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Chapte11 r
Operational Operational Budgeting Budgeting
Prepared Preparedby by
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Objectives Objectives
1. 2. 3. 4. Discuss whyAfter budgets are important. studying After studying this this Describe thechapter, basic approaches to budgeting. you should chapter, you should Develop an activity-based budget. be be able able to: to: Explain the interrelationships between the elements of a master budget and develop a basic budget. 5. Discuss the interrelationship between budget development and human behavior.
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Some Some of of the the Characteristics Characteristics of of a a Good Good Multi-User Multi-User Budgeting Budgeting System System
1. Support changes to hierarchy to that different levels of budgets can be examined. 2. Shared access to common data warehouses. 3. Automatic mapping of imported data for use in multiple applications. 4. Lots of what-if commands.
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In In the the output/input output/input approach approach physical physical inputs inputs and and costs costs are are budgeted a of budgeted as a function function approach of planned planned The incremental budgets Theas incremental approach budgets unit level activities. unit level activities. costs for a coming period as a dollar costs for a coming period as a dollar Using the minimum level Using the minimum level or percentage change from the or percentage change from the approach ,, an organization approach an organization amount budgeted for (or spent amount budgeted for (or spent establishes a base amount for establishes a base amount for during) some previous period. during) some previous period. budget budget items items and and requires requires explanation explanation or or justification justification for for any any budgeted budgeted amount amount above above the the minimum minimum (base). (base).
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Product level costs: Development and design $ 50,000 Product advertising 120,000 170,000 Total product costs $1,215,000
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Continued Continued
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Operating Operating Cycle Cycle of of a a Manufacturing Manufacturing or or Merchandising Merchandising Operation Operation
Collection Cash Purchases or merchandise function
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Accts. Rec.
Overview Overview of of Budget Budget Assembly Assembly Process Process in in a a Merchandising Merchandising Firm Firm
Sales Budget Purchases Budget Selling Expense Budget General and Administrative Expense Budget
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Overview Overview of of Budget Budget Assembly Assembly Process Process in in a a Merchandising Merchandising Firm Firm
from Sales Budget Cash Budget Other Special Budgets: Taxes, Dividends, Capital Improvements, etc. from Purchases, Selling Expense, and General and Administrative Expense Budgets
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Continued Continuedon on next nextslide slide $ 15,000 21,600 $ 50,000 96,000 60,000 260,000 124,800 146,000 $182,600
135,200
195,200 $377,800
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of of unit unit sale sale volume volume Third Fourth Year and revenue. and sale sale revenue.
Total
Sales (units); School backpacks 4,000 3,400 3,650 3,950 15,000 Hiking backpacks 1,100 1,600 2,500 1,300 6,500 Sales (dollars): School backpacks $ 80,000 $ 68,000 $ 73,000 $ 79,000 $300,000 Hiking backpacks 110,000 160,000 250,000 130,000 650,000 Total $190,000 $228,000 $323,000 $209,000 $950,000
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Management Management desires desires to to have have all all inventory inventory needed needed to to fill fill the the following following quarters quarters sales sales in in stock stock at at the the end end of of the the previous previous quarter. quarter. To To provide provide for for a a possible possible delay delay in in the the receipt receipt of of inventory, inventory, BGI BGI also also carries carries a a safety safety stock stock of of 1,000 1,000 stock stock backpacks backpacks and and 500 500 hiking hiking backpacks. backpacks.
Continued Continued
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The The total total inventory inventory needs needs are are equal equal to to current current sales sales plus plus desired desired ending ending inventory, inventory, including including the the safety safety stock. stock. Budgeted Budgeted purchases purchases are are computed computed as as total total inventory inventory needs needs less less the the beginning beginning inventory. inventory.
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Total available from operations Less budgeted disbursements: Purchasing, current quarter Purchasing, previous quarter Total Selling General and administrative Other: Income taxes Dividends Total disbursements
Continued Continued
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Total disbursements Excess cash available for disbursements Short-term financing: New loans Net cash flow from financing Cash balance, ending
This amount becomes the beginning balance for the second quarter.
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Income from operations Other expenses: Interest expense Net income before taxes Allowance for income taxes Net income
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$ 77,480 25,080 153,000 $255,560 $ 60,000 $260,000 - 132,800 127,200 187,200 $442,760
continued continued
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Liabilities and stockholders equity Current liabilities: Accounts payable Stockholders equity: Capital stock Retained earnings Total liabilities and stockholders equity
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organizations. organizations. The The collection collection period period for for sales sales on on account. account. Percent Percent of of uncollectible uncollectible sales sales on on account. account. Cost Cost of of materials, materials, supplies, supplies, utilities, utilities, etc. etc. Employee Employee turnover. turnover. Time Time required required to to perform perform activities. activities. Interest Interest rates. rates. Development Development time time for for new new products products or or services. services.
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Chapte11 r
The The End End
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