Beruflich Dokumente
Kultur Dokumente
Profit Planning
4/14/04
Control involves the steps taken by mgmt that attempt to ensure the org. is working together & objectives are attained.
The McGraw-Hill Companies, Inc., 2003
Budget
A plan to acquire and use financial and other resources to achieve the firms goals and objectives Usually a painful process, but absolutely necessary for the efficient running of a firm This chapter provides a very useful model for creating a budget
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2003
Advantages of Budgeting
Define goal and objectives, benchmark Getting mgrs to think about and plan for the future
Advantage s
Uncover potential bottlenecks
McGraw-Hill/Irwin
Operating Budget
1999
2000
2001
2002
The annual operating budget may be divided into quarterly and monthly budgets.
McGraw-Hill/Irwin
Middle Management
Middle Management
Supervisor
Supervisor
Supervisor
Supervisor
McGraw-Hill/Irwin
Zero-based Budgeting
Managers are required to justify all budgeted expenditures Baseline is zero, not last years Requires more work, more time and more documentation Usually done when deep cuts in spending are required
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2003
Cash Budget
McGraw-Hill/Irwin
McGraw-Hill/Irwin
McGraw-Hill/Irwin
Budgeting Example
Royal Company is preparing budgets for the quarter ending June 30. Budgeted sales for the next five months are:
April May June July August 20,000 units 50,000 units 30,000 units 25,000 units 15,000 units.
McGraw-Hill/Irwin
McGraw-Hill/Irwin
$ 50,000
$ 400,000
$ 170,000
$ 400,000
Note: The 25% of June sales ($75,000) to be collected in July becomes the Accounts Receivable balance at the end of June
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2003
Production must be adequate to meet budgeted sales and provide for sufficient ending inventory.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2003
McGraw-Hill/Irwin
May 50,000
June 30,000
Quarter 100,000
Quick Check
What is the required production for May? a. 56,000 units b. 46,000 units c. 62,000 units d. 52,000 units
McGraw-Hill/Irwin
Quick Check
What is the required production for May? a. 56,000 units b. 46,000 units c. 62,000 units d. 52,000 units
McGraw-Hill/Irwin
McGraw-Hill/Irwin
McGraw-Hill/Irwin
Ending inventory based on 20% of July sales (25,000). The McGraw-Hill Companies, Inc., 2003
McGraw-Hill/Irwin
McGraw-Hill/Irwin
March 31 inventory
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2003
Quick Check
How much materials should be purchased in May? a. 221,500 pounds b. 240,000 pounds c. 230,000 pounds d. 211,500 pounds
McGraw-Hill/Irwin
Quick Check
How much materials should be purchased in May? a. 221,500 pounds b. 240,000 pounds c. 230,000 pounds d. 211,500 pounds
McGraw-Hill/Irwin
$ 40,000
Note: The 50% of June purchases payable in July ($28,400) is the Accounts Payable balance at the end of June.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2003
McGraw-Hill/Irwin
McGraw-Hill/Irwin
Note: Cash disbursement equals total direct labor cost since it is paid in period earned
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2003
McGraw-Hill/Irwin
McGraw-Hill/Irwin
$ 76,000
$ 59,000
$ 191,000
McGraw-Hill/Irwin
McGraw-Hill/Irwin
4.99 ?
Total mfg. OH for quarter $251,000 = $49.70 per hr.* Total labor hours required 5,050 hrs (from DL budget & MOH budget) *rounded
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2003
5,000 $ 4. $24, 50
Production Budget
McGraw-Hill/Irwin
McGraw-Hill/Irwin
$ 85,000
$ 75,000
$ 230,000
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.
The McGraw-Hill Companies, Inc., 2003
McGraw-Hill/Irwin
McGraw-Hill/Irwin
McGraw-Hill/Irwin
Because Royal maintains a cash balance of $30,000, the company must borrow on its line-ofline-of-credit
$ (20,000)
McGraw-Hill/Irwin
$ 30,000
$ 30,000
McGraw-Hill/Irwin
$ (20,000)
$ 30,000
McGraw-Hill/Irwin
$30,000 $ 30,000
Because the ending cash balance is exactly $30,000, Royal will not repay the loan this month.
McGraw-Hill/Irwin
$ (20,000)
$ 30,000
$ 95,000
$ 45,000
McGraw-Hill/Irwin
$30,000 $ 30,000
$50,000 16% 3/12 = $2,000 Borrowings on April 1 and repayment of June 30.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2003
After we complete the cash budget, we can prepare the budgeted income statement for Royal.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2003
McGraw-Hill/Irwin
Land - $50,000 Common stock - $200,000 Retained earnings - $146,150 Equipment - $175,000
Add 143,700 in May and 48,300 in June for ending balance of $367,000
McGraw-Hill/Irwin
R B d
lC p dB l
C rr C A r iv l R ri l i v d d i v Fi i T l rr r p r d ip d E ip T l pr p r d l T A C R T p i d r i l li ili i l
r r
ip
ii
McGraw-Hill/Irwin
R B d
lC p dB l
C rr C A r iv l R ri l i v d d i v Fi i T l rr r p r d ip d E ip T l pr p r d l T A C R T p i d r i l li ili i l
r r
, B, i i l Add: i ,6 : divid d d l E, di , , 6 , , 6 , 8, , 6, 6 ,
6, , , 6,
ip
ii
McGraw-Hill/Irwin
End of Chapter 9
McGraw-Hill/Irwin