Sales Budget Number of units to be sold x Sales price per unit Total sales revenue Production Budget COGS for Merch Units projected for sales Desired ending inventory Total units needed Units in beginning inventory Units to produce Production Budget Beginning inventory previous month s ending inventory Quarter beginning inventory is from the first month Ending inventory for quarter comes from last month in group Direct Materials Budget Quantity of DM needed for production not sales Desired DM ending inventory Total quantity of DM needed DM beginning inventory Quantity of DM to purchase x Cost per pound Total cost of DM purchases Actual rate variable MOH actual hrs Variable OH efficiency variance Standard rate actual hours standard hrs allowed Responsibility Centers Cost Center cost only no depts HR Revenue Center Call center offices teams Profit Center Revenues costs franchises separate stores of bigger cmpy Investment Center invmts revenues costs stand alone head quarters divisions separate brands entities can be sold off ROI Operating Income Total Assets OR ROI Sales Margin x Capital Turnover Sales Margin Operating Income Sales Capital Turnover Sales Total Assets Internal Rate of Return IRR The interest rate that will cause the PV 0 Annuity PV Factor Investment Annual Net Cash Flows IRR is between and In PV of Annuity table Table B scan row corresponding to expected life find column with factor closest to annuity factor calculated Residual Income RI Operating Income Target rate of return x Total assets min acceptable income Net Present Value NPV Annuity PV Factor x Net Cash Inflow PV Investment NPV 0 accept For Unequal CF NPV use PV for 1 Factor take each CF separately then add together Decentralization Splitting operations into different operating segments frees top management s time duplicates costs Ex Smuckers Folgers jam jelly etc For Cash Collections create chart and separate cash credit for each mnth For quarter just total all mnths totals Direct Labor Budget Units to be produced x DLH per unit Total DLH needed x Cost per DLH Total Direct Labor Cost Cash Payments Budget Cash payment for DM Cash payment for DL Cash payment for MOH Cash payment for Operating Expen Cash payment for Taxes Total Cash Payments Combined Cash Budget Beginning cash balance Cash Collections cash available before financing total Cash Payments Ending Cash Balance B4 Financing Minimum Cash Balance desired Ending cash balance after financing All are typically negative Fixed MOH Budget Variance Actual Fixed OH Budgeted FixedOH Fixed MOH Volume Variance Budgeted fixed OH SHA X SR If production volume than expected fixed OH has been over allocated fixed OH volume variance is favorable If production volume is greater it s under allocated unfavorable Time Value of Money use PVtables PV of 1 for single payment PV Annuity for equal payments Use N I to find rate then x PV Capital Budgeting Investment large items assets etc Profitability Index is used in conjunction with the NPV From payback period square AP SP unfavorable AP SP favorable AQ SQA unfavorable AQ SQA favorable If average annual CFs arent the same ea yr add up all of them divide by the total of yrs of CFs Variable MOH Rate Variance spend Actual Hours x Actual Rate Standard Rate Variable MOH Efficiency Variance Standard Rate x Actual Hours Standard Hours Allowed Profitability Index Present value of net cash inflows Investment SHA Actual units produced x standard amt of time allowed per unit DL Standard rate x Prep or processed Budget Variance Diff of Actual vs Budget Variance Budget Variance Budget Expenses unfavorable Sales favorable Flexible Budget actual units produced using budget prices Volume Variance diff btwn master budget flexible budget Flexible Budget Variance difference between flexible budget actual results 4 perspectives of Balanced Scorecard Financial money income shareholders Customer satisfaction Internal Business company innovation operations post sales support new product average repair time Learning Growth employees improvement create value Payback Period Equal CF Amount Invested Expected annual net cash flows Create chart for unequal cash flows Accounting Rate of Return accrual ARR Avg annual net operating income from asset Initial Investment Avg annual operating income from asset avg annual net cash flow annual deprec Exp Annual Depreciation expense Initial Cost of Investment Residual Value Useful Life of Assets In years purchase amt purchase price Unequal CF compute average CF total DM Price Variance Actual Quantity Purchased x Actual Price Standard Price DM Quantity Variance Standard Price x Actual Quantity Used Standard Quantity Allowed Actual Cost SQA stand Qty allowed standard per unit X actual units produced SHA stand Hrs allowed standard per unit X actual units produced Standard Cost of Direct Materials Standard Quantity DM x Standard Price DM Standard Cost of Direct Labor Standard Quantity DL hours x Standard Price DL Standard Variable MOH per unit Standard Quantity of allocation base x Variable MOH rate Variable MOH rate Total estimated variable MOH Total estimated amount of allocation base Standard Fixed MOH per unit Standard Quantity of allocation base x Fixed MOH rate Fixed MOH rate Total estimated Fixed MOH Total estimated amount of allocation base DL Rate Variance Actual Hours x Actual Rate Standard Rate AR SR unfavorable DL Efficiency Variance Standard Rate x Actual Hours Standard Hours Allowed AH SHA favorable Actual wage rate wages pd actual hours Actual Variable MOH Rate Incurred MOH Variable Incurred DL hours 1 Combined cash budget capital expenditures budget budgeted balance sheets are all financial budgets 2 Amaozn com expects to receive the following benefits when using its budgeting process budget provides Amazon com s managers with a benchmark against which to compare actual results for performance evaluation the planning required to develop the budget helps managers foresee and avoid potential problems before they occur and the budget helps motivate employees to achieve Amazon com s sales growth and cost reduction goals 3 The sales budget is the starting point for the master budget 4 The volume variance on a flexible budget report is the difference btwn the master budget and the flexible budget 6 The following are all common strategies to determine the transfer price between divisions market price negotiated price and cost 7 The production volume variance is favorable whenever actual output exceeds