ACG 2071 Exam 3 30 questions Breakdown by chapter Chapter 5 17 questions 7 conceptual Chapter 6 12 questions 1 conceptual PwC Presentation 1 question 1 conceptual Major topics covered Chapter 5 Budgeting in general o An important part of planning and control o Incremental budgeting using last years budgeting continued into this year more cost effective o Zero based budgeting start from zero can be from april to april it has to be twelve months but does not have to be December 31 to January 1 of following year o Top down budgeting involves starting at the top management and go down o Bottom up budgeting the most effective start at the bottom and go up it is the best choice because they bottom level workers know the customers the best and can fit their needs o Standard price the price that should be paid for a unit of input o Standard cost per unit given as a direct martieral direct labor or overhead in standard quantity and price o To calculate standard cost per unit you multiply direct materials cost by unit and add that to the multiple of direct labor cost and unit and do the same for variable overhead Add all three components together Components of the master budget I The first component of the master budget is the operating budget which provides a plan for operations during the budget period Development of the operating budget begins with the sales budget From those sales estimates budgeted production direct materials direct labor manufacturing overhead and selling and administrative expenses are determined o Always start with the sales budget o Next is selling and administrative expense budget o Then production budget o Finally the direct materials direct labor and manufacturing OH budget Remember a quarter is three months 1 st quarter January February March 2 nd quarter April May June 3 rd quarter July August September 4 th quarter October November December II Sales Budget o the sales and marketing departments prepare the sales budget which forecasts the number of units expected to be sold as well as the prices expected to be charged Since the sales budget drives all other components of the master budget it is imperative that it be as realistic as possible If the sales and marketing departments are too optimistic in their sales forecast too much inventory will be produced or purchased unnecessary costs will be incurred and the company will fail to achieve its budgeted net income o To prepare the sales budget we need both the budgeted sales price and the unit sales forecast III Selling Administrative Expense Budget o The selling and administrative expense budget estimates when and how much selling and administrative expense will be incurred o selling and administrative expenses period costs may be fixed or variable IV Production Budget a a plan for when and how many pants must be manufactured This budget shows not only the beginning inventory for the period but the desired ending inventory The logic behind the production budget is as follows b c The production budget is prepared using four simple steps o Enter budgeted sales units from the sales budget o Calculate budgeted ending inventory units for the period o Add budgeted ending inventory units to budgeted sales units to determine the number o Subtract beginning inventory units form required units to determine the budgeted of units required during the period production d The final column in the production budget requires special attention during budget preparation The beginning inventory amount in the final column is the beginning inventory for the entire budget period not the total of the beginning inventories for each period So the final column will show whatever beginning inventory is shown in the first period Similarly the budgeted ending inventory is the ending inventory for the entire budget period So the final column will show whatever ending inventory is shown in the last period e To avoid confusion it might be helpful to include the dates covered by the budget in the heading for the total column So if the final heading is October 1 December 31 then beginning inventory is what is on hand on October 1 and ending inventory is what is on hand Subtracted by the desired ending inventory this is the next month multiplied by the amount carried Subtracted by beginning inventory same number as the first number multiplied by the amount carried on December 31 o To calculate production simply do Budgeted sales in units for the month you are looking for Equals total units required over over Equals the total production in units that should be produced 1 Direct Materials Purchases Budget a Calculted Budgeted quantity of DM needed for production Desired DM ending inventory total quantity of DM needed DM beginning inventory Quantity of DM to purchase b Direct materials standards specify both the quantity of material needed per unit of product c the direct materials purchases budget itemizes the direct materials that must be purchased and the price to be paid for the material to meet budgeted production I Direct Labor Budget a The direct labor budget calculates the number of direct labor hours required to meet the budgeted level of production and it is prepared using the following steps a Enter budgeted production from the production budget b Calculate the number of direct labor hours needed to meet the production schedule by multiplying of units to be produced during the period by the standard number of direct labor hours for one unit c Calculate the total budgeted direct labor payroll by multiplying the total required direct labor hours by the standard average wage rate for the period If the company pays a wide range of direct labor wage rates the direct labor budget will be more accurate if direct labor hours are calculated separately for each pay level II Manufacturing Overhead Budget 1 Enter the budgeted activity base from the appropriate budget 2 Calculate the variable overhead cost per period using the variable rate and the budgeted activity base 3 Calculate the fixed overhead cost per period assuming that costs are incurred evenly throughout the period 4 Calculate the total overhead cost for the period by adding the fixed and variable overhead costs 5 Subtract the noncash overhead items from the total overhead cost to determine the cash payments for overhead a III Ending Inventory COGS Budget a REMEMBER MULTIPLY NUMBER BY THE COGS PERCENTAGE AMOUNT AND USE THOSE NUMBERS b Enter the beginning Raw Materials Inventory balance
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