Profit Planning

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Published on 17 May 2011
Ryerson University
ACC 406
Chapter 9 Budgeting Process of preparing budgets
Types of Budgets:
Operational Budget
oSales Budget How many units to be sold (Determines Production Budget)
oProduction Budget How many units to be produced (Determines Input
oInput Budgets:
Direct Material Purchases Budget Estimates Direct Materials Cost
Direct Labor Budget Estimates Direct Labor Cost
Overhead Budgets Estimates Overhead Cost
Financial Budget
oCash Budget Estimates cash in/outflow (Receipt/Payments)
oProjected Income Statement Estimate revenue and expenses
oProjected Balance Sheet
Problem 9-50 Sales Cash Collation Pattern Sales
35% Cash
Sales65% credit sales
60% collected in the
same month of sale20% collected
next month20% collected
2 months later
50% with
2% cash
50% without
cash discount
d) Cost-to-sales ratio: 22:1
Monthly ending inventory equal to coming months production requirements
Purchase Payments
50% paid in the same month 50% paid next month
Julys Credit Sales = 60%
Junes Credit Sales = 20%
Mays Credit Sales = 20%
Old equipment sold in July for $25,200
Purchase for July Sales (1,140,000 * 0.22) = $250,800
Add: Required Ending Inventory = $264,000
Total Need = $514,800
Less: Beginning Inventory (1,140,000 * 0.22) = $250,800
July Purchases = $264,000
Cash Outflow Because of July Purchase = $132,000
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Document Summary

Chapter 9 budgeting process of preparing budgets. Types of budgets: operational budget, sales budget how many units to be sold (determines production budget, production budget how many units to be produced (determines input.  direct material purchases budget estimates direct materials cost.  direct labor budget estimates direct labor cost.  overhead budgets estimates overhead cost: financial budget, cash budget estimates cash in/outflow (receipt/payments, projected income statement estimate revenue and expenses, projected balance sheet. 60% collected in the same month of sale. 50% without cash discount: cost-to-sales ratio: 22:1. Monthly ending inventory equal to coming month"s production requirements. Purchase for july sales (1,140,000 * 0. 22) = ,800. Less: beginning inventory (1,140,000 * 0. 22) = ,800.