Chapter 21 Budgetary Planning

Slides:



Advertisements
Similar presentations
Prepared by: Keri Norrie, Camosun College
Advertisements

Prepared by: Carole Bowman, Sheridan College
CHAPTER 14: MEASURING AND ASSIGNING COSTS FOR INCOME STATEMENTS Cost Management, Canadian Edition © John Wiley & Sons, 2009 Chapter 14: Measuring and Assigning.
Chapter 9 BUDGETING A budget is a formal written statement of management’s plans for a specified future time period, expressed in financial terms Control.
University of Louisiana at Lafayette
CHAPTER 10: STATIC AND FLEXIBLE BUDGETS Cost Management, Canadian Edition © John Wiley & Sons, 2009 Chapter 10: Static and Flexible Budgets Cost Management,
University of Louisiana at Lafayette
Financial Accounting: Tools for Business Decision Making
6 - 1 Benefits of Budgeting Essentials of Effective Budgeting Master Budgetster Budget Budgeted Income Statement Cash Budget BudgetingBudgeting in a nonmanufac-
Accounting, Fourth Edition
The Cash Flow Statement
Accounting Principles Second Canadian Edition Prepared by: Carole Bowman, Sheridan College Weygandt · Kieso · Kimmel · Trenholm.
CHAPTER 9 Budgetary Planning.
Managerial Accounting, Fifth Edition
Accounting Principles, Eighth Edition
22 Budgeting Accounting 26e C H A P T E R Warren Reeve Duchac
John Wiley & Sons, Inc. Prepared by Karleen Nordquist.. The College of St. Benedict... and St. John’s University... with contributions by Marianne Bradford..
FINANCIAL ACCOUNTING Tools for Business Decision-Making KIMMEL  WEYGANDT  KIESO  TRENHOLM  IRVINE CHAPTER 5: Merchandising Operations.
FINANCIAL ACCOUNTING Prepared by L. de Grace C.A. a user perspective Sixth Canadian Edition John Wiley & Sons Canada, Ltd. ©2011 CHAPTER 2 ANALYZING TRANSACTIONS.
John Wiley & Sons, Inc. © 2005 Chapter 19 Budgetary Planning Prepared by Barbara Muller Arizona State University West Principles of Accounting Kimmel Weygandt.
Chapter 22 Master Budgets
Accounting Principles Second Canadian Edition Prepared by: Carole Bowman, Sheridan College Weygandt · Kieso · Kimmel · Trenholm.
Budgetary Planning and Control
CHAPTER 1: THE PURPOSE AND USE OF FINANCIAL STATEMENTS
Principles of Cost Accounting 15 th edition Edward J. VanDerbeck © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
Accounting, Fifth Edition
Accounting Principles Second Canadian Edition Prepared by: Carole Bowman, Sheridan College Weygandt · Kieso · Kimmel · Trenholm.
Budgeting Basics Budget: a formal written statement of management’s plans for a specified future time period, expressed in financial terms. Primary way.
9-1 Islamic University of Gaza Managerial Accounting Budgetary Planning Chapter 4 Dr. Hisham Madi.
9 Budgetary Planning Learning Objectives
1 Financial Accounting: Tools for Business Decision Making Kimmel, Weygandt, Kieso, Trenholm KIMMEL.
Budgetary Planning Chapter 24 Accounting Principles, 7th Edition
Managerial Accounting Balakrishnan | Sivaramakrishnan | Sprinkle | Carty | Ferraro Chapter 7: Operating Budgets: Bridging Planning and Control Prepared.
University of Louisiana at Lafayette
FINANCIAL FINANCIAL ACCOUNTING ACCOUNTING A U s e r P e r s p e c t i v e A U s e r P e r s p e c t i v e Third Canadian Edition Third Canadian Edition.
Needles Powers Crosson Principles of Accounting 12e The Budgeting Process 22 C H A P T E R ©human/iStockphoto.
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17 Budgeting.
ACCOUNTING PRINCIPLES Third Canadian Edition Prepared by: Keri Norrie, Camosun College.
CHAPTER Prepared by: Jerry Zdril, CGA Tools for Business Decision-Making Third Canadian Edition MANAGERIAL ACCOUNTING Weygandt-Kimmel-Kieso-Aly 10.
Managerial Accounting, Fifth Edition
Slide 13-2 CHAPTER 13 Statement of Cash Flows Learning objective 1: Explain the need for the statement of cash flows and identify the three types of.
Prepared by R. E. Harms CMA
University of Louisiana at Lafayette
Introduction to Management Accounting
CHAPTER23 Budgetary Planning. CHAPTER23 Budgetary Planning.
Common Stock Valuation
Prepared by Debby Bloom-Hill CMA, CFM
Managerial Accounting, Sixth Edition
Prepared by: Carole Bowman, Sheridan College
17 Chapter Financial Management. 17 Chapter Financial Management.
Managerial Accounting
Prepared by Debby Bloom-Hill CMA, CFM
Prepared by: Keri Norrie, Camosun College
Prepared by: Keri Norrie, Camosun College
Prepared by: Keri Norrie, Camosun College
Financial Statement Analysis
Prepared by: Carole Bowman, Sheridan College
Financial Accounting, IFRS Edition
Chapter 13 Cash Flow Statement. Chapter 13 Cash Flow Statement.
Managerial Accounting Second Edition Weygandt / Kieso / Kimmel
Chapter 19 Managerial Accounting
Prepared by: Keri Norrie, Camosun College
Master Budgeting.
CHAPTER 21: BUDGETARY PLANNING
Chapter 12 Appendix 12A Valuing Goodwill Prepared by:
Accrual Accounting Concepts
Budgeting for Planning and Control
Weygandt-Kimmel-Kieso-Aly
PLANNING FOR CAPITAL INVESTMENTS
Chapter 22 Budgetary Control and Responsibility Accounting
Presentation transcript:

