Professional Documents
Culture Documents
CHAPTER23
Budgetary
Planning
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PreviewofCHAPTER23
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Budgeting Basics
Budget
Formal written statement of managements plans for a
specified future time period, expressed in financial
terms.
Promotes efficiency.
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Budgeting Basics
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Budgeting Basics
Question
Which of the following is not a benefit of budgeting?
a. Management can plan ahead.
Participative Budgeting
Advantages:
Participative Budgeting
Disadvantages:
Question
The essentials of effective budgeting do not include:
a. Top-down budgeting.
b. Management acceptance.
Components of
the Master
Budget.
Illustration 23-2
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Budgeting Basics
Sales Budget
First budget prepared.
Production Budget
Shows units that must be produced to meet anticipated
sales.
Derived from sales budget plus the desired change in
ending finished goods.
Required production in units formula:
Illustration 23-4
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SO 3
Preparing the Operating Budgets
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Preparing the Operating Budgets
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Preparing the Operating Budgets
Question
A sales budget is:
a. Derived from the production budget.
23-45 SO 4 Describe the sources for preparing the budgeted income statement.
Preparing the Operating Budgets
Illustration: All data for the income statement come from the
individual operating budgets except the following: (1) interest
expense is expected to be $100, and (2) income taxes are
estimated to be $12,000.
Illustration 23-13
23-47 SO 4 Describe the sources for preparing the budgeted income statement.
Preparing the Operating Budgets
Question
Each of the following budgets is used in preparing the
budgeted income statement except the:
a. Sales budget.
23-48 SO 4 Describe the sources for preparing the budgeted income statement.
Preparing the Operating Budgets
23-49 SO 4 Describe the sources for preparing the budgeted income statement.
Preparing the Operating Budgets
(a)
(b)
23-50 SO 4
Preparing the Financial Budgets
Cash Budget
Shows anticipated cash flows.
Cash Budget
Cash Receipts Section
Expected receipts from the principal sources of revenue.
Expected interest and dividends receipts, proceeds from
planned sales of investments, plant assets, and capital stock.
Financing Section
Expected borrowings and repayments of borrowed funds plus
interest.
23-53 SO 5 Explain the principal sections of a cash budget.
Preparing the Financial Budgets
Cash Budget
Must prepare in sequence.
Cash Budget
Contributes to more effective cash management.
2. Sales (Illustration 23-3): 60% are collected in the quarter sold and
40% are collected in the following quarter. Accounts receivable of
$60,000 at December 31, 2011, are expected to be collected in full
in the first quarter of 2012.
Continued
23-56 SO 5 Explain the principal sections of a cash budget.
Preparing the Financial Budgets
Illustration 23-15
Illustration 23-16
23-61 SO 5
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Preparing the Financial Budgets
Illustration 23-13
Continued
Continued
Question
Expected direct materials purchases in Read Company are
$70,000 in the first quarter and $90,000 in the second quarter.
Forty percent of the purchases are paid in cash as incurred,
and the balance is paid in the following quarter. The budgeted
cash payments for purchases in the second quarter are:
a. $96,000
b. $90,000
c. $78,000
d. $72,000
Merchandisers
Sales Budget: starting point and key factor in developing
the master budget.
Service Enterprises
Critical factor in budgeting is coordinating professional
staff needs with anticipated services.
Problems if overstaffed:
Disproportionately high labor costs.
Lower profits due to additional salaries.
Increased staff turnover due to lack of challenging work.
Problems if understaffed:
Lost revenues because existing and future client needs for
services cannot be met.
Loss of professional staff due to excessive work loads.
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Budgeting in Nonmanufacturing Companies
Not-For-Profit Organizations
Just as important as for profit-oriented company.
Question
The budget for a merchandiser differs from a budget for a
manufacturer because:
a. A merchandise purchases budget replaces the
production budget.
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