Managerial Accounting And Control Dr. Mohamed Youssef Lecture 7 Example:
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Managerial Accounting and control Dr. Mohamed Youssef Lecture 7 Example: P 24-1 Delta farm supply company manufactures and sells a fertilizer called Basic II the following data are developed for preparing budgets for Basic II for the first 2 quarters of 1996. 1. Sales quarter 1 (40,000) bags, quarter 2 (60,000) bags. Selling price is $50 per bag. 2. Direct materials: Each bag of Basic II required 6 Pound of Crup at cost of $2 per pound and 10 pound of Dert at $1.50 per pound. 3. Desired inventory levels Type of Inventory Basic II (bags) Crup (pounds) Dert (pounds)
Januar y1 10,000 9,000 15,000
April 1
July 1
15,000 12,000 20,000
20,000 15,000 25,000
4. Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $10 per hour. 5. Selling and administrative expected to be 10 % of sales plus $150,000 per quarter. 6. Income taxes are expected to be 30 % of income from operations. Your assistant has prepared two budgets: the manufacturing overhead budget that shows expected costs to be 100% of direct labor cost and the direct materials budget for Dert which shows the cost of Dert to be $682,500 in quarter 1 and $982,500 in quarter 2 Instructions Prepare the budgeted income statement for first 6 months of 1996 and all required supporting budgets by quarters (note: use variable and fixed in the selling and administrative expense budget) We must create the following budgets •
•
Sales budget Production budget. (Begin Inv. +Production = Sales +End Inv.)
Chapter 7
1
Managerial Accounting and control Dr. Mohamed Youssef Lecture 7 • • • •
Direct material budget Direct labor budget Selling administrative expense budget Budget income statement
Income statement Sales Less: cost of goods sold Gross profit Less: selling administrative Operating income •
Sales Budget Quarter
Expected unit sales Unit selling price Total sales •
1 40,000 $ 50 2,000,000
2 60,000 $ 50 3,000,000
Six Months 100,000 $50 5,000,000
Production Budget
Begin Inv. +Production = Sales +End Inv. For quarter 1 the end inventory is 15,000 Begin inventory is 10,000 Productions unit =sales + end. Inv. – begin inv. =40,000 + 15,000-10,000 = 45,000 Quarter Expected unit sales Add. Desired ending finished goods units Total required units Less: beginning finished goods units Required production units •
1 40,000 15,000
2 60,000 20,000
55,000 10,000
80,000 15,000
45,000
65,000
Direct Material Budget
Chapter 7
2
Six Months
110,000
Managerial Accounting and control Dr. Mohamed Youssef Lecture 7 Begin Inv. +Purchases = Material used +End Inv. We will calculated for Crup and for Dert is already given For quarter 1 the end inventory is 12,000 Begin inventory is 9,000 Purchases = 45000 x 6 + 12,000 –9000 = 273,000 So the cost will be 273,000 x 2 $ = 546 Quarter 1 2 Units to be produced 45,000 60,000 Direct materials per unit $6 $6 Total pounds needed for production
270,000
390,000
Add: Desired ending direct materials pounds Total material required Less: beginning direct materials pounds Direct materials purchases Cost per pound Total cost of direct materials purchases
12,000
15,000
282,000 9000
405,000 12,000
273,000
393,000
2$ 546,000
2$ 786,000
For Dert Total cost •
682,500
982,500
Six Months
1,332,000
1,665,000
Direct Labor Budget
Unit to per produced Direct labor time hours per unit Total required labor hours Direct labor cost per hour Total Direct labor cost
Quarter 1 45,000 0.25
2 65,000 0.25
Six Months 110,000 0.25
11250
16250
27500
10 $
10 $
10 $
112,500
162,500
75,000
• Selling and administrative expense budget Fixed cost = 150,000 Variable cost = 10 % of sales
Chapter 7
3
Managerial Accounting and control Dr. Mohamed Youssef Lecture 7 In quarter 1 sales =2,000,000 so variable = 200,000 Quarter Variable Fixed Total •
1 200,000 150,000 350,000
Six Months 500,000 300,000 800,000
2 300,000 150,000 450,000
Standard cost per budget
First we calculate the standard cost but in the exam it will given Cost Element Direct material Crup Dert Direct Labor Manufacturing overhead Total •
Quantity
Unit cost
Total
6 pounds 10 pounds 0.25 hours
2 1,5 10
12 15 2.5 2,5 32
Budget Income statement
Sales Cost of goods sold (100,000) Gross profit Selling and administrative Income from operations Income tax expense ( 30%) Net income
Chapter 7
5,000,000 (3,200,000) 1,800,000 (800,000) 1,000,000 (300,000) 700,000
4
Managerial Accounting and control Dr. Mohamed Youssef Lecture 7
Notes of Master Budget presentation Type of Budgets • Strategic plan The most forward-looking budget is the strategic plan, which sets the overall goals and objectives of the organization. Depend on the mission and vision • Long range plan Which produce forecasted financial statements for five to ten years period. Using the existing facilities without having mission or vision. • Capital Budget When we produce one production line • Continuous Budgets Continuous improving ROI : 12%, 12,2%, 12,3%,12,7: • 1. 2.
