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Introduction to Management Accounting: The Master Budget Chapter 20 HORNGREN ♦ HARRISON ♦ BAMBER ♦ BEST ♦ FRASER ♦ WILLETT.

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Presentation on theme: "Introduction to Management Accounting: The Master Budget Chapter 20 HORNGREN ♦ HARRISON ♦ BAMBER ♦ BEST ♦ FRASER ♦ WILLETT."— Presentation transcript:

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2 Introduction to Management Accounting: The Master Budget Chapter 20 HORNGREN ♦ HARRISON ♦ BAMBER ♦ BEST ♦ FRASER ♦ WILLETT

3 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Objectives 1.Distinguish between financial accounting and management accounting, and use management accounting information for decision making. 2.Describe the value chain and classify costs by value-chain function 3.Distinguish direct costs from indirect costs 4.Distinguish among full product costs, inventoriable product costs and period costs

4 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Objectives 5.Prepare the financial statements of a manufacturing company 6.Identify the benefits of budgeting 7.Prepare an operating budget for a company 8.Prepare the components of a financial budget 9.Use sensitivity analysis in budgeting.

5 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia PlanningActing Feedback Controlling The Functions of Management

6 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Distinguish between financial accounting and management accounting, and use management accounting information for decision-making Objective 1

7 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Management Accounting and Financial Accounting Internal managers of the business Investors, Creditors, Government authorities (ATO, ASIC etc.) Investors, Creditors, Government authorities (ATO, ASIC etc.) Primary Users

8 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Management Accounting and Financial Accounting Help managers plan and control business operations Help managers plan and control business operations Help investors, creditors, and others make investment, credit, and other decisions Help investors, creditors, and others make investment, credit, and other decisions Purpose of Information

9 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Management Accounting and Financial Accounting Relevance Reliability, objectivity, and focus on the past Focus and Time Dimension

10 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Management Accounting and Financial Accounting Internal reports not restricted by GAAP Financial statements restricted by GAAP Type of Report

11 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Management Accounting and Financial Accounting No independent audit Annual independent audit Verification

12 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Management Accounting and Financial Accounting Detailed reports on parts of the company Detailed reports on parts of the company Summary reports primarily on the company as a whole Summary reports primarily on the company as a whole Scope of Information

13 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Management Accounting and Financial Accounting Concern about how reports will affect employees behavior Concern about how reports will affect employees behavior Concern about adequacy of disclosure Behavioral Implications

14 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Service, Retail, and Manufacturing Companies Service Company: provides intangible services, rather than tangible products Service Company: provides intangible services, rather than tangible products Retail Company: resells products previously bought from suppliers Retail Company: resells products previously bought from suppliers

15 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Service, Retail, and Manufacturing Companies Manufacturing Company: uses labour, plant, and equipment to convert raw materials into finished products Manufacturing Company: uses labour, plant, and equipment to convert raw materials into finished products Materials inventory Work in process inventory Finished goods inventory Materials inventory Work in process inventory Finished goods inventory

16 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Describe the value chain and classify costs by value-chain functions. Objective 2

17 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Value Chain Research and Development Design Production or Purchases MarketingDistribution Customer Services

18 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Distinguish direct costs from indirect costs. Objective 3

19 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Cost Objects, Direct Costs, and Indirect Costs l Cost objects are anything for which a separate measurement of costs is desired. l Cost drivers are any factors that affect cost.

20 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Cost Objects, Direct Costs, and Indirect Costs l What are examples of cost objects? – individual products – alternative marketing strategies – geographic segments of the business – departments

21 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Cost Objects, Direct Costs, and Indirect Costs l What are direct costs? l Direct costs are those costs that can be specifically traced to the cost object. l What are indirect costs? l Indirect costs are costs that cannot be specifically traced to the cost object.

22 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Distinguish among full product costs, inventoriable product costs, and period costs. Objective 4

23 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Inventoriable product costs Inventoriable product costs Full product costs Full product costs Product Costs l What are product costs? l They are the costs to produce (or purchase) tangible products intended for sale. l There are two types of product costs:

24 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia External Reporting Inventoriable product costs Inventoriable product costs Period costs Period costs

25 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Inventoriable Product Costs l For external reporting, a retailers’ inventoriable product costs includes only costs that are incurred in the purchase of goods. l Inventoriable costs are an asset. l Period costs flow as expenses directly to the statement of financial performance.

26 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Inventoriable Product Costs l For external reporting, manufacturers’ inventoriable product costs include raw materials plus all other costs incurred in the manufacturing process. l Inventoriable product costs are incurred only in the third element of the value chain. l Costs incurred in other elements of the value chain are period costs.

