the cash budget, we can prepare the budgeted income statement for Breakers. Cash Budget Budgeted Income Statement 54. Budgeted Ending Inventory * rounded Manufacturing overhead is applied on the basis of direct labor hours. Total overhead $191,000 Total labor hours 10,600 hrs. = $18.02 per hr. * 55. Budgeted Income Statement 56. Budgeted Balance Sheet Breakers reports the following account balances on June 30 prior to preparing its budgeted financial statements: Land - $50,000 Building (net) - $148,000 Common stock - $200,000 Retained earnings - $46,400 57. 25%of June sales of $300,000 11,500 lbs. at $.40 per lb. 5,000 units at $4.60 per unit. 58. 50% of June purchases of $56,800 59. Budget Administration The Budget Committee is a standing committee responsible for . . . overall policy matters relating to the budget. coordinating the preparation of the budget.

60. E-Budgeting Employees throughout an organization can submit and retrieve budget information electronically. This tends to streamline the entire budgeting process. 61. Firewalls and Information Security Budget information is extremely sensitive and confidential. A firewall is a computer or router placed between a company’s internal network and the internet to control all information between the outside world and the company’s local network. 62. Zero-Base Budgeting To receive funding during the budgeting process, each activity must be justified in terms of its continued usefulness. 63. International Aspects of Budgeting Firms with international operations 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. 64. Budgeting Product Life-Cycle Costs Product planning and concept Design. Preliminary design. Detailed design and testing. Production. Distribution and customer service. 65. Behavioral Impact of Budgets Budgetary Slack: Padding the Budget People often perceive that their performance will look better in their superiors’ eyes if they can “beat the budget.” 66. Participative Budgeting Flow of Budget Data 67. End of Chapter 9

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