MODULE 3 - BUDGETING

Sales Budget - starting point in preparing master budget

Budgeted unit sales xxx

Multiply by Selling price xxx
Total Sales xxx

SCHEDULE 1 SALES BUDGET

April May June Total

Budgeted sales units 30,000 40,000 50,000 120,000
Selling price per unit 10 10 10 10
Total Sales 300,000 400,000 500,000 1,200,000

CASH RECEIPTS BUDGET

Cash Receipts Budget 75%

Collection in the month of sale 20%
Collection in the month following the sale 5%
Uncollectible

The March 31, Accounts Receivable of 30,000 will be collected in April.

April May June Quarter

Accounts Receivable, beginning 30,000 30,000
January 225,000 60,000 285,000
February 300,000 80,000 380,000
March 375,000 375,000
Total Cash collections 255,000 360,000 455,000 1,070,000

April May June

Budgeted Sales 300,000 400,000 500,000
Percent 75% 75% 75%
Collection for the month 225,000 300,000 375,000

April May June

Budgeted Sales 300,000 400,000 500,000
Percent 20% 20% 20%
Collection for the next month 60,000 80,000 100,000
Production budget
- prepared after sales budget
- lists the number of units that must be produced to satisfy sales needs and to provide the
desired ending inventory

SCHEDULE 2 PRODUCTION BUDGET

Budgeted unit sales xxxx

Add: Desired Ending inventory xxxx
Total needs xxxx
Less: Beginning inventory xxxx
Required production xxxx

Desired ending inventory is 20% of the following month's budgeted sales in units
On March 31 units on hand is 4,000
What is the required production?

April May June Quarter July

Budgeted unit sales 30,000 40,000 50,000 120,000 52,000
Add: Desired Ending inventory 8,000 10,000 10,400 10,400 12,000
Total needs 38,000 50,000 60,400 130,400 64,000
Less: Beginning inventory 4,000 8,000 10,000 4,000 10,400
Required production 34,000 42,000 50,400 126,400 53,600

April May June July

Following month's sale 40,000 50,000 52000 60000
Percent 20% 20% 20% 20%
Desired ending inventory 8,000 10,000 10,400 12,000

T- Account for month of April

Finished goods Inventory
Beginning 4,000 30,000 Units sold
Units manufac 34,000 8,000 Ending
38,000 38,000

SCHEDULE 3 DIRECT MATERIALS BUDGET

Direct Materials Budget
-details the raw materials that must be purchased to fulfill the production budget and to provide
for adequate inventories

Raw materials needed to meet the production schedule xxxx

Add: Desired ending inventory of raw materials xxxx
Total raw materials needed xxxx
Less: Beginning inventory of raw materials xxxx
Raw materials to be purchased xxxx

Required materials per unit of production 5 pounds

Desired materials ending inventory 10% of the following month's production
On March 31, pounds of materials on hand is 13,000 at 0.40 per pound
What is the materials to be purchased?

April May June Quarter July

Production 34,000 42,000 50,400 126,400 53,600
Materials per units (pounds) 5 5 5 5 5
Production needs 170,000 210,000 252,000 632,000 268,000
Add: Desired ending inventory 21,000 25,200 26,800 26,800
Total Needs 191,000 235,200 278,800 658,800
Less: Beginning inventory 13,000 21,000 25,200 13,000
Materials to be purchased 178,000 214,200 253,600 645,800

Following month's production needs 210,000 252,000 268,000

Percentage 10% 10% 10%
Desired ending inventory 21,000 25,200 26,800

CASH DISBURSEMENT BUDGET

Cost of materials per pound 0.4

Paid for in the month of purchased 50%
Paid for in the following month of purchased 50%
On March 31, Accounts payable balance 12,000 will be paid on April
What is the cash disbursement for materials?

April May June Quarter

Accounts Payable, beginning bal 12,000 12,000
April purchases 35,600 35,600 71,200
May purchases 42,840 42,840 85,680
June purchases 50,720 50,720
Total cash disbursements 47,600 78,440 93,560 219,600

April May June

Materials to be purchased 178,000 214,200 253,600
Multiply by cost of materials per pound 0.4 0.4 0.4
Total cost of materials 71,200 85,680 101,440
Percentage paid 50% 50% 50%
Paid in the month of purchased 35,600 42,840 50,720

Total cost of materials 71,200 85,680 101,440

Percentage unpaid 50% 50% 50%
Paid in the following month of purchased 35,600 42,840 50,720
SCHEDULE 4 DIRECT LABOR BUDGET
Direct Labor Budget
- shows the direct labor hours required to satisfy the production budget

