Master Budget And Responsibility Accounting
Master Budget andResponsibility AccountingChapter 6 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6-1
Learning Objective 1Understand what a master budgetis and explain its benefits. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6-2
Budgeting CyclePerformance planningProviding a frame of referenceInvestigating variationsCorrective actionPlanning again 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6-3
The Master BudgetMaster BudgetOperatingDecisionsFinancialDecisions 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6-4
Learning Objective 2Describe the advantagesof budgets. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6-5
What are the Advantagesof Budgets?#1Compels strategic planning#2Provides a frameworkfor judging performance 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6-6
What are the Advantagesof Budgets?#3Motivates employeesand managers#4Promotes coordinationand communication 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6-7
Strategy, Planning, and nningShort-runBudgetsStrategyAnalysis 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6-8
Time Coverage of BudgetsBudgets typically have a set timeperiod (month, quarter, year).This time period can itself be brokeninto subperiods.The most frequently used budgetperiod is one year.Businesses are increasingly usingrolling budgets. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6-9
Learning Objective 3Prepare the operating budgetand its supporting schedules. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 10
Operating Budget ExampleHawaii Diving expects 1,100 units to be soldduring the month of August 2004.Selling price is expected to be 240 per unit.How much are budgeted revenues for the month?1,100 240 264,000 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 11
Operating Budget ExampleTwo pounds of direct materials are budgeted perunit at a cost of 2.00 per pound, 4.00 per unit.Three direct labor-hours are budgeted per unitat 7.00 per hour, 21.00 per unit.Variable overhead is budgeted at 8.00per direct labor-hour, 24.00 per unit.Fixed overhead is budgeted at 5,400 per month. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 12
Operating Budget ExampleVariable nonmanufacturing costs areexpected to be 0.14 per revenue dollar.Fixed nonmanufacturing costs are 7,800 per month. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 13
Production Budget ExampleBudgeted sales (units) – Target ending finished goods inventory (units)Beginning finished goods inventory (units)Budgeted production (units) 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 14
Production Budget ExampleAssume that target ending finished goodsinventory is 80 units.Beginning finished goods inventory is 100 units.How many units need to be produced? 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 15
Production Budget ExampleHawaii Diving Production Budgetfor the Month of August 2004Units required for sales1,100Add ending inv. of finished units80Total finished units required1,180Less beg. inv. of finished units100Units to be produced1,080 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 16
Direct Materials Usage BudgetEach finished unit requires 2 pounds of directmaterials at a cost of 2.00 per pound.Desired ending inventory equals 15% of thematerials required to produce next month’s sales.September sales are forecasted to be 1,600 units.What is the ending inventory in August?480 pounds 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 17
Direct Materials Usage BudgetSeptember sales: 1,600 2 pounds per unit 3,200 pounds3,200 15% 480 pounds(the desired ending inventory)What is the beginning inventory in August?1,100 units 2 15% 330 units 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 18
Direct Materials Usage BudgetHow many pounds are needed to produce1,080 units in August?1,080 2 2,160 pounds 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 19
Material Purchases BudgetHawaii Diving Direct Material PurchasesBudget for the Month of August 2004Units needed for production2,160Target ending inventory480Total material to provide for2,640Less beginning inventory330Units to be purchased2,310Unit purchase price 2.00Total purchase cost 4,620 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 20
Direct ManufacturingLabor BudgetEach unit requires 3 direct labor-hoursat 7.00 per hour.Hawaii Diving Direct Labor Budgetfor the Month of August 2004Units produced:1,080Direct labor-hours/unit3Total direct labor-hours:3,240Total budget @ 7.00/hour: 22,680 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 21
Manufacturing Overhead BudgetVariable overhead is budgeted at 8.00per direct labor-hour.Fixed overhead is budgeted at 5,400 per month. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 22
Manufacturing Overhead BudgetHawaii Diving Manufacturing OverheadBudget for the Month of August 2004Variable Overhead:(3,240 8.00) 25,920Fixed Overhead5,400Total 31,320 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 23
Ending Inventory BudgetCost per finished unit:MaterialsLaborVariable manufacturing overheadFixed manufacturing overheadTotal* 5,400 1,080 5 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 421245* 546 - 24
