Chapter 9 - Financial planning and analysis: The master budget. After completing this chapter, you should be able to: Explain the relationship between financial planning and analysis and the master budget; list and explain five purposes of budgeting; describe the similarities and differences in the operational budgets prepared by manufacturers, service-industry firms, merchandisers, and nonprofit organizations;...
Trang 1Financial Planning and Analysis: The Master Budget
Chapter 9
Trang 2Financial Planning and
Analysis (FP&A) Systems
A financial planning and
analysis (FP&A) system
helps managers assess the
company’s future and know if
they are reaching their
performance goals A
complete FP&A system
includes subsystems for (1)
planning, (2) measuring and
recording results, and (3)
evaluating performance
A financial planning and
analysis (FP&A) system
helps managers assess the
company’s future and know if
they are reaching their
performance goals A
complete FP&A system
includes subsystems for (1)
planning, (2) measuring and
recording results, and (3)
evaluating performance
The planning component
of the FP&A system is called the master budget
It is intended to help ensure that plans are consistent and yield a result that makes sense for the organization.
Trang 3Purposes of Budgeting Systems
Budget
a detailed plan, expressed in
quantitative terms, that
specifies how resources will
be acquired and used during a
specified period of time.
Budget
a detailed plan, expressed in
quantitative terms, that
specifies how resources will
be acquired and used during a
specified period of time.
1 Planning
2 Facilitating
Communication and Coordination
Trang 4Budgeted Income Statement
Production Budget
Direct Materials Budget
Direct Materials Budget
Selling and Administrative Budget
Selling and Administrative Budget
Direct Labor Budget
Direct Labor Budget
Overhead Budget
Overhead Budget
Trang 5Based Costing versus
Forecast of products and services to be produced and customers served.
Activities
Activity-Based Costing (ABC)
Activity-Based Costing (ABC)
Activity-Based Budgeting (ABB)
Activity-Based Budgeting (ABB)
Trang 6The selling price is $10 per unit.
Breakers, Inc is preparing budgets for the quarter ending June 30
Budgeted sales for the next five months are:
Trang 7Sales Budget
Budgeted
sales (units) 20,000 50,000 30,000 100,000 Selling price
per unit $ 10 $ 10 $ 10 $ 10 Total
Revenue $ 200,000 $ 500,000 $ 300,000 $ 1,000,000
Trang 8Production Budget
The management of Breakers, Inc wants ending inventory to be equal to 20% of the following
month’s budgeted sales in units
On March 31, 4,000 units were on hand
Let’s prepare the production budget
The management of Breakers, Inc wants ending inventory to be equal to 20% of the following
month’s budgeted sales in units
On March 31, 4,000 units were on hand
Let’s prepare the production budget
Trang 9April May June Quarter
Sales in units 20,000 50,000 30,000 100,000
Add: desired
end inventory 10,000 6,000 5,000 5,000 Total needed 30,000 56,000 35,000 105,000
Less: beg
inventory 4,000 10,000 6,000 4,000 Units to be
Trang 10Let’s prepare the direct materials budget.
At Breakers, five pounds of material are required per
Trang 12June Ending Inventory
July production in units 23,000 Materials per unit 5 Total units needed 115,000
Add: desired ending inventory 3,000
Total units needed 28,000
Less: beginning inventory 5,000
Production in units 23,000
Trang 13Direct-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.
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.
Trang 15Overhead Budget
Here is Breakers’ Overhead Budget for the quarter
Trang 16Selling 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
outflow for the month
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
outflow for the month
Trang 17Selling and Administrative Expense
Budget
From our
Sales budget
Trang 18Cash Receipts Budget
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 the sale,
5% is uncollected.
The March 31 accounts receivable balance of $30,000 will be collected in full
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 the sale,
5% is uncollected.
The March 31 accounts receivable balance of $30,000
will be collected in full
Trang 19Cash Receipts Budget
Trang 20Cash 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
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
Trang 21Cash Disbursement Budget
140,000 lbs × $.40/lb = $56,000
Trang 22Cash Disbursement Budget
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.
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.
Trang 23To maintain a cash balance of $30,000, Breakers must borrow
$35,000 on its line of credit.
Cash Budget
(Collections and Disbursements)
From our Cash
Budget
Trang 24Cash Budget
(Collections and Disbursements)
Breakers must borrow an addition $13,800
to maintain a cash balance
of $30,000.
Trang 25At the end of June, Breakers
has enough cash to repay
the $48,800 loan plus interest
at 12%.
Cash Budget
(Collections and Disbursements)
Trang 26Cash Budget
(Collections and Disbursements)
Trang 27Cash Budget
(Financing and Repayment)
Ending cash balance for April
is the beginning May balance.
Trang 28Cost of Goods Manufactured
Direct material:
Trang 29Cost of Goods Sold
Trang 30Budgeted Income Statement
Trang 31Budgeted Statement of Cash Flows
Cash flows from operating activities:
Cash payments:
Cash flows from investing activities:
Cash flows from financing activities:
Trang 32Budgeted Balance Sheet
Breakers reports the following account balances on
March 31 prior to preparing its budgeted financial
statements for June 30:
• Land - $50,000
• Building (net) - $148,000
• Common stock - $217,000
• Retained earnings - $46,400
Breakers reports the following account balances on
March 31 prior to preparing its budgeted financial
statements for June 30:
• Land - $50,000
• Building (net) - $148,000
• Common stock - $217,000
• Retained earnings - $46,400
Trang 34Budgeted Income Statement
Production Budget
Direct Materials Budget
Direct Materials Budget
Selling and Administrative Budget
Selling and Administrative Budget
Direct Labor Budget
Direct Labor Budget
Overhead Budget
Overhead Budget
When the interactions of the elements
of the master budget are expressed as
a set of mathematical relations, it becomes a financial planning model that can be used to answer “what if”
questions about unknown variables.
Trang 35Budget Administration
The Budget Committee is a standing
overall policy matters relating to the budget
coordinating the preparation of the budget
The Budget Committee is a standing
overall policy matters relating to the budget
coordinating the preparation of the budget
Trang 36Behavioral 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.”