No. of workers xxxx Total Minimum DLC xxxx

Multiply by No. of guaranteed labor hours xxxx Divided by DLC per hour xxxx
Multiply by Direct labor cost per hour xxxx Minimum DLH required xxxx
Total Minimum Direct Labor Cost xxxx

Required units of production xxxx --->> Schedule 2

Multiply by Direct labor rate per unit xxxx
Labor Hours required xxxx whichever is higher
Guaranteed labor hours xxxx
Labor hours paid xxxx --->> @ Minimum payment or above
Multply by Hourly wage rate xxxx
Total Direct labor costs xxxx

Direct labor hours per unit of product 0.05 hours or 3 minutes

The company has "no lay off" policy so all employees are paid 40 hours per week
Direct labor rate per hour 10
For the next three months, direct labor workforce will be paid 1,500 hours per month for a minimum
What is the direct labor cost?

April May June Quarter

Required units of production 34,000 42,000 50,400 126,400
Multiply by Direct labor rate per unit 0.05 0.05 0.05 0.05
Labor Hours required 1,700 2,100 2,520 6,320
Guaranteed labor hours 1,500 1,500 1,500
Labor hours paid 1,700 2,100 2,520 6,320
Multply by Hourly wage rate 10 10 10 10
Total Direct labor costs 17,000 21,000 25,200 63,200

What if the required units of production in April is 20,000. What is the total direct labor costs?

April May June Quarter

Required units of production 20,000 42,000 50,400 112,400
Multiply by Direct labor rate per unit 0.05 0.05 0.05 0.05
Labor Hours required 1,000 2,100 2,520 5,620
Guaranteed labor hours 1,500 1,500 1,500
Labor hours paid 1,500 2,100 2,520 5,620
Multply by Hourly wage rate 10 10 10 10
Total Direct labor costs 15,000 21,000 25,200 56,200

SCHEDULE 5 MANUFACTURING OVERHEAD BUDGET

MOH Budget
- lists all costs of production other than direct materials and direct labor

Budgeted Direct Labor hours xxxx --->> Schedule 4 (Direct labor hours paid)
Multiply Variable OH rate xxxx
Variable overhead cost xxxx
Add: Fixed overhead cost xxxx
Total manufacturing overhead xxxx
Less: Noncash item xxxx
Cash disbursement for MOH xxxx

Overhead is applied based on direct labor hours

Variable overhead rate per direct labor hour 20
Fixed overhead per month 50,000
Included in fixed OH is a depreciation of 20,000
What is the total manufacturing cost and the related cash disbursement?

April May June Quarter

Budgeted Direct Labor hours 1,700 2,100 2,520 6,320
Multiply Variable OH rate 20 20 20 20
Variable overhead cost 34,000 42,000 50,400 126,400
Add: Fixed overhead cost 50,000 50,000 50,000 150,000
Total manufacturing overhead 84,000 92,000 100,400 276,400
Less: Noncash item 20,000 20,000 20,000 20,000
Cash disbursement for MOH 64,000 72,000 80,400 256,400

SCHEDULE 6 ENDING FINISHED GOODS INVENTORY BUDGET

Product Cost per unit: Quantity Cost Total

Direct materials 5 0.4 2
Direct labor 0.05 10 0.5
Manufacturing Overhead 0.05 43.73 2.19
Product Cost per unit 4.69

Total manufacturing overhead 276,400

Divided by Budgeted Direct Labor hours 6,320
Predetermined Overhead rate 43.73
Budgeted Finished goods inventory
Ending finished goods inventory in units 10,400 --->> Schedule 2 (Ending inventory)
Multiply by Product cost per unit 4.69
Ending finished goods inventory in peso 48,776

SCHEDULE 7 SELLING & ADMINISTRATIVE BUDGET

Budgeted sales per unit xxx

Multiply by Variable SAE per unit xxx
Variable SAE xxx
Add: Fixed SAE xxx Included in:
Total SAE xxx Budgeted Inc Statement
Less: Noncash items xxx
Cash disbursement for SAE xxx Cash Budget - disbursement

Selling and administrative expense budget:

Variable selling and administrative expense (SAE) 0.5
Fixed selling and administrative expense 70,000
Included in fixed SAE is a depreciation of 10,000
What is the total selling and administrative expense and the related cash disbursement?