Chapter 21 Budgetary Planning Prepared by: Carole Bowman, Sheridan College

Budgeting Basics A budget is a formal written statement of management’s plans, expressed in financial terms, for a specified future time period. The main benefits of budgeting include: all levels of management must plan ahead and formalize future goals on a recurring basis provides definite objectives for evaluating performance creates an early warning system for potential problems easier to coordinate activities within the business greater management awareness of the company’s overall operations and motivates personnel to meet planned objectives

Essentials of Effective Budgeting Budgeting Basics Essentials of Effective Budgeting Budgeting process Collect past data from each organizational unit of the company as a starting point for developing future budget goals. Develop the budget based on a sales forecast that reflects expected industry and economic conditions, with input from sales personnel and top management. Assign responsibility for coordinating the budget preparation, usually to a budget committee.

Essentials of Effective Budgeting Budgeting Basics Essentials of Effective Budgeting Budgeting and Human Behaviour Each level of management should be invited to participate in developing the budget. Agreement should be reached on a budget that management considers fair and achievable. The budget should provide the management tool for performance evaluation. Length of the Budget Period The budget period should be long enough to provide an attainable goal under normal business conditions, usually one year.

Essentials of Effective Budgeting Budgeting Basics Essentials of Effective Budgeting Budgeting and Long-Range Planning Budgeting and long-range planning are not the same. Important differences include: Time period involved. Budgets are usually prepared for a one-year or shorter period while long range plans cover a period of at least five years. Emphasis. Achieving specific short term goals for budgeting compared to developing long term goals and strategies. Amount of detail presented. Budgets are very detailed in order to provide a basis for control while long range plans are considerably less detailed.

The Master Budget The master budget is a set of interrelated budgets that constitute a plan of action for a specified time period. The master budget contains two classes of budgets: Operating budgets are the individual budgets (sales budget, production budget, direct materials budget, direct labour budget, manufacturing overhead budget, and selling and administrative expenses budget) that result in the preparation of the budgeted income statement. Financial budgets include the capital expenditures budget, the cash budget, and the budgeted balance sheet. These budgets focus primarily on the cash resources needed to fund expected operations and capital expenditures.

Illustration 21-1 The Master Budget Sales Budget The master budget is prepared in sequence, with the operating budgets prepared first, starting with the sales budget. Once the operating budgets are completed then the financial budgets are prepared. Production Budget Operating Budgets Direct Materials Budget Direct Labour Budget Manufacturing Overhead Budget Selling and Admin Expenses Budget Budgeted Income Statement Capital Expenditures Budget Budgeted Balance Sheet Financial Budgets Cash Budget

Preparing the Operating Budgets Illustration 21-2 Preparing the Operating Budgets Sales Budget The sales budget is the first budget prepared and is derived from the sales forecast. Each of the other budgets depends on the sales budget. The sales budget is prepared by multiplying the expected unit sales volume for each product by its anticipated unit selling price. The sales budget for the Wei Corporation is as follows:

Preparing the Operating Budgets Illustration 21-4 Preparing the Operating Budgets Production Budget The production budget shows the units that must be produced to meet anticipated sales. The production budget for the Wei Corporation is as follows: Per sales budget

