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BUDGETING Computerized Budgeting Systems

(1) Establishing specific goals Spreadsheet software (Excel)


(2) Executing plans to achieve the goal Integrated budget and planning (B&P)
(3) Periodically comparing actual results with the
goals Master Budget
Affects: [ Planning, Directing, Controlling ] Integrated set of operating and financial
budgets for a period of time (yearly basis)
Planning
setting goals to guide decisions (1)Sale Budget
Directing o Estimating quantity of sales
decisions and actions to achieve goal o Prior year is the starting point
Controlling
comparing actual performance Budgeted Revenue = Expected Sales Volume x
against budgeted goals Expected Unit Sales Prices

Human Behavior is affected by: Product Volume Selling Total Sales


Setting budget goals too tightly Price
Setting budget goals too loosely
Setting conflicting budget goals (2)Production Budget
o Integrated with sales budget to make
Budget Committee sure that production and sales are kept
Budget director balance during the year
Controller o Estimates the number of units to be
Treasurer manufactured to meet budgeted sales
Production manager and desired inventory levels
Sales manager
Monitored by : Accounting Department Expected units to be sold xx (1)
Add: Desired ending inventory xx
Continuous Budgeting Less: estimated units, beg (xx)
Maintains 12-month projection into the future Total Units to be produces xx
which is continually revised by replacing data
for the month just ended with the budget data (3)Direct Materials Purchases Budget
for the same month next year. o Integrated with production to ensure
that production is not interrupted
Zero-based Budgeting o Estimates the quantities of direct
Requires managers to estimates sales, materials to be purchased to support
production, and other operating data budgeted production and desired
Taking a fresh view of operation each year inventory levels

Static Budget Budgeted Production x DM quantity expected


Shows the expected result of a responsibility Volume (2) per unit
center for only one activity level
Disadvantage: do not adjust for changes in activity level Materials required for production xx (step 1)
Plus: desired ending inventory xx
Flexible Budget less: estimated beginning inventory (xx)
Show the expected results of a responsibility DM quantity to be purchased xx
center for several activity level
Series of static budget for different levels of Budgeted DM to = DM quantity to x Unit Price
activity be purchase be purchase
(4)Direct Labor Cost Budget (7)Selling and Administrative Expenses Budget
o Estimates direct labor hours and related o
cost needed to support budgeted
production

Budgeted DL hours = Budgeted Production x DL hours


for production Volume (2) per unit

DL Cost = DL hours for production (step 1) x hourly rate

(5)Factory Overhead Cost Budget


o Estimates the cost for each item of
factory overhead needed to support
budgeted production
Example:
Indirect Factory Wages
Supervisors Salaries
Power and Light
Depreciation of PPE
Indirect Materials
Maintenance
Insurance and Property Taxes

(6)Cost of Goods Sold Budget


o DM purchases budget (3)
o DL cost budget (4)
o Factory Overhead cost budget (5)

Finished Good, beg xx


Work in Process, beg xx
Direct Materials:
DM, beginning inventory xx
DM purchased (3) xx
DM available for used xx
Less: DM ending inventory (xx)
DM used in production xx
Direct Labor (4) xx
Factory Overhead (5) xx
Total manufacturing cost xx
Total work in process during produced xx
Less: work in process, ending (xx)
Cost of goods manufactured xx
Cost of goods available for sale xx
Less: finished goods, ending (xx)
Cost of goods sold xx