Profit Planning Using Budgets

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Profit Planning (Using Budgets)
Chapter Nine
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What is a Budget?

• A forecast or plan specifying how company
  resources will be acquired and used

Key Concept Budgets must start with a top-down
strategic plan that guides and integrates the
whole company and its individual budgets.
Key Concept Budgeting is a management task, not
a bookkeeping task.
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Budgets for Planning, Operating and Control

• Planning Developing Objectives and Goals
• Operating Day to Day Management Decisions
• Control Insuring that objectives and goals are
  met. Comparing actual results to budget.

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The Master Budget Comprehensive Budget for all
Phases of Operations
May Include Sales Budget Production
Budget Direct Material Budget Direct Labor
Budget Manufacturing Overhead Budget
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The Master Budget (continued)
May Include Selling, General, Administrative
Budget Cash Receipts and Cash Disbursements
Budget Budgeted Income Statement, Balance Sheet
and Cash Flow Statements
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Sales Budget
Sales Budget prepared first Budgets are future
oriented and use estimates and forecasts Factors
in sales forecasting Previous sales Economic
trends (general and industry) Competitors Other
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Production Budget
Sales forecast (in units) Projected ending
inventory Total projected production
needs -Beginning inventory Projected production
volume
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Material purchases budget
Projected material required for production
Projected ending inventory of material -
Projected beginning inventory of material Amount
to be purchased x Purchase price Purchases
budget in dollars
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Direct labor budget
Projected production x Direct Labor Time Labor
hours needed for production x labor rate per
hour Projected labor cost
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Cash Budgets
Cash Receipts budget Budget must be prepared
allowing for credit sales and subsequent lag in
collection. Cash Disbursements budget Budget
must be prepared allowing for disbursements
policy for accounts payable.
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Cash Budgets (continued)
The Cash Budget Beginning Cash
Balance xxxx Add Expected Cash Receipts
xxxx Cash Available xxxx Less Expected
Cash Disbursements xxxx Ending Cash Balance
before Financing xxxx
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Budgeted Statement of Cash Flows

• Cash flows from Operating Activities
• Cash flows from Investing Activities
• Cash flows from Financing Activities

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Budgeted Financial Statements

• Budgeted Income Statement
• Budgeted Balance Sheet
• Budgeted Statement of Cash Flows

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Other Topics in Budgeting

• E-Budgeting
• Zero-Based Budgeting
• International Aspects
• Behavioral Impact Budgetary Slack