Ending Inventory BudgetWhat is the cost of the targetending inventory for materials?480 2 960What is the cost of the targetfinished goods inventory?80 54 4,320 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 25
Cost of Goods Sold BudgetDirect materials used: 4,3202,160 2.00Direct labor22,680Total overhead31,320 58,320Cost of goods manufactured 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 26
Cost of Goods Sold BudgetAssume that the beginning finishedgoods inventory is 5,400.Ending finished goods inventory is 4,320.What is the cost of goods sold? 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 27
Cost of Goods Sold BudgetBeginning finished goods inventory Cost of goods manufactured Goods available for sale– Ending finished goods inventory Cost of goods sold 5,400 58,320 63,720 4,320 59,400 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 28
Nonmanufacturing Costs BudgetHawaii Diving Other Expenses Budgetfor the Month of August 2004Variable Expenses:( 0.14 264,000) 36,960Fixed expenses7,800Total 44,760 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 29
Cost of Goods Sold BudgetHawaii Diving has budgeted sales of 264,000 for the month of August.Cost of goods sold are budgeted at 59,400.What is the budgeted gross margin? 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 30
Budgeted Statement of IncomeHawaii Diving Budgeted Income Statementfor the Month ending August 31, 2004Sales 264,000 100%Less cost of sales59,40022%Gross margin 204,60078%Other expenses44,76017%Operating income 159,84061% 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 31
Learning Objective 4Use computer-based financialplanning models insensitivity analysis. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 32
Financial Planning ModelsFinancial planning models aremathematical representations of theinterrelationships among operatingactivities, financial activities, and otherfactors that affect the master budget. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 33
SoftwareSoftware packages are now readilyavailable to reduce the computationalburden and time required to preparebudgets.These packages assist managersto do sensitivity analysis. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 34
Sensitivity AnalysisConsider Hawaii Diving.What if some parameters in the budget modelwere to change?For example, what if the selling price isexpected to be 230 instead of 240?What are expected revenues?1,100 230 253,000 instead of 264,000 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 35
Sensitivity AnalysisWhat if the materials cost is expected to increaseto 2.50 per pound instead of 2.00.What is the cost of goods sold?1,100 55 60,500 instead of 59,400Why the increase?Because materials cost per unit become 5.00 instead of 4.00. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 36
Cash BudgetHawaii Diving has the followingcollection pattern:In the month of sale:50%In the month following sale:27%In the second month following sale: 20%Uncollectible: 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster3%6 - 37
Cash BudgetBudgeted charge sales are as follows:JuneJulyAugustSeptember 200,000 250,000 264,000 260,000What are the expected cash collections in August? 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 38
Cash BudgetBudgeted Cash Receiptsfor the Month Ending August 31, 2004August sales: 264,000 50% 132,000July sales: 250,000 27%67,500June sales: 200,000 20%40,000Total 239,500 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 39
Cash BudgetBudgeted Cash Disbursementsfor the Month Ending August 31, 2004August purchases 4,620Direct labor22,680Total overhead31,320Other expenses9,760*Total 68,380*Other expenses exclude depreciation 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 40
Cash BudgetCash Budgetfor the Month Ending August 31, 2004Budgeted receipts 239,500Budgeted disbursements68,380Net increase in cash 171,120 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 41
Learning Objective 5Explain kaizen budgetingand how it is used forcost management. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 42
What is Kaizen?The Japanese use the term “kaizen”for continuous improvement.Kaizen budgeting is an approach thatexplicitly incorporates continuousimprovement during the budgetperiod into the budget numbers. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 43
Kaizen BudgetingIt was previously estimated that it shouldtake 3 labor-hours for Hawaii Diving tomanufacture its product.A kaizen budgeting approach wouldincorporate future improvements. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 44
Kaizen BudgetingBudgeted Hours/ItemJanuary – March 2004April – June 2004July – September 2004October – December 20043.002.952.902.85 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 45
Learning Objective 6Prepare an activity-basedbudget. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 46
Activity-Based BudgetingActivity-based costing reports and analyzespast and current costs.Activity-based budgeting (ABB) focuseson the budgeted cost of activities necessaryto produce and sell products and services. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 47
