Accounting 210 Exam 3 Study Guide Chapter 9 Sales Budget o The sales budget is prepared first o Represents managements best estimate of sales revenue for the budget period o Total Sales Expected unit sales of quarter Unit selling price Production Budget o The production budget shows the number of units of a product to produce to meet the o A realistic estimate of ending inventory is necessary in scheduling production expected sales demand requirements o Required Production Units Budgeted sales units Units from sales budget Desired ending finished goods unit Ending inventory of next quarters sales Beginning finished goods units Ending inventory of current quarters sales Direct Materials Budget purchased o The direct materials budget shows both the quantity and cost of direct materials to be o The first step is to determine the number of units to purchase o Required Direct Materials Units to Be Purchased Direct materials units required for production Desired ending direct materials units Beginning direct materials units Direct Labor Budget requirements cost per hour o Contains the quantity hours and cost of direct labor necessary to meet production o Total Direct Labor Cost Units to be produced Direct labor time per unit direct labor Manufacturing Overhead Budget Shows the expected manufacturing overhead cost for the budget period o o This budge distinguished between variable and fixed overhead costs o Variable costs are found by multiplying Direct labor hour rate Direct labor hours o Manufacturing overhead rate per direct labor hour Total year end manufacturing overhead Total year end direct labor hours Selling and Administrative Expense Budget o This budget projects anticipated selling and administrative expenses for the budget period o Classifies expenses as either fixed or variable o Variable expenses per quarter are based on the unit sales from the sales budget Found by multiplying Variable expense rate Units of the Quarter Budgeted Income Statement o This budget indicated the expected profitability of operations for the budget period o Total Unit Cost is found by o Cost of Goods Sold Total unit cost Units sold Cash Budget o o Contains three sections 1 Cash receipts 2 Cash disbursements 3 Financing and the Shows anticipated cash flows beginning and ending cash balances Cash receipts Includes expected receipts from the company s source of revenue Usually are cash sales and collections from customers on credit sales Also shows receipts of interest and dividends and the proceeds from sales of investments plant assets and the company s capital stock Cash disbursements Shows expected cash payments such as o Direct materials direct labor manufacturing overhead and selling and administrative expenses Also includes projected payments for income taxes dividends investments and plant assets Financing Shows expected borrowing and the repayment of the barrowed funds plus interest o Data in the cash budget are prepared in sequence The ending cash balance of one period becomes the beginning cash balance for the next period They are often prepared for the year on a monthly basis o It is useful to prepare schedules for collections from customers and cash payments for direct materials Schedule of Expected Collections from Customers Schedule of Expected Payments for Direct Materials o Full Cash Budget Chapter 11 Direct Materials o Direct materials price standard The cost per unit of direct materials that should be incurred This standard is based on the company s best estimate of the cost of raw materials This cost is based on current purchase prices Also includes an amount for related cost such as receiving storing and handling o Direct materials quantity standard The quantity of direct materials that should be used per unit of finished goods This is expressed as a physical measure such as pounds barrels or feet When setting this standard the company considers both the quality and quantity of materials required to manufacture the product It also includes allowances for unavoidable waste and normal spoilage o The Standard Direct Materials Cost Per Unit Standard direct materials price Standard direct materials quantity Direct Labor o Direct labor price standard The rate per hour that should be incurred for direct labor Based on current wage rates adjusted for anticipated changes such as cost of living adjustments COLA s Generally includes employer payroll taxes and fringe benefits such as paid holidays and vacations o Direct labor quantity standard The time that should be required to make one unit of the product Allowances should be made in this standard for rest periods cleanup machine setup and machine downtime o The Standard Direct Labor Cost Per Unit Standard direct labor rate Standard direct labor hours Manufacturing Overhead o Companies use a standard predetermined overhead rate This is determined by dividing budgeted overhead cost expected standard activity index The index may be standard direct labor hours or standard machine hours The Standard Manufacturing Overhead Rate Per Unit Predetermined overhead rate Activity index quantity standard Total Standard Cost Per Unit o After the standard quantity and price per unit of the product has been established the Total Standard Cost can be determined The total standard cost per unit is the sum of the standard costs of direct materials direct labor and manufacturing overhead Variances o Company s use standard costs to identify variances from standards o Variances are the differences between total actual costs and total standard costs o Total standard costs are determined by multiplying the units produced the standard cost per unit o Unfavorable Actual cost exceeds standard costs It suggests that the company paid too much for one or more of the manufacturing cost elements or that it used the elements inefficiently o Favorable Actual costs are less than the standard costs A favorable variances has a positive meaning It suggests efficiencies in incurring manufacturing costs and in using direct materials direct labor and manufacturing overhead o A variance can result from differences related to the cost of materials labor or overhead Direct Materials Variances o Total materials variance is the difference between the amount paid actual quantity times actual price and the amount that should have been paid based on standards standard quantity times standard price of materials The total materials variance could be caused by differences in the price