Preparing the Operating Budgets Direct Materials Budget Illustration 21-6 Preparing the Operating Budgets Direct Materials Budget The direct materials budget contains both the quantity and cost of direct materials to be purchased. The direct materials budget for the Wei Corporation is as follows: from production budget

Preparing the Operating Budgets Illustration 21-7 Preparing the Operating Budgets Direct Labour Budget The direct labour budget contains the quantity (hours) and cost of direct labour necessary to meet production requirements, based on the production budget. Wei Corporation’s budget is as follows:

Preparing the Operating Budgets Manufacturing Overhead Budget Illustration 21-8 Preparing the Operating Budgets Manufacturing Overhead Budget The manufacturing overhead budget shows expected fixed and variable overhead costs. Manufacturing overhead rate per unit = $246,400/ 15,400 units (illustration 21-4) = $16.00

Preparing the Operating Budgets Selling and Administrative Expenses Illustration 21-9 Preparing the Operating Budgets Selling and Administrative Expenses The selling and administrative expenses budget shows expected fixed and variable selling and administrative costs. The fixed expenses, such as depreciation, property taxes, and office salaries, would be detailed on the budget.

Preparing the Operating Budgets Budgeting Income Statement Illustration 21-10 Preparing the Operating Budgets Budgeting Income Statement The budgeted income statement is the important end product in preparing operating budgets. It is prepared from the previous budgets. To calculate cost of goods sold, it is first necessary to determine the total unit cost of producing one Kitchenmate, the product sold by Wei Corporation:

Preparing the Operating Budgets Budgeting Income Statement Illustration 21-11 Preparing the Operating Budgets Budgeting Income Statement Cost of goods sold can then be determined by multiplying the units sold by the unit cost. All data for the statement are obtained from the operating budgets except: bad debts expense, interest expense, and income taxes. (From sales budget) (15,000 x $44)

Preparing the Financial Budgets Capital Expenditure Budget Illustration 21-12 Preparing the Financial Budgets Capital Expenditure Budget The capital expenditures budget details: the cash anticipated to be received from the sale of property, plant, and equipment and, the cash to be spent on purchasing additional property, plant, and equipment. As cash is affected, this budget must be prepared before the cash budget. Amortization on the new forklift was included in the manufacturing overhead budget (Illustration 21-8).

Preparing the Financial Budgets Illustration 21-13 Preparing the Financial Budgets Cash Budget The cash budget shows anticipated cash flows. It is the most important budget when preparing financial budgets due to the vital importance of cash to a company. The financing section shows expected borrowings and the repayment of the borrowed funds plus interest. It is needed when there is a cash deficiency or the cash balance is below the minimum required balance.

Preparing the Financial Budgets Illustration 21-13 Preparing the Financial Budgets Cash Budget The cash budget shows anticipated cash flows. It is the most important budget when preparing financial budgets due to the vital importance of cash to a company. Assume the company started the month with $6,000, received $23,000 cash and disbursed $32,000. If the company requires an ending cash balance of $5,000, then a total of $8,000 will need to be borrowed as shown to the right.

Preparing the Financial Budgets Illustration 21-13 Preparing the Financial Budgets Cash Budget The cash budget shows anticipated cash flows. It is the most important budget when preparing financial budgets due to the vital importance of cash to a company. In the next month, the company will start with $5,000 cash (last months ending balance). If $35,000 cash was received and $33,000 was disbursed then the company will be able to repay $2,000 of its debt. Remember the company desires an ending cash balance of $5,000.

Preparing the Financial Budgets Budgeted Balance Sheet Illustration 21-17 Preparing the Financial Budgets Budgeted Balance Sheet The budgeted balance sheet is a projection of financial position at the end of the budget period.

Budgeting in Nonmanufacturing Companies As in manufacturing operations, the sales budget is the starting point in the development of the master budget for a merchandising company. The major differences between the two companies’ master budgets are that a merchandiser: uses a merchandise purchases budget instead of a production budget and, does not use the manufacturing budgets (direct materials, direct labour, and manufacturing overhead).

Budgeting in Nonmanufacturing Companies In service companies such as a public accounting firm, a law office, or a medical practice, the critical factor in budgeting is coordinating professional staff needs with anticipated services. The goal is to be neither overstaffed nor understaffed. Budgeting is important for not-for-profit organizations but the budget process is significantly different. Usually they budget on the basis of cash flows (expenditures and receipts) rather than on a revenue and expense basis.

COPYRIGHT Copyright © 2010 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.