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Chapter 13 Budgetary Planning
Terms in this set (19)
State the essentials of effective budgeting and the components of the master budget.
- a formal written statement of management's plans for a specified furture time period, expressed in financial term
- primary method of communicating agreed- upon objectives throughout the organization
- control device that is importatn basis for performance evaluation once adopted
- accountants normally responsible for presenting managaement's budgeting goals in financial terms
- the budget and its administration are the responsibility of management
benefits of budgeting
primary benefits of budgeting
1. requires all levels of management to plan ahead
2. provides definite objectives for evaluating performance
3. creates an early warning system for potential problems
4. facilitates coordination of activites within in buiness
5. results in greater management awareness of the enitiy's ovrall operations
6. it motivates personnel throughout organization to meet planned objectives
essentials of effective budgeting
- Depends on a sound organizational structure with authority and responsibility for all phases of operations
- accepte by all levels of management
- based on research and analysis with realistic goals
- historical accoutning data (revenues and expenses) can help formulate future budgets
- collect data from organizational units about next year's plans
- budgets are typically prepared for one year time period
- may be supplementes with monthly or quarterly budgets
- long enough to provide an attainable goal and minimize seasonal or cyclical fluctuations
- budget begins with sales budget, devloped within the framework of a sales forecast
- factors considered in Sales Forecasting
1. general economic conditions
2. industry trends
3. market research studies
4. anticipated advertising and promotion
5. previous market share
6. price changes
7 technological developments
Prepare budgets for sales, production, and direct materials.
- first budget prepared
- derived from the sales forecast
- management best estimate of sales revenue for the budget period
- every other budget depends on the sales budget
- prepared by multiplying expected unit sales volume for each product times anticipated unit selling price
Illustration - Hayes Company
-Expected sales volume: 3,000 units in the first quarter with 500-unit increases in each succeeding quarter.
Sales price: $60 per unit.
Do It! 2
Soriano Company is preparing its master budget for 2017. Relevant data pertaining to its sales budget is as follows:
Sales: Sales for the year are expected to total 1,200,000 units. Quarterly sales are 20%, 25%, 30%, and 25% respectively. The sales price is expected to be $50 per unit for the first three quarters and $55 per unit beginning in the fourth quarter.
learning objective 4
Prepare a cash budget and a budgeted balance sheet.
shows anticipated cash flows
- often considered to be the most important output in preparing financial budgets
- contains three sections
- cash receipts
- cash disbursements
- shows beginning and ending cash balances
cash receipts section
- expected receipts from the principal sources of revenue
- expected interest and dividends receipts, proceeds from planned sales of investments, plant assets, and the company's capital stock
expected cash payments for direct materials, direct labor, manufacturing overhead, and selling and administrative expenses
- expected borrowings and repayments of borrowed funds plus interest
Do It! 4
Martian Company management wants to maintain a minimum monthly cash balance of $15,000. At the beginning of March, the cash balance is $16,500, expected cash receipts for March are $210,000, and cash disbursements are expected to be $220,000. How much cash, if any, must be borrowed to maintain the desired minimum monthly balance?
Cash Collections Schedule
Illustration - Hayes Company Assumptions
- The January 1, 2017, cash balance is expected to be $38,000. Hayes wishes to maintain a balance of at least $15,000.
-Sales (Illustration 13-3): 60% are collected in the quarter sold and 40% are collected in the following quarter. Accounts receivable of $60,000 at December 31, 2016, are expected to be collected in full in the first quarter of 2017.
Apply budgeting principles to nonmanufacturing companies
- sales budget: starting point and key factor in deveoping the master budget
- use the purchase budget instead of a production budget
- does not use the manufacturing overhead
- to determine budgeted merchandise purchases
- budgeted cost of goods sold + Desired ending merchandise inventory - Beginning merchandise inventory = required merchandise inventory
- Lima estimates that budgeted sales will be $300,000 in July and $320,000 in August. Cost of goods sold is expected to be 70% of sales. The company's desired ending inventory is 30% of the followings month's cost of goods sold. Required merchandise purchases for July are computed as follows.
Mapleview, Inc. has the following budgeted sales: July $200,000, August $300,000, and September $250,000. 40% of the sales are for cash and 60% are on credit. For the credit sales, 50% are collected in the month of sale, and 50% the next month.
What are the total expected cash receipts during September?
What is Mapleview's Accounts Receivable balance at the end of September?
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