Survey of accounting 6e chapter 13

Budgeting and Standard Cost
Systems

Chapter
13

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Learning Objectives
After studying this chapter, you should be able to:
•

Describe budgeting, its objectives, its impact on human
behavior, and types of budget systems.

•

Describe the master budget for a manufacturing company.

•

Describe the types of standards and how they are established.

•

Describe and illustrate how standards are used in budgeting.

•

Compute and interpret direct materials and direct labor

variances.

•

Describe and provide examples of nonfinancial performance
measures.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Learning
Objective 1
Describe budgeting, its objectives,
its impact on human behavior, and
types of budget systems

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Budgeting
• A budget is a _____________ for a business.
• Objectives of budgeting:
• ___________________________
• ___________________________
• ___________________________

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Managerial Functions Affected

by Budgets
Exhibit 1: _________________________

________

________

________

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Human Behavior and Budgeting
• Importance of setting a reasonable budget:
• Budgets set too tightly _________ employees when
expectations are too high.
• Budgets set too loosely lead to budgetary slack –
called “padding” the budget. Employees may develop
a “spend it or lose it” mentality.
• ____________occurs when the employees’ or
managers’ self-interest differs from the company’s
objectives or goals.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Continuous Budgeting Systems
• Continuous budgets maintain a _________
into the future.
Exhibit 3: Continuous Budgeting

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Developing Budget Estimates
• __________ budgeting requires managers to
estimate sales, production, and other data as
though operations are being started for the
first time.
• More common methods involve revising last
year’s budget:
• ________________
• ________________

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Static and Flexible Budgets
•

Static Budget: It is based
on _______ activity level
and does not change if
circumstances change.

Exhibit 4: Static Budget

Exhibit 5: Flexible Budget

•

Flexible Budget: It
shows expected results
at ________ activity
levels.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Static and Flexible Budgets
Flexible budgeting adjustments produce lower actualto-budget differences.
Exhibit 6: Static and Flexible Budgets

No. of units
Produced
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Computerized Budgeting
Systems
• Speeds up and ______ the cost of preparing
the budget.
• Allow for various operating alternatives to be
easily assessed.
• Enables the company to tie all budgets
together.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Learning
Objective 2
Describe the master budget for
a manufacturing company

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Master Budget
• A master budget is a series of budgets that
are _______ together.
• Major parts of a master budget include:
________________

________________
________________

________________

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Relationship of the Various
Income Statement Budgets
Exhibit 7: Income Statement Budgets

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Sales Budget

• Indicates the quantity of __________and
the selling price per unit.
Exhibit 8: Sales Budget

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Production Budget
• Indicates the ________________________ to meet budgeted
sales and inventory level.
• Feeds the following budgets:
• ______________________ budget – quantity of direct materials
needed.
• ______________________ budget – labor required for each unit
of product.
• ______________________– estimated factory overhead costs
necessary for production.
Exhibit 9: Production Budget

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Direct Materials Purchases
Budget
Exhibit 10: Direct Materials Purchases Budget

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Direct Labor Cost Budget

Exhibit 11: Direct Labor Cost Budget

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Factory Overhead Cost Budget
Exhibit 11: Factory Overhead Cost Budget

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Cost of Goods Sold Budget
• Derived from the __________________ budgets.
• Needs the following information:
• Direct materials
purchases budget
• Direct labor
cost budget
• Factory overhead
cost budget
• Desired ending
inventory
• Estimated beginning
inventory

Exhibit 13: Cost of Goods Sold Budget

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Selling and Administrative
Expenses Budget
Exhibit 14: Selling and Administrative Expenses Budget

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Budgeted Income Statement
• Derived from the
following:
– Sales budget
– Cost of goods
sold budget
– Selling and
administrative
expenses budget
– Other
income/expense
data

Exhibit 15: Budgeted Income Statement

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Budgeted Balance Sheet
__________________
Budget
(summarizes plans for
acquiring fixed assets)

Projects capital
spending needs over
the next five years.

________________
(expected cash inflows
and outflows during
a period)

Combines the following:
• Schedule of cash
collections – projects
cash inflows from sales.
• Schedule of cash
payments – projects
cash outflows for
manufacturing costs.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Capital Expenditures Budget
Exhibit 19: Capital Expenditures Budget

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.


Cash Collections from Sales
Exhibit 16: Schedule of Collections from Sales

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.