27 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Direct Materials Direct Labour Indirect Labour Indirect Materials Other Manufacturing Overhead Inventoriable Product Costs

28 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Inventoriable Product Costs Direct Materials Direct Labour Prime Costs = Direct Materials + Direct Labour

29 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Inventoriable Product Costs Conversion Costs = Direct Labour + Manufacturing Overhead Direct Labour Indirect Labour Indirect Materials Other

30 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Prepare the financial statements of a manufacturing company. Objective 5

31 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Revenues – Expenses = Net Profits Financial Statements for Service Companies l There is no inventory and thus no inventoriable costs. l The statement of financial performance does not include cost of goods sold.

32 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Financial Statements for Retail Companies Purchases of Inventory plus Freight-In Inventory Sales Revenue Cost of Goods Sold Statement of Financial Performance Operating Expenses Inventoriable Costs Statement of Financial Position equals Net Profit when sales occur deduct equals Gross Profit deduct Period Costs

33 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Financial Statements for Manufacturing Companies Materials Inventory Finished Goods Inventory Sales Revenue Cost of Goods Sold Statement of Financial Performance Operating Expenses Inventoriable Costs Statement of Financial Position equals Net Profit when sales occur deduct equals Gross Profit deduct Work in Process Inventory Period Costs

34 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Manufacturing Company Example l Kendall Manufacturing Company: l Beginning and ending work-in-process inventories were $20,000 and $18,000. l Direct materials used were $70,000. l Direct labour was $100,000. l Manufacturing overhead incurred was $150,000.

35 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Manufacturing Company Example l What is the cost of goods manufactured? Beginning work in process$ 20,000 Direct labour$100,000 Direct materials 70,000 Mfg. overhead 150, ,000 Ending work in process 18,000 Cost of goods manufactured$322,000

36 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Manufacturing Company Example l Kendall Manufacturing Company’s beginning finished goods inventory was $60,000 and its ending finished goods inventory was $55,000. l How much is the cost of goods sold?

37 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Manufacturing Company Example Beg. finished goods inventory$ 60,000 + Cost of goods manufactured 322,000 = Cost of goods available for sale$382,000 – Ending finished goods 55,000 = Cost of goods sold$327,000

38 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Manufacturing Company Example l Kendall Manufacturing Company had sales of $627,000 for the period. l How much is the gross profit? Sales$627,000 – Cost of goods sold 327,000 = Gross profit$300,000

39 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Manufacturing Company Example l Kendall Manufacturing Company had operating expenses as follows: l Sales salaries and commissions $ 80,000 Delivery expense 10,000 Administrative expenses 30,000 Total $120,000 l What is Kendall’s net profit?

40 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Manufacturing Company Example Gross profit$300,000 – Operating expenses 120,000 = Net Profit$180,000

41 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Flow of Costs through a Manufacturer’s Accounts l Direct Materials Inventory l Beginning inventory +Purchases and freight-in =Direct materials availablefor use –Ending inventory =Direct materials used l Work in Process Inventory l Beginning inventory +Direct materials used +Direct labour +Manufacturing overhead =Total manufacturing costs to account for –Ending inventory =Cost of goods manufactured

42 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Flow of Costs through a Manufacturer’s Accounts l Finished Goods Inventory l Beginning inventory +Cost of goods manufactured =Cost of goods available for sale –Ending inventory =Cost of goods sold

43 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Identify the benefits of budgeting. Objective 6

44 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Benefits of Budgeting requires managers to plan promotes coordination and communication helps managers evaluate performance motivates employees to achieve company goals

45 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Components of the Master Budget Purchases Budget ____ Cost of Goods Sold Budget ____ Operating Expenses Budget ____ Budgeted Statement of Financial Performance ____ Sales Budget ____ Inventory Budget ____ Operating Budget

46 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Components of the Master Budget Budgeted Statement of Financial Position _____ Budgeted Statement of Cash Flows _____ Budgeted Statement of Financial Performance _____ Capital Expenditures Budget _____ Cash Budget _____ Financial Budget

47 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Preparing the Master Budget l (An expanded example in your textbook pages 838 – 45) l Suppose you manage Whitewater Sporting Goods store No. 18. l Selected parts of the master budget will be prepared for Store No. 18 for October, November, December and January.

48 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Preparing the Master Budget l Sales are 60% cash and 40% on credit. l Credit sales are collected in the month following the sale. l Accounts receivable on September 30 amounted to $16,000. l How much were total sales in Sept.? l $16,000 ÷.40 = $40,000

49 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Projected Sales October…………….$50,000 November……….…$80,000 December………..…$60,000 January……..………$50,000 Preparing the Master Budget

50 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Preparing the Master Budget l Whitewater maintains inventory equal to $20,000 plus 80% of the budgeted cost of goods sold for the following month. l Cost of goods sold averages 70% of sales. l What is the ending inventory on Sept. 31? l $20,000 + (0.80 × 0.70 × October sales of $50,000) = $48,000

51 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Preparing the Master Budget What is the beginning inventory in September? $20,000 + (0.80 × 0.70 × $40,000) = $42,400 l Opening Inventory$ 42,400 l Plus Purchases$ ? l Minus Closing Inv.$ 48,000 l Equals COGS (70% x $40,000) $ 28,000 l ? = $ 33,600

52 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Preparing the Master Budget l Whitewater pays for inventory as follows: 50% during the month of purchase and 50% during the next month. l September purchases were $33,600. l How much was paid in September for September’s purchases? l $33,600 × 50% = $16,800

53 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Prepare an operating budget for a company. Objective 7

54 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Sales Budget (Schedule A) l Sales revenue is the key measure of business activity. l The budgeted total sales revenue for each product is the sales price multiplied by the expected number of units sold.