Master plan consists of two budgets: Operating budgets. Financial budgets
For the merchandizing firm We use the following equation Begin Inv. +Purchases = cost of goods sold + end. Inv. For the manufacturing company Begin Inv. +Production = sales + end. Inv. Cash Collections It is easiest to prepare budgeted cash collections at the same time as the sales budget. Cash Cash Row material
Acc. receive Chapter 7 3 months
5 Sales
Acc Payment
Managerial Accounting and control Dr. Mohamed Youssef Lecture 7
Example
Jan. Feb. March. April
Sales budget
Jan.40 %
5000 6000 10000
2000 0 0
Feb. 30% 1500 2400 0
March 20% 1000 1800 4000
April 10% 500 1200 3000
If min level of cash balance in Jan. 3000 and the cash collection as this example is 2000 so we must get 1000 Disbursements for purchases For example 50% of the current month’s purchases and 50% of the previous month’s purchases may be include Jan. 3000 Feb 9000
Jan 1500 0
Feb 1500 4500
March 0 4500
Operating Expenses Budgets Example Beg. Inv. In Out Total
Chapter 7
10000 3900 (6000) 7900 (difference borrowing or drawing )
6
Jun 0 600 2000
Januar y1 10,000 9,000 15,000
April 1
July 1
15,000 12,000 20,000
20,000 15,000 25,000
4. Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $10 per hour. 5. Selling and administrative expected to be 10 % of sales plus $150,000 per quarter. 6. Income taxes are expected to be 30 % of income from operations. Your assistant has prepared two budgets: the manufacturing overhead budget that shows expected costs to be 100% of direct labor cost and the direct materials budget for Dert which shows the cost of Dert to be $682,500 in quarter 1 and $982,500 in quarter 2 Instructions Prepare the budgeted income statement for first 6 months of 1996 and all required supporting budgets by quarters (note: use variable and fixed in the selling and administrative expense budget) We must create the following budgets •
•
Sales budget Production budget. (Begin Inv. +Production = Sales +End Inv.)
