Chapter 6 Week 2 Modified Essay

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Chapter 6 Week 2

Planning, the
Balanced
Scorecard, and
Budgeting

McGraw-Hill/Irwin

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

The Master Budget
Revenue process budgets
Conversion process budgets
Expenditure process budgets
Capital resources process budgets (later in text)
• Budgeted (pro forma) financial statements •
•
•
•

6-2

Conversion Process Planning
We now know how many units we expect to sell each period.

How many do we need to produce? 6-3

What is the Budget that Results from
Conversion Process Planning?

• Production budget
Number of units to sell
Add desired ending inventory of finished goods Less beginning inventory of finished goods
Equals number of units to produce

6-4

Prepare a Production Budget for the first 3 months of 2016
ABC Company wants to maintain an ending finished goods inventory of 10% of the next month’s expected sales. Estimated sales in units for the first four months of 2016:
January 5,000
February 6,000
March 4,500
April
5,000
6-5

ABC Company Production Budget

6-6

January

February

March

Estimated Sales

5,000

6,000

4,500

+ Ending Inventory

+600

+450

- Beginning Inv.

-500

-600

Production
Required

5,100

5,850

What are the Budgets that Result from Expenditure Process Planning?
• Administrative budget

 Expected costs of activities
• Direct labor and manufacturing overhead budget  Expected amount and cost of activities

6-7

Expenditure Budgets Continued
• Direct materials purchases budget
Number of finished goods units to produce
Multiply by the amount of direct materials needed per unit of finished goods
Add desired ending inventory of direct materials
Less beginning inventory of direct materials
Equals amount of direct materials to purchase
Multiply by the purchase price per “unit”
Equal direct material purchases

6-8

Direct Materials Purchases Budget

ABC Company wants to maintain an ending direct materials inventory of 15% of next month’s production needs. It takes 3 pounds of direct materials to make one unit of finished goods and direct materials are expected to cost $2.50 per pound.
Jan. 16
Production
6-9

5,100

Feb. 16

Mar. 16

5,850

4,550

Direct Materials Purchases Budget
January February
Production

5,100

5,850

4,550

DM Required

15,300

17,550

13,650

+ End. Inv.

+2,633

- Beg. Inv.

-2,295

DM to Purchase

15,638

Cost (rounded) $39,095
6-10

March

+2,318
-2,633

What are the Budgets that Result from
Expenditure Process Planning?
• Administrative budget
• Direct labor and manufacturing overhead budget • Direct materials purchases budget
• Cash disbursements schedule
• Accounts
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