BUDGETARY OVERVIEW OF 2007-2008 BUDGET DEVELOPMENT April 10, 2007 Board of Education Meeting.
I. An Overview of Budgeting - Jacksonville State University | … · PPT file · Web...
Transcript of I. An Overview of Budgeting - Jacksonville State University | … · PPT file · Web...
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Chapter 10Budgetary Planning and Control
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Presentation Outline
I. An Overview of BudgetingII. The Master Budget and Selected Budget
Formats
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I. An Overview of Budgeting
A. The Stages of BudgetingB. Developing the Budget
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A. The Stages of Budgeting
1. Planning2. Control
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1. Planning
The budget process forces managers to consider carefully
their goals and objectives and to specify means of achieving them.
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2. ControlBudgets provide a means of
evaluating performance. Potential causes of significant
deviations from budgets include:Budget was poorly conceived.Conditions have changed since
the budget was prepared.Managers have done a
particularly good or poor job.
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B. Developing the Budget
1. The Budget Committee2. The Budget Time Period
3. Zero Base Budgeting
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1. The Budget CommitteeVarious budgets are approved by a budget
committee that is composed of senior
managers such as the president, CFO, VP of
operations, and the controller. Budgets may be developed with either a top-down or bottom-up
approach.
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2. The Budget Time Period
Budgets may cover a variety of time periods
including a month, quarter, year, or even
longer. Generally, longer budget periods
provide less detail.
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3. Zero Base BudgetingBudgets are often adjusted up
or down on the basis of a previous period adjusted for
current conditions. Zero base budgeting requires that
all budget amounts be currently justified even if
they were supported in prior budgets. Due to the cost of the process, this zero base budgeting is often not used
in business.
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II. The Master Budget and Budget Formats
A. A Formal Summary of Company PlansB. Selected Budget Formats
The master budget
coordinates the organization’s
activities.
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A. A Formal Summary of Company Plans
It sets specific targets for sales, production, selling and admin.,
and capital acquisitions.
It culminates a budgeted income
statement, balance sheet, and cash receipt
and disbursement summary.
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III. Selected Budget Formats
A. Sales BudgetB. Production BudgetC. Direct Materials BudgetD. Direct Labor BudgetE. Overhead BudgetF. Cash Receipts and Disbursements Budget
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A. Sales Budget
Projected sales x Selling price per unit
= Budgeted sales revenue
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B. Production Budget
Budgeted sales in units+ Desired ending inventory of finished goods
= Total needs- Beginning inventory of finished goods= Units to be produced
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C. Direct Materials Budget Units to be producedx Cost of parts per unit
= Cost of parts needed for production+ Desired ending inventory of parts
= Total needed- Beginning inventory of parts
= Cost of purchases
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D. Direct Labor Budget
Direct labor hours per unitx Labor rate per hour
= Direct labor cost per unitx Units to be produced= Total direct labor cost
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E. Overhead Budget
Units to be producedx Variable costs per unit
= Total variable overhead+ Budgeted fixed overhead
= Total budgeted overhead- Noncash expenses
= Cash disbursements for overhead
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F. Cash Receipts and Disbursements Budget
Cash receipts - Cash disbursements
= Excess (deficiency) of cash available over disbursements+ Beginning cash balance = Ending cash balance
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IV. Static v. Flexible Budget
A. Static BudgetB. Static Budget IllustrationC. Flexible BudgetD. Flexible Budget Illustration
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A. Static Budget
A budget designed for only one level of
activity. Differences from the budget can be
misleading when an organization actually operates at a different
level of activity.
Why are we so
off from budget?
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B. Static Budget IllustrationStandardcost per Original
unit Actual Budget VarianceUnits produced and sold 8,000 10,000 2,000 U
Variable Overhead Costs: Maintenance 0.60$ 4,500$ 6,000$ 1,500$ F Indirect materials 1.40 12,000 14,000 2,000 F Utilities 1.00 9,500 10,000 500 F
26,000 30,000 4,000 F
Fixed Overhead Costs: Depreciation 40,000 40,000 -$ Supervision 49,000 50,000 1,000 F Insurance 10,000 10,000 - Total fixed overhead 99,000 100,000 1,000 FTotal overhead costs 125,000$ 130,000$ 5,000$ F
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C. Flexible Budget
A budget designed to cover a range of
activity. Can be used to compare actual costs incurred to
budgeted costs around that level of activity.
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D. Flexible Budget IllustrationStandard
cost per unit UnitsUnits produced and sold 5,000 10,000 15,000
Variable Overhead Costs: Maintenance 0.60$ 3,000$ 6,000$ 9,000$ Indirect materials 1.40 7,000 14,000 21,000 Utilities 1.00 5,000 10,000 15,000
3.00$ 15,000 30,000 45,000
Fixed Overhead Costs: Depreciation 40,000 40,000 40,000 Supervision 50,000 50,000 50,000 Insurance 10,000 10,000 10,000 Total fixed overhead 100,000 100,000 100,000 Total overhead costs 115,000$ 130,000$ 145,000$
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Summary
Planning and control stages of budgetBudget committees, time periods, zero based budgetingFormal plan culminating in projected financial statementsBudget formatsStatic and flexible budgets