Budget plays an important role for organizations of all sizes and forms.
Planning goals to guide decisions and help motivate employees
Directing involves decisions and actions to achieve budgeted goals.
Responsibility center Budgetory unit of a co.
Controlling involves comparing actual performance against the budgeted goals
Budgetary slack planning budget goals that are too easy
Goal conflict occurs when the employees’ or managers’ self-interest differs from the companys objectives or goals.
Continuous Budget mainitans a 12 month projection into the future. Continually revised by replacing datat for the month just ended with the budget data for the same month in the next yr.
Zero-based budgeting requires managers to estimate sales, production and other operating data as thought operations are being started for the first time.
Static budget shows the expected results of a responsibility center for only one activity level (no adjustments)
Flexible budget show the expected results of a responsibility center for seberal activitiy levels.
Identify the relevant activity levels. The relevant levels of activity can be expressed in units, machine hrs, DL hrs, or some other activity base.
Identify the fixed and variable cost components of the cost being budgeted.
Prepare the budget for each activity level by multiplying the variable cost per unit by the activity level and then adding the monthly fixed cost.
Sales budget begins by estimating the quantity of sales.
Production budget estimates the # of units to be manufactured to meet budgeted sales and desired inventory
Expected units to be sold xxxunits
Plus desired units in EI +xxx
Less est. units in BI -xxx
Total units to be produced XXXunits
DM Purchases budget estimates the quantities of DM to be purchased to support budgeted production and desired inventory levels. Materials req. for production xxx Plus desired ending materials inv +xxx
Less estimated beginning materials inv -xxx DM to be purchased XXX
DL Cost budget estimates the DL hours and related cost needed to support budgeted production.
FO Cost budget estimates the cost for each item of FO needed to support budgeted production.
COGS Budget prepared by integrating the following budgets: DM purchases budget, DL cost budget, FO cost budget
Cash budget estimates the expected receipts(inflows) and payments(outflows) of cash for a period of time.
The cash budget presents the expected receipts and payments of cash for a period of time.
Estimated cash receipts is the primary source of estimated cash receipts is from cash sales and collections on account. To estimate cash receipts from cash sales and collections on account, a schedule of collectionsfrom sales Is prepared.
Estimated cash paymets must be budgeted for operationg cost and expenses such as manufacturing costs, SE, ADM Exp. To estimate cash payments for manufacturing costs, a schedule of payments for manufacturing cost Is prepared.
Completing the Cash budget PAGE 1034-1035 example
Capital expenditure budget summarises plans for acquiring fixed assets. Such expenditures are necessary as machinery and other fixed assets wear out or become obsolete.
CHAPTER 23 PERFORMANCE EVALUATION USING VARIANCES FROM STANDARD COST
Standard cost DM, DL FO
Std. cost system accounting systems that use std. for product costs
How much a product should cost (std)
How much does it cost(actual)
Budget performance Report report that summarizes actuals cost, std cost, and the difference fot the units produced. XL jeans produced and sold 5000 pairs Actual cost incurred in June: DM $40150 DL 38500 FO 22400 Total Cost incurred 101050
Cost variance differenced between actual and std cost.
Favorable cost occurs when actual cost is less than std cost. ACSC
Total manufacturing cost variance difference between total std. costs and total actual cost for the units…