![]() Home effects pays all other expenses requiring cash disbursements as incurred. ![]() Home effects pays for purchases 60% in the month of purchase, 40% in the following month. Home effects collects 70% of its sales in the month of sales, 30% in the following month. Inventory should be 40% of next month’s cost of sales Total fixed costs will be $150, of which $15 per month is depreciation expense. Quarterly or monthly forecastsġ2 Budget Example April 700 Sales budgets by month: January $400įebruary 500 March 800 Aprilė00 MayĖ00 Cost of goods sold will be 60 percent of sales dollars. Three types of sales forecasts 1.Ěnnual forecasts 2. Indicator methods Historical analysis Judgmental methods Your sales will be. Project budgets reflect expectations for various stages of completing specific projects. Thus, a 12-month budget exists at all times. Pro forma income statement + Assumptions about levels of inventory, collections of receivables, and payments of expenses and liabilities Budgets for purchases and production + Balance sheet at beginning of budget period Budgets for cash and requirements for short-term financing + Plans for long-term financing and for capital spending Pro forma balance sheet 15 6Ĭontinuous budgets are maintained by adding a budget for a month (or quarter) as one of these periods goes by. 10 4ħ Master Budget A set of interrelated budgets that allows for planning and control throughout the organization Driven by the sales forecast Includes sales budget, production budget, labor and overhead budgets, purchases budget, collections budget, capital spending budget, cash budget, and pro forma balance sheet and income statementsĨ Master Budget + + + + Sales Forecast Assumptions about cost behavior ![]() 22 11īudget forěudget for Variance BudgetedĚctualĚctual Costsğavorable Hours Hours Incurred (Unfavorable) Direct labor hoursđ,000đ,300 Indirect labor $2,800 $2,920 $2,870 $50 Supplies Maintenance ,800đ,860đ,900 (40) Depreciation ,200đ,200đ,200Đ Miscellaneous (10) Total $7,200 $7,530 $7,515 $15 23 12ĥ KEY CONCEPT Budgets must be adjusted to reflect the costs that should have been incurred given the actual level of activity before performance evaluation can take placeĦ Master Budget A master budget is a set of financial statements and other schedules showing the expected, or pro forma, results for a future period. The two general ways to develop budget allowances for expenses are: Static budget Flexible budget 22 11ģ Flexible Budget Fixed Amount Variable Amount per Cost per Monthĝirect Labor Hour Indirect labor $2,400 $0.40 Supplies Maintenanceđ, Depreciationđ, Miscellaneous Total $6,100 $1.10 The Company is expecting to work 1,000 direct labor hours for the month, but does work 1,300. Chapter Ten Budgetary Planning and Control 1 1 1Ģ Expense Budget An expense budget states the acceptable limits for costs the manager may incur in accomplishing assigned tasks.
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