Managerial Accounting and Control Dr. Mohamed Youssef Lecture 6

8/14/2019 Managerial Accounting and Control Dr. Mohamed Youssef Lecture 6

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Managerial Accounting and control

Dr. Mohamed YoussefLecture 6

The Master Budget

The Master Budget start with sales and end with budgeted income.

Example:

Income Statement

Sales 1000Less: cost of goods sold (900)Gross Profit 100Less: marketing & admin (90)Net Income 10

Budgeted sales: How much units expected to sold (Units x unitprice)

Cost of goods sold: To achieve this sales we must predict cost ofgoods sold and this is based on the production level not sales level whichconsists of

Direct Material BudgetLabor Cost BudgetOverhead cost Budget

So we must calculate the budget for direct material, labor cost and overheadcost

Begin Inv. + Production = Sales + End Inv.

Notes: End inv. For year 2004 is the Begin Inv. For year 2005

Example:

Assume that end inv. For year 2004 is 40 units and sales will be 500 units,end inv. For year 2005 will be 10 % of he sales units what will be theproduction units

Begin Inv. + Production = Sales + End Inv.

40 + P = 500 + 50P =510 units

Chapter 7 1

Sales

Budgeted

IncomeStatement


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Example:

If each unit required 2 Kg from direct material and cost of each Kg.5 $ whatwill be the cost of the production units

510 units X 2 Kg. X $ 5 = $ 5100

Begin Inv. + Purchase = Dm used + End Inv.

Example:

If begin inv. Equal 200 kg and the dm material used 1020 and End Inv. 10 %of the DM used what will be the purchase material

Begin Inv. + Purchase = Dm used + End Inv.

200 + 822 = 1020 + 102

To calculate budget for labor, we convert it to labor . hours

Example:To produce unit required 10 labor hours and cost of each hour is 5 $

510 units x 10 labor hours x 5 $ = 25500

so assume the budget for material

Product A 10000Product B 15000Labor cost 25500Overhead 10000

60500

Total production cost = 60500Cost per unit = 60500 / 510 = 120Total cost for unit sold = 500 x 120 = 60000

We must make another budget for marketing and another one foradministration

Example:

BE 24-2 Chico Company estimates that unit sales will be 10,000 in quarter1;(12,000) in quarter 2; (14,000) in quarter 3; and (15,000) in quarter 4.

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using a sales price of $50 per unit , prepare the sales budget, by quartersfor the year ending December 31, 1996.

Quarter

1 2 3 4 Year ExpectedUnitSales

10000 12000 14000 15000 51000

Unit salesprice

$ 50 $ 50 $ 50 $ 50 $ 50

TotalSales

$500,000

$600,000

$700,000

$750,000

$2,550,000

Example:

BE 24- 3 for chico company are given in BE24-2. Management desires tohave an ending finished goods inventory to equal to 20 % of next quartersexpected unit sales. Prepare production budget by quarters for the first 6months of 1996

Begin Inv. + Production = Sales + End Inv

Quarter Six Month1 2

Expected unit sales 10000 12000Add: Desired endingfinished goods

2400 2800

Total Required units 12400 14800Less: Beginningfinished goods inv.

2000 2400

Required productionunits

10400 12400 22800

Example:

BE 24- 4 Irene Company has 1200 pounds of raw materials in its December31,1995 ending inventory. Required production for January and Februaryare 4000 and 5000 units, respectively. Three pounds of raw materials areneeded for each unit, and the estimated cost per requirements. Prepare thedirect materials budget for January.

Jan 4000 x 3 =12000Feb 5000 x 3 =15000

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Begin Inv. + Purchase = Material used + End InvBegin Inv. 1200 from December 12000 x 0.10Material used 12000

End Inv. 1500

Units to be produced 4000Direct materials per unit 3Total pounds required for production 12000Add: Desired ending inventory (10 % x1500)

1500

Total material required 13500Less: beginning material inv. (1200)Material purchases 12300Cost per pound 5Total cost of materials purchases 61500

Example:

BE24-5 For Kareem Company, units to be produced are 5000 in quarter 1and 6000 in quarter 2 . it takes 1.5 hours to make a finished unit, and theexpected hourly wage rate is 10 $ per hour. Prepare a direct labor budget,by quarters for the 6 months ending june 30, 1996

Quarter SixMonth

1 2Units to be produced 5000 6000 11000Labor time (hours) perunit

1.5 1.5 1.5

Total Required directlabor hours

7500 9000 16500

Labor cost per hour 10 10 10Total direct labor cost 75000 90000 165000

Chapter 7 4

Managerial Accounting and Control Dr. Mohamed Youssef Lecture 6

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