Chapter 7
1
Managerial Accounting and control Dr. Mohamed Youssef Lecture 7 • • • •
Direct material budget Direct labor budget Selling administrative expense budget Budget income statement
Income statement Sales Less: cost of goods sold Gross profit Less: selling administrative Operating income •
Sales Budget Quarter
Expected unit sales Unit selling price Total sales •
1 40,000 $ 50 2,000,000
2 60,000 $ 50 3,000,000
Six Months 100,000 $50 5,000,000
Production Budget
Begin Inv. +Production = Sales +End Inv. For quarter 1 the end inventory is 15,000 Begin inventory is 10,000 Productions unit =sales + end. Inv. – begin inv. =40,000 + 15,000-10,000 = 45,000 Quarter Expected unit sales Add. Desired ending finished goods units Total required units Less: beginning finished goods units Required production units •
1 40,000 15,000
2 60,000 20,000
55,000 10,000
80,000 15,000
45,000
65,000
Direct Material Budget
Chapter 7
2
Six Months
110,000
Managerial Accounting and control Dr. Mohamed Youssef Lecture 7 Begin Inv. +Purchases = Material used +End Inv. We will calculated for Crup and for Dert is already given For quarter 1 the end inventory is 12,000 Begin inventory is 9,000 Purchases = 45000 x 6 + 12,000 –9000 = 273,000 So the cost will be 273,000 x 2 $ = 546 Quarter 1 2 Units to be produced 45,000 60,000 Direct materials per unit $6 $6 Total pounds needed for production
270,000
390,000
Add: Desired ending direct materials pounds Total material required Less: beginning direct materials pounds Direct materials purchases Cost per pound Total cost of direct materials purchases
12,000
15,000
282,000 9000
405,000 12,000
273,000
393,000
2$ 546,000
2$ 786,000
For Dert Total cost •
682,500
982,500
Six Months
1,332,000
1,665,000
Direct Labor Budget
Unit to per produced Direct labor time hours per unit Total required labor hours Direct labor cost per hour Total Direct labor cost
Quarter 1 45,000 0.25
2 65,000 0.25
Six Months 110,000 0.25
11250
16250
27500
10 $
10 $
10 $
112,500
162,500
75,000
• Selling and administrative expense budget Fixed cost = 150,000 Variable cost = 10 % of sales
Chapter 7
3
Managerial Accounting and control Dr. Mohamed Youssef Lecture 7 In quarter 1 sales =2,000,000 so variable = 200,000 Quarter Variable Fixed Total •
1 200,000 150,000 350,000
Six Months 500,000 300,000 800,000
2 300,000 150,000 450,000
Standard cost per budget
First we calculate the standard cost but in the exam it will given Cost Element Direct material Crup Dert Direct Labor Manufacturing overhead Total •
Quantity
Unit cost
Total
6 pounds 10 pounds 0.25 hours
2 1,5 10
12 15 2.5 2,5 32
Budget Income statement
Sales Cost of goods sold (100,000) Gross profit Selling and administrative Income from operations Income tax expense ( 30%) Net income
Chapter 7
5,000,000 (3,200,000) 1,800,000 (800,000) 1,000,000 (300,000) 700,000
4
Managerial Accounting and control Dr. Mohamed Youssef Lecture 7
Notes of Master Budget presentation Type of Budgets • Strategic plan The most forward-looking budget is the strategic plan, which sets the overall goals and objectives of the organization. Depend on the mission and vision • Long range plan Which produce forecasted financial statements for five to ten years period. Using the existing facilities without having mission or vision. • Capital Budget When we produce one production line • Continuous Budgets Continuous improving ROI : 12%, 12,2%, 12,3%,12,7: • 1. 2.
Master plan consists of two budgets: Operating budgets. Financial budgets
For the merchandizing firm We use the following equation Begin Inv. +Purchases = cost of goods sold + end. Inv. For the manufacturing company Begin Inv. +Production = sales + end. Inv. Cash Collections It is easiest to prepare budgeted cash collections at the same time as the sales budget. Cash Cash Row material
Acc. receive Chapter 7 3 months
5 Sales
Acc Payment
Managerial Accounting and control Dr. Mohamed Youssef Lecture 7
Example
Jan. Feb. March. April
Sales budget
Jan.40 %
5000 6000 10000
2000 0 0
Feb. 30% 1500 2400 0
March 20% 1000 1800 4000
April 10% 500 1200 3000
If min level of cash balance in Jan. 3000 and the cash collection as this example is 2000 so we must get 1000 Disbursements for purchases For example 50% of the current month’s purchases and 50% of the previous month’s purchases may be include Jan. 3000 Feb 9000
Jan 1500 0
Feb 1500 4500
March 0 4500
Operating Expenses Budgets Example Beg. Inv. In Out Total
Chapter 7
10000 3900 (6000) 7900 (difference borrowing or drawing )
6
Jun 0 600 2000
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