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Lecture 9

BUS 202 Lecture 9: Out+09+202+2017+Completed

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Department
Business
Course
BUS 202
Professor
Joseph D' Adamo
Semester
Spring

Description
University of Rhode Island BUS 202 Managerial Accounting 2016 - 2017 Joseph M. D’Adamo Course Outline #9: Information for Planning Page 1 of 13 I. Planning A. Description Management process of: 1) Setting objectives and goals for a firm or a component of a firm 2) Identifying and evaluating alternative courses of action to achieve goals 3) Choosing the course of action to be followed 4) Developing budgets for planned activities B. Types of Planning ▪ Strategic Planning Long-term Planning ▪ Operational or Tactical Planning Short-term Planning II. Operational or Tactical Planning A. Nature ▪ Process that establishes specific goals and objectives for an entity as it strives to achieve its mission ▪ Generally covers short time horizons of up to 18 months ▪ Identifies specific activities that the entity will carry out ▪ Produces detailed budgets B. Budgeting 1. Nature and Purpose a. Master Budget = Operating Budget ▪ Documents the specific short-term operating performance goals and objectives designed to: o Implement the strategic plan o Carry out mission and progress toward achieving vision ▪ Provides means to evaluate planning decisions o Quantifies the amounts and timing of estimated resources required and expected resources generated o Estimates the effects of planned activities on the firm’s cash resources, profitability, and financial position Course Outline #9: Information for Planning Page 2 of 13 ▪ Communicates operating plan throughout the firm o Motivates and guides managers and employees o Creates means to control and evaluate performance b. Capital Budget ▪ Financial management technique used to plan for long-term investment projects such as the acquisition of PP&E ▪ Evaluates proposed investment projects in terms of the expected returns relative to their risks 2. Overview of Operational Planning Budgets Strategic Mission Planning: Strategy Operational Short-term Planning: Objectives Master Budget Capital Budget Operating Sales Budget Budgets: COGS SG&A Expense Budget Budget Cash Budget Financial Pro-Forma IS Budgets: Pro-Forma B/S Course Outline #9: Information for Planning Page 3 of 13 3. Master Budget: Operating Budgets ▪ Document the planned activities by identifying the expected inputs to be used and their resulting outputs ▪ Use non-financial measurements to establish goals that serve as performance benchmarks or standards Examples: Sales Budget, Production Budget, Human Resource Budget 4. Master Budget: Financial Budgets ▪ Financial budgets such as pro-forma income statements and balance sheets measure the financial effects of the planned activities on profits and on the entity’s financial position ▪ Cash budget is a financial budget that predicts cash inflows and outflows in terms of their amounts, timing, sources and uses Course Outline #9: Information for Planning Page 4 of 13 Example: You are assisting in the preparation of the master budget for the second quarter of 2016 for Accounting Gear Corp., a distributor of high-quality pocket protectors for the fashionable accountant. Budgetary Assumptions and Other Pertinent Information: 1) Accounting Gear Corp. makes sales at an average selling price of $30 per unit. Budgeted sales for the upcoming quarter and July 2016 are: Quarterly April May June Totals July Sales in Units 16,000 20,000 22,000 58,000 25,000 a. Prepare a monthly sales budget for Accounting Gear Corp. for the second quarter of 2016. Accounting Gear Corp. Monthly Sales Budget For the Three Months Ending June 30, 2016 Quarterly April May June Totals Sales in Units (Sales Volume) 16,000 20,000 22,000 58,000 Selling Price per Unit $30.00 $30.00 $30.00 $30.00 Total Sales Revenue $480,000 $600,000 $660,000 $1,740,000 Sales in Units Total Sales Revenue COGS and Purchases Variable SG&A Expenses Cash Collections Income Statement Course Outline #9: Information for Planning Page 5 of 13 Example: (continued) Budgetary Assumptions and Other Pertinent Information: 2) Accounting GearCorp. purchases its product at an averagecost of$17.50 per unit. TheCompany pays itsbills in 15 days. Accounting Gear Corp. attempts to maintain sufficient inventory to cover the following week’s (1/4 of the next month) projected sales requirement. At March 31, 2016, the company had 4,000 units on hand at a cost of $70,000. b. Prepare a monthly cost of goods sold and purchases budget for Accounting Gear Corp. for the second quarter of 2016. Accounting Gear Corp. Monthly Cost of Goods Sold and