55 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Oct. Nov. Dec. Jan. Cash sales 60% $30,000 $48,000 $36,000 $30,000 Credit sales 40% 20,00032,000 24,000 20,000 Total $50,000 $80,000 $60,000 $50,000 Total sales Oct through Jan = $240,000 Sales Budget (Schedule A)

56 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Purchases, Cost of Goods Sold, and Inventory Budget l Cost of goods sold = 70% × sales l How much are the cost of goods sold for November? l 70% × $80,000 = $56,000 l What is the desired ending inventory for October? l $20,000 + (80% × $56,000) = $64,800

57 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Beginning inventory + Purchases – Ending inventory = Cost of goods sold Cost of goods sold + Ending inventory – Beginning inventory = Purchases Purchases, Cost of Goods Sold, and Inventory Budget

58 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Oct. Nov. Dec. Jan. Cost of goods sold (70% × sales) $35,000 $56,000$42,000 $35,000 Desired ending inventory 64,80053,600 48,000 42,400 Total required $99, ,600 90,000 77,400 Beginning inv. 48,000 64,800 53,600 48,000 Purchases $51,800 $44,800$36,400 $29,400 Schedule B

59 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Operating Expenses Budget l Assume that Whitewater incurs $5,200 of fixed expenses every month and that commissions and other variable expenses equal 20% of sales. l What is the operating expenses budget (Schedule C)?

60 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Oct. Nov. Dec Jan. Variable expenses (From Schedule A) 20% of sales $ 10,000 $ 16,000$12,000 $10,000 Fixed expenses5,200 5,200 5,200 5,200 Total$15,200 $21,200 $17,200 $15,200 Total wages and commission: $68,800 Operating Expenses Budget (Schedule C)

61 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Budgeted Statement of Financial Performance Whitewater Sporting Goods Store No. 18 Budgeted Statement of Financial Performance Four Months Ending January 31, 2005 Amount Source Sales$240,000Schedule A Cost of goods sold 168,000Schedule B Gross profit $ 72,000 Operating expense 68,800Schedule C Net profit$ 3,200

62 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Prepare the components of a financial budget. Objective 8

63 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Cash budget Budgeted Statement of Financial Position Preparing the Financial Budget l The financial budget includes:

64 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Preparing the Cash Budget l The cash budget has the following major parts: – cash collections from customers (Schedule D) – cash disbursements for purchases (Schedule E) – cash disbursements for operating expenses (Schedule F) – capital expenditures (not illustrated in this chapter)

65 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Cash Collections from Customers (Schedule D) Oct. Nov. Dec. Jan. Cash sales$30,000$48,000$36,000$30,000 Collections of last month’s credit sales 16,000* 20,000 32,000 24,000 Total$46,000$68,000$68,000$54,000 Total collections: $236,000 *16,000 = September 30 accounts receivable From Schedule A

66 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Cash Disbursements for Purchases (Schedule E) Oct. Nov. Dec. Jan. Payment of last month’s purchases$18,800$25,900$22,400$18,200 Payment of this month’s purchases 25,900 22,400 18,200 14,700 Total$42,700$48,300$40,600$32,900 Total disbursements: $164,500 From Schedule B

67 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Oct. Nov. Dec. Jan. Payment of last month’s expenses$ 4,250$ 5,000 $7,250$ 5,750 Payment of this month’s expenses 5,000 7,250 5,750 5,000 Rent and Misc. 4,500 6,000 5,000 4,500 Total$13,750$18,250$18,000$15,250 Total disbursements: $65,250 Cash Disbursements for Operating Expenses (Schedule F) From Schedule C

68 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Whitewater Sporting Goods Store No. 18 Cash Budget Four Months Ending January 31, 2005 Budgeted cash receipts$236,000 Budgeted cash disbursements Purchases$164,500 Operating expenses 65, ,750 Budgeted cash increase$ 6,250 Cash Budget

69 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Preparing the Budgeted Statement of Financial Position l Assets, liabilities, and owners’ equity are projected based upon the previous schedules. l Assume that the cash balance on September 30 was $15,000. l What is the budgeted cash balance on January 31? l $15,000 + $6,250 expected increase = $21,250

70 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Use sensitivity analysis in budgeting. Objective 9

71 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia Budgeting and Sensitivity Analysis l Sensitivity analysis helps managers plan for different courses of action. l This type of “what if” analysis shows the result of changing an underlying assumption in the budgeting process. l Sensitivity analysis may affect very specific plans.

72 Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia End of Chapter 20


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