April May June Quarter

Budgeted sales per unit 30,000 40,000 50,000 120,000
Multiply by Variable SAE per unit 0.5 0.5 0.5 0.5
Variable SAE 15,000 20,000 25,000 60,000
Add: Fixed SAE 70,000 70,000 70,000 210,000
Total SAE 85,000 90,000 95,000 270,000
Less: Noncash items 10,000 10,000 10,000 30,000
Cash disbursement for SAE 75,000 80,000 85,000 240,000

SCHEDULE 8 CASH BUDGET

Schedule
Cash balance, beginning xxx
Add receipts:
Collections from customers 1 xxxx
Total cash available xxxx
Less disbursements:
Direct Labor 4 xxxx
Direct materials 3 xxxx
Manufacturing OH 5 xxxx
Selling and administrative 7 xxxx
Equipment purchases xxxx
Dividends xxxx
Total disbursements xxxx
Excess (deficiency) xxxx
Borrowings xxxx
Repayments xxxx
Interest xxxx
Total financing/loans xxxx
Ending cash balance xxxx

Maintains an open line of credit 75,000 with interest of 16%

Maintains a minimum cash balance of 80,000
Borrows on the first day of the month and repays on the last day of the quarter
Pays a cash dividend of 49,000 in April
Purchases of equipment in May of 83,700 and in June of 48,300 both in cash
March 31, Cash balance is 40,000
What is the ending cash balance?
2nd Quarter
Schedule April May June Quarter
Cash balance, beginning 40,000 80,000 104,860 40,000
Add receipts:
Collections from customers 1 255,000 360,000 455,000 1,070,000
Total cash available 295,000 440,000 559,860 1,110,000
Less disbursements:
Direct Labor 4 17,000 21,000 25,200 63,200
Direct materials 3 47,600 78,440 93,560 219,600
Manufacturing OH 5 64,000 72,000 80,400 216,400
Selling and administrative 7 75,000 80,000 85,000 240,000
Equipment purchases 83,700 48,300 132,000
Dividends 49,000 49,000
Total disbursements 252,600 335,140 332,460 920,200
Excess (deficiency) 42,400 104,860 227,400 189,800
Borrowings 37,600 - - 37,600
Repayments - - (37,600) (37,600)
Interest - - (1,504) (1,504)
Total financing/loans 37,600 - (39,104) (1,504)
Ending cash balance 80,000 104,860 188,296 188,296

SCHEDULE 9 BUDGET INCOME STATEMENT

Schedule Quantity Per unit Amount

Sales 1 xxxx xxxx xxxx
Cost of Goods Sold 1,6 xxxx xxxx xxxx
Gross Margin xxxx xxxx xxxx
Less: Selling and Administrative exp 7 xxxx
Operating Income xxxx
Less: Interest expense 8 xxxx
Net Operating Income (NOI) xxxx
 Enthusiasm Company
Budgeted Income Statement
For the quarter ended June 30

Schedule Quantity Per unit Amount

Sales 1 120,000 10 1,200,000
Cost of Goods Sold 1,6 120,000 4.69 562,800
Gross Margin 120,000 5.31 637,200
Less: Selling and Administrative exp 7 270,000
Operating Income 367,200
Less: Interest expense 8 1,504
Net Operating Income (NOI) 365,696

SCHEDULE 9 BUDGETED BALANCE SHEET / STATEMENT OF FINANCIAL POSITION

Retained Earnings
Dividends xxxx xxxx Beginning
Ending xxxx xxxx NOI
xxxx xxxx

Assets Liabilities and Shareholder's Equity

Cash xxxx Accounts Payable xxxx
Accounts Receivable xxxx Share capital xxxx
Raw materials Inventory xxxx Retained Earnings xxxx
Finished goods Inventory xxxx Total Liabilities & Equity xxxx
Land xxxx
Building xxxx
Equipment xxxx
Total Assets xxxx

Land is 500,000 Retaineds Earinings on March 31 is 146,150

Share capital is 611,226
Equipment is 175,000

Assets
Cash 188,296 (a) (a) Ending cash balance in schedule 8
Accounts Receivable 100,000 (b) (b) 500,000 x 2% (schedule 1)
Raw materials Inventory 10,720 (c ) (c ) 26,800 x 0.40 = 10,720
Finished goods Inventory 48,776 (d) (d) Schedule 6
Land 500,000 (e ) Beg bal - 175,000 plus equip in
Building - schedule 8 - 83,700 and 48,300
Equipment 307,000 (e ) (f) Depreciation is Schedule 5 and 7

Total Assets 1,154,792

Used for yearly SFP, not for interim SFP

Liabilities and Shareholder's Equity

Accounts Payable 50,720 (g) (g) Schedule 3 - Cash Disbursement Budget
Share capital 641,226 (h)
Retained Earnings 462,846 Retained Earnings
Total Liabilities & Equity 1,154,792 Dividends 49,000 146,150 Beg
Ending 462,846 365,696 NOI
511,846 511,846