Purchases Budget For the Three Months Ending June 30, 2016 April May June Quarterly Totals Sales in Units from Sales Budget 16,000 20,000 22,000 58,000 Cost per Unit $17.50 $17.50 $17.50 $17.50 Total Cost of Goods Sold to I/S $280,000 $350,000 $385,000 $1,015,000 Units Required: For Sales from Sales Budget 16,000 20,000 22,000 58,000 For Ending Inventory(25% of Next Month) For MA5,000 For JU5,500 For J6,250 For J6,250 Total Requirements 21,000 25,500 28,250 64,250 Units from Beginning Inventory From MA(4,000) From A(5,000) From MA(5,500) From MAR(4,000)) Net Purchases in Units 17,000 20,500 22,750 60,250 Cost per Unit $17.50 $17.50 $17.50 $17.50 Total Cost of Net Purchases $297,500 $358,750 $398,125 $1,054,375 Total Cost of Goods Sold Total Cost of Net Purchases Income Statement Cash Disbursements EI @ 6/30 6,250 units X $17.50 per unit = $109,375 Course Outline #9: Information for Planning Page 6 of 13 Example: (continued) Budgetary Assumptions and Other Pertinent Information: 3) Accounting Gear Corp. budgets its selling, general and administrative expenses as: Variable Costs: Fixed Costs: Sales Commissions $1.75 per Unit Sales Salaries 18,000 Delivery $0.75 per Unit Delivery 5,000 Advertising 11,500 Administrative Salaries 26,000 Utilities 14,000 Insurance 1,200 Miscellaneous 6,500 Depreciation 7,500 c. Prepare a monthly selling, general, and administrative expenses budget for Accounting Gear Corp. for the second quarter of 2016. Accounting Gear Corp. Monthly SG&A Expenses Budget For the Three Months Ending June 30, 2016 Quarterly April May June Totals Sales in Units from Sales Budget 16,000 20,000 22,000 58,000 Variable Costs: Sales Commissions ($1.75 per Unit) S $28,000 $35,000 $38,500 $101,500 Delivery ($0.75 per Unit) S 12,000 15,000 16,500 43,500 Total Variable Costs 40,000 50,000 55,000 145,000 Fixed Costs: Sales Salaries S 18,000 18,000 18,000 54,000 Delivery S 5,000 5,000 5,000 15,000 Advertising S 11,500 11,500 11,500 34,500 Administrative Salaries G&A 26,000 26,000 26,000 78,000 Utilities G&A 14,000 14,000 14,000 42,000 Insurance G&A 1,200 1,200 1,200 3,600 Miscellaneous G&A 6,500 6,500 6,500 19,500 Depreciation D 7,500 7,500 7,500 22,500 Total Fixed Costs 89,700 89,700 89,700 269,100 Total SG&A Expenses = Operating Expense $129,700 $139,700 $144,700 $414,100 Total SG&A Expenses Cash Disbursements Income Statement Course Outline #9: Information for Planning Page 7 of 13 Example: (continued) Budgetary Assumptions and Other Pertinent Information: 4)AccountingGearCorp.makesallsalesoncredit.Baddebtsarenegligible. TheCompanycollectsitsreceivables as detailed in the table below. Cash collections during the first quarter of 2016 followed the same pattern and resulted in a balance in accounts receivable of $522,000 at March 31, 2016 based on total sales revenue of $288,000 in February 2016 and $420,000 in March 2016. Cash Collections: Month of Sale (10%) LIKE CASH SALES One Month following Sale (40%) Two Months following Sale (50%) d. Prepare a monthly cash collections budget for Accounting Gear Corp. for the second quarter of 2016. Accounting Gear Corp. Monthly Cash Collections Budget For the Three Months Ending June 30, 2016 Quarterly April May June Totals Total Sales Revenue from Sales Budget $480,000 $600,000 $660,000 $1,740,000 Cash Collections: 10% X $480,000 10% X $600,000 10% X $660,000 Month of Sale (10%) APR $48,000 MAY $60,000 JUN $66,000 $174,000 40% X $420,000 40% X $480,000 40% X $600,000 One Month following Sale (40%) MAR 168,000 APR 192,000 MAY 240,000 600,000 50% X $288,000 50% X $420,000 50% X $480,000 Two Months following Sale (50%) FEB 144,000 MAR 210,000 APR 240,000 594,000 50% X $288,000 50% X $420,000 50% X $480,000 Total Cash Collections $360,000 $462,000 $546,000 $1,368,000 Cash Collections Cash Budget e. Determine the estimated amount of accounts receivable that Accounting Gear Corp. expects to report at June 30, 2016. 50% X $600,000 = $300,000 A/R @ 6/30 from May 90% X $660,000 = $594,000 A/R @ 6/30 from June $894,000 A/R @ 6/30 to B/S Course Outline #9: Information for Planning Page 8 of 13 Example: (continued) Budgetary Assumptions and Other Pertinent Information: 5) Accounting Gear Corp. purchases its product on credit. The Company pays its bills in 15 days. At March 31, 2016, the company reported accounts payable of $69,825. The Company pays its cash operating expenses other than insurance in the month incurred. Insurance is prepaid for the year in January. At March 31, 2016, the Company reported prepaid insurance of $10,800 for the remaining nine months of 2016. f. Prepare a monthly cash disbursements budget for purchases and SG&A expenses for Accounting G
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