Professional Documents
Culture Documents
Chapter 07
Chapter 07
Master Budgeting
Chapter 7
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
Understand why
organizations budget and
the processes they use to
create budgets.
7-3
Advantages of Budgeting
Define goals
and objectives
Communicate Think about and
plans plan for the future
Advantages
Coordinate Means of allocating
activities resources
Uncover potential
bottlenecks
7-6
Responsibility Accounting
Operating Budget
Self-Imposed Budget
Top Management
Middle Middle
Management Management
Self-Imposed Budgets
Self-imposed budgets should be reviewed
by higher levels of management to
prevent “budgetary slack.”
Most companies issue broad guidelines in
terms of overall profits or sales. Lower
level managers are directed to prepare
budgets that meet those targets.
7-11
Selling and
Ending inventory administrative
Production budget
budget budget
Cash Budget
Budgeted
Budgeted
income
balance sheet
statement
7-13
Budgeting Example
Royal Company is preparing budgets for the
quarter ending June 30th.
Budgeted sales for the next five months are:
April 20,000 units
May 50,000 units
June 30,000 units
July 25,000 units
August 15,000 units
The selling price is $10 per unit.
7-19
Quick Check ü
Quick Check ü
Prepare a production
budget.
7-28
Sales Production
Budget Budget
e d
andlet
p
Expected
m
Co
Cash
Collections
Quick Check ü
What is the required production for May?
a. 56,000 units
b. 46,000 units
c. 62,000 units
d. 52,000 units
7-33
Quick Check ü
What is the required production for May?
a. 56,000 units
b. 46,000 units
c. 62,000 units
d. 52,000 units
7-34
Prepare a direct
materials budget,
including a schedule of
expected cash
disbursements for
purchases of materials.
7-37
March 31 inventory
Quick Check ü
Quick Check ü
Quick Check ü
Quick Check ü
Quick Check ü
What would be the total direct labor cost for
the quarter if the company follows its no lay-
off policy, but pays $15 (time-and-a-half) for
every hour worked in excess of 1,500 hours
in a month?
a. $79,500
b. $64,500
c. $61,000
d. $57,000
7-58
Quick Check ü
What would be the total direct labor cost for
the quarter if the company follows its no lay-
off policy, but pays $15 (time-and-a-half) for
every hour worked in excess of 1,500 hours
in a month? April May June Quarter
Labor hours required 1,300 2,300 1,450
a. $79,500 Regular hours paid 1,500 1,500 1,500 4,500
Overtime hours paid - 800 - 800
b. $64,500
c. $61,000 Total regular hours
Total overtime hours
4,500
800
$10 $ 45,000
$15 $ 12,000
d. $57,000 Total pay $ 57,000
7-59
Prepare a manufacturing
overhead budget.
7-60
* rounded
7-63
Direct materials
budget and information
7-65
Production Budget
7-68
Quick Check ü
Quick Check ü
Schedule of Expected
Cash Collections
7-78
Schedule of Expected
Cash Disbursements
Direct Labor
Budget
Manufacturing
Overhead Budget
Quick Check ü
Quick Check ü
Cash Budgeted
Budget Income
Statement
ted
e
pl
om
C
Prepare a budgeted
income statement.
7-87
Cash Budget
7-88
Prepare a budgeted
balance sheet.
7-89
25% of June
The Budgeted Balance Sheet sales of
$300,000
Royal Company
Budgeted Balance Sheet plus
June 30 $50,000 not
Assets: collected.
Cash $ 43,000
Accounts receivable 125,000
11,500 lbs.
Raw materials inventory 4,600 at $0.40/lb.
Finished goods inventory 24,950
Land 50,000 5,000 units
Equipment 317,000 at $4.99
Total assets 564,550 each.
Liabilities and Stockholders' Equity 50% of June
Accounts payable $ 28,400
Common stock 200,000
purchases
Retained earnings 336,150 of $56,800.
Total liabilities and stockholders' equity $ 564,550
7-91
End of Chapter 7