Download Chapter 9

Chapter
9
Profit Planning
Projected revenues and expenses
for a plan of action
Budget
Marketing
Department
Production
Department
Sales
CGS
Gross margin
Selling expenses
Admin. expenses
Net Income
$ 1,600
960
$ 640
170
225
$ 30
Cash Budget
Quarter-by-quarter
projection of cash flows
1st Qtr
Based on
budgeted income
statement
Beg. cash balance
Cash receipts
95
312
$ 407
Cash disbursements
Expenses
Asset purchases
Financing plan
$
Short-term loan
End. cash balance
340
175
$ (108)
200
$ 92
…
Preparing the Master Budget
1. Sales budget
2. Production budget
3. Direct materials budget
 DM used & DM purchased
4. Direct labor budget
5. Manufacturing overhead budget
6. Standard cost per unit
7. Selling and administrative expense budget
8. Budgeted income statement
Advantages of Budgeting
 Planning
 Communication and coordination
 between production and marketing
 between finance and operations
 Performance evaluation
 budget = standard against which
performance can be judged
 Control
 comparison between budget and actual
highlights potential problems
Budgeting Issues
 Responsibility accounting
 Should managers be evaluated based on
their budget performance?
 Should incentives be tied to the budget?
 Who should participate in the budgeting process?
 better information
 commitment to the budget plan
 budgetary slack
 How achievable should the budget be?
What might this comparison suggest?
YTD
Actual
YTD
Budget
Sales
CGS
$ 822
526
$ 800
480
Gross margin
Selling expenses
Admin. expenses
Net income
$ 296
104
107
$ 85
$ 320
85
112
$ 123