Textbook Notes (369,099)
United States (206,205)
Accounting (11)
ACCT 102 (10)
Heinle (10)
Chapter 6

ACCT 102 Chapter 6: Chapter 6 Notes

4 Pages

Course Code
ACCT 102

This preview shows page 1. Sign up to view the full 4 pages of the document.
CHAPTER 6: BUDGETING FOR PROFIT PLANNING 6.1 Budgeting Defined  Master (comprehensive) budget – formal statement of management’s expectations regarding sales, costs, output, and other financial transactions of the firm for the coming period  Budget – set of projected or planned financial statements; pro-forma income statement + pro-forma balance sheet + cash budget o Tool used for planning and control o Beginning: the plan o End: the control device to help management measure its performance against the plan for future performance planning 6.2 The Structure of the Master Budget  2 categories of master budget: o Operational budget – reflects the results of operating decisions  Sales budget (including a computation of expected cash receipts)  Production budget  DM budget (including a computation of expected cash disbursements for materials)  Direct labor budget  Factory overhead budget  Ending inventory budget  Selling and administrative expense budget  Budgeted income statement, which can be prepared in a traditional or contribution format o Financial budget – reflects financial decisions of the firm  Cash budget  Budgeted balance sheet  How to prepare the master budget: o Prepare a sales forecast o Determine production volume o Estimate manufacturing costs and operating expenses o Determine cash flow and other financial effects o Formulate projected financial statements 6.3 Illustration The Sales Budget  The sales budget is the starting point, because estimated sales volume influences nearly all other items  Tells you the quantity of each product expected to be sold  3 ways to estimate the sales budget: o Make a statistical forecast on the basis of an analysis of general business conditions, market conditions, and product growth curves o Make an internal estimate by collecting the opinions of executives and salespersons o Analyze the several factors that affect sales revenue and then predict the future behavior of each of these factors  Steps: o Estimate sales volume o Estimate unit sales price o Sales budget = product of the 2 (discount as needed) The Production Budget  Need to know number of units expected to be manufactured to meet budgeted sales and inventory requirements  To calculate expected volume of production = sum(units expected to be sold) + desired inv at end – est inv at beg The Direct Material Budget  Purchase in units = usage + desired end material inv units – beg inv units  How to calc DM: o Materials needed for production = units to be produced*materials needs per unit o Total needs = materials needed for production*desired end inv of materials o Materials to be purchased (Q) = total needs – beg inv of materials o Purchase cost = materials to be purchased*unit price o Total cash disbursements = half of purchase cost is in that quarter; other half is in previous quarter The Direct Labor Budget  DLH required = expected prod vol each pd*# DLH required to produce a unit  Total DL cost = DLH required*DL cost/hr The Factory Overhead Budget  Provides a schedule of all manufacturing costs other than DM and DL  You need to create a predetermined OH rate for VC portion of Factory OH  Depreciation does not entail cash outlay and must therefore be deducted from total factory OH when calculating cash disbursements  How to: o Variab
More Less
Unlock Document

Only page 1 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.