Activity-Based BudgetingProduct A Product BUnits produced:880200Labor-hours per unit:33Budgeted setup-hours:55Total budgeted machine setup related cost is 25,920 per month. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 48
Activity-Based BudgetingTotal budgeted labor-hours are:Product A: 880 32,640Product B: 200 3600Total3,240What is the allocation rate per labor-hour? 25,920 3,240 8.00 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 49
Activity-Based BudgetingTotal cost allocated to each product line:Product A: 8.00 2,640 21,120Product B: 8.00 4,800600 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 50
Activity-Based BudgetingUnder ABB, the number of setups is the cost driver. 25,920 budgeted machine setup cost 10 budgeted machine setup-hours 2,592 allocation rate per machine setup-hour.How much machine setup related costs areallocated to each product line? 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 51
Activity-Based BudgetingProduct AProduct B 2,592 5 12,960 2,592 5 12,960Setup-related cost per unit:Product A: 12,960 880 14.73Product B: 12,960 200 64.80 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 52
Learning Objective 7Describe responsibility centersand responsibility accounting. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 53
What is a Responsibility Center?It is any part, segment, or subunitof a business that needs control.– production– service 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 54
Types of Responsibility CentersCost centerInvestment centerProfit center 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 55
Learning Objective 8Explain how controllabilityrelates to responsibilityaccounting. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 56
What is Controllability?It is the degree of influence that a specificmanager has over costs, revenues,or other items in question.A controllable cost is any cost that isprimarily subject to the influence of agiven responsibility center managerfor a given time period. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 57
ControllabilityResponsibility accounting focuses oninformation and knowledge, not control.A responsibility accounting system couldexclude all uncontrollable costs froma manager’s performance report.In practice, controllability is difficult to pinpoint. 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 58
End of Chapter 6 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster6 - 59
Master Budget and Responsibility Accounting 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 6 - 1 Chapter 6. Understand what a master budget is and explain its benefits. Learning Objective 1
FINANCIAL ACCOUNTING : MEANING, NATURE AND ROLE OF ACCOUNTING STRUCTURE 1.0 Objective 1.1 Introduction 1.2 Origin and Growth of Accounting 1.3 Meaning of Accounting 1.4 Distinction between Book-Keeping and Accounting 1.5 Distinction between Accounting and Accountancy 1.6 Nature of Accounting 1.7 Objectives of Accounting 1.8 Users of Accounting Information 1.9 Branches of Accounting 1.10 Role .
Chapter 6 Master Budget and Responsibility Accounting Objective 6.1 1) A budget: A) is the quantitative expression of a proposed plan of action by management B) is an aid to coordinate what needs to be done C) generally includes both financial and nonfinancial aspects of the plan D) All of the above are correct. Answer: D Diff: 1 Terms: budget
Budget (Annual Budget) Revenues Expenses Multi-year (Actual; Budget; Budget) Project (program) Budget A project budget is the estimated financial plan for a project, for which funding is required. The total program budget is not just the grant r
Government Financial Accounting Rules The numbers produced by budget accounting or financial accounting are the results of applying certain rules. Since budget rules are almost always defined by a jurisdiction's laws,ii for the sake of consistency, budget accounting rules tend to follow budget practices. However, with its
Apr 23, 2019 · The budget narrative, sometimes called the budget justification, is a companion to the budget (table, spreadsheet, or forms). While the budget table gives the total cost for each category of the budget, the budget narrative giv
Department of Accounting became the School of Accounting, and in late 1980, our undergraduate accounting program and master of accounting program started being ranked in the top five in the nation. We also moved into the School of Accounting building. In 1990, the School of Accounting changed its name to the Leventhal School of Accounting.
Recognize budget and accounting terminology Track budgetary and proprietary accounting transactions through the budget execution process Identify the U.S. Government Standard General Ledger account structure Relate budget obligations to DOD assets, liabilities, and expenses Identify unfunded budget requirements from accounting
Agile software development methods, according to Agile Software Manifesto prepared by a team of field practitioners in 2001, emphasis on A. Individuals and interactions over process and tools B. Working software over comprehensive documentation C. Customer collaboration over contract negotiation D. Responding to change over following a plan [5]) primary consideration Secondary consideration .
