1、Copyright 2011 Pearson Education, Inc., Publishing as Prentice Hall. 272CHAPTER 7COVERAGE OF LEARNING OBJECTIVESLEARNING OBJECTIVEFUNDA-MENTALASSIGNMENTMATERIALCRITICAL THINKING EXERCISES AND EXERCISES PROBLEMSCASES, EXCEL, COLLAB. & INTERNET EXERCISESLO1: Explain how budgets facilitate planning and
2、 coordination.A1,B1LO2: Anticipate possible human relations problems caused by budgets.25 40LO3: Explain potentially dysfunctional incentives in the budget process.22 39, 40LO4: Explain the difficulties of sales forecasting.23 42 49LO5: Explain the major features and advantages of a master budget.A1
3、,B1 24,26 39LO6: Follow the principal steps in preparing a master budget.A1,B1 29 40 43,45LO7: Prepare the operating budget and the supporting schedules.A1,B1 28,29,30,31 40 43,45,46,48LO8: Prepare the financial budget.A1,B1 27,29,32,33, 34,3536,37,38 43,44,47,48LO9: Use a spreadsheet to develop a b
4、udget (Appendix 7).41,42Copyright 2011 Pearson Education, Inc., Publishing as Prentice Hall. 273CHAPTER 7Introduction to Budgets and Preparing the Master Budget7-A1 (60-90 min.) 1. Exhibit IRAPIDBUY ELECTRONICS, INC.Mall of America StoreBudgeted Income StatementFor the Three Months Ending August 31,
5、 20X8Sales $300,000Cost of goods sold (.62 $300,000) 186,000Gross profit $114,000Operating expenses:Salaries, wages, commissions $60,000Other expenses 12,000Depreciation 1,500Rent, taxes and other fixed expenses 33,000 106,500Income from operations. $ 7,500Interest expense* 1,338Net income $ 6,162*
6、See schedule g for calculation of interest. Copyright 2011 Pearson Education, Inc., Publishing as Prentice Hall. 274Exhibit IIRAPIDBUY ELECTRONICS, INC.Mall of America StoreCash BudgetFor the Three Months Ending August 31, 20X8June July August Beginning cash balance $ 5,800$ 5,600 $ 5,079Minimum cas
7、h balance desired 5,000 5,000 5,000(a) Available cash balance $ 800$ 600$ 79Cash receipts & disbursements:Collections from customers (schedule b) $ 75,200 $121,400 $ 90,800Payments for merchandise(schedule d) (86,800) (49,600) (49,600)Fixtures (purchased in May) (11,000) - - Payments for operating e
8、xpenses (schedule f) (44,600) (30,200) (30,200)(b) Net cash receipts & disbursements $(67,200) $ 41,600 $ 11,000Excess (deficiency) of cash beforefinancing (a + b) (66,400) 42,200 11,079Financing:Borrowing, at beginning of period $ 67,000$ - $ - Repayment, at end of period - (41,000) (10,000)Interes
9、t, 10% per annum - (1,121)* (217)*(c) Total cash increase (decrease)from financing $ 67,000 $(42,121) $(10,217)(d) Ending cash balance (beginningbalance + b + c) $ 5,600$ 5,079 $ 5,862* See schedule gCopyright 2011 Pearson Education, Inc., Publishing as Prentice Hall. 275Exhibit IIIRAPIDBUY ELECTRON
10、ICS, INC.Mall of America StoreBudgeted Balance SheetAugust 31, 20X8Assets Liabilities and Owners EquityCash (Exhibit II) $ 5,862Accounts payable $ 37,200Accounts receivable* 86,400 Notes payable 16,000*Merchandise inventory 37,200Total current liabilities $ 53,200Total current assets $129,462Net fix
11、ed assets: Owners equity:$33,600 less $102,200 plus netdepreciation of $1,500 32,100 income of $6,162 108,362Total assets $161,562 Total equities $161,562*July sales, 20% 90% $80,000 $ 14,400August sales, 100% 90% $80,000 72,000Accounts receivable $86,400* See schedule gJune July August TotalSchedul
12、e a: Sales BudgetCredit sales (90%) $126,000 $72,000 $72,000 $270,000Cash sales (10%) 14,000 8,000 8,000 30,000Total sales (to Exhibit I) $140,000 $80,000 $80,000 $300,000Schedule b: Cash CollectionsJune July AugustCash sales $ 14,000 $ 8,000 $ 8,000On accounts receivable from:April sales 10,800 - -
13、 May sales 50,400 12,600 - June sales - 100,800 25,200July sales - - 57,600Total collections (to Exhibit II) $75,200 $121,400 $90,800Schedule c: Purchases Budget May June July AugustDesired purchases:62% next months sales $86,800 $49,600 $49,600 $37,200Schedule d: Disbursements for PurchasesJune Jul
14、y AugustLast months purchases (to Exhibit II) $86,800 $49,600 $49,600Other required items related to purchasesAccounts payable, August 31, 2008Copyright 2011 Pearson Education, Inc., Publishing as Prentice Hall. 276(62% September sales - to Exhibit III) $37,200Cost of goods sold (to Exhibit I) $86,8
15、00 $49,600 $49,600Schedule e: Operating Expense BudgetJune July August TotalSalaries, wages, commissions $28,000 $16,000 $16,000 $60,000Other Variable expenses 5,600 3,200 3,200 12,000Fixed expenses 11,000 11,000 11,000 33,000Depreciation 500 500 500 1,500Total operating expenses $45,100 $30,700 $30
16、,700 $106,500Schedule f: Payments for Operating ExpensesJune July AugustVariable expenses $33,600 $19,200 $19,200Fixed expenses 11,000 11,000 11,000Total payments for operating expenses $44,600 $30,200 $30,200Schedule g: Interest calculationsJune July AugustBeginning balance $67,000 $67,558 $26,000
17、Monthly interest expense 10% 558 563 217 Ending balance before repayment $67,558 68,121 26,217 Principal repayment (from statement of receipts and disbursements) (41,000) (10,000)Interest payment (1,121) (217)Ending balance $26,000 $16,000 2. This is an example of the classic short-term, self-liquid
18、ating loan. The need for such a loan often arises because of the seasonal nature of a business. The basic source of cash is proceeds from sales to customers. In times of peak sales, there is a lag between the sale and the collection of the cash, yet the payroll and suppliers must be paid in cash rig
19、ht away. When the cash is collected, it in turn may be used to repay the loan. The amount of the loan and the timing of the repayment are heavily dependent on the credit terms that pertain to both the purchasing and selling functions of the business.Copyright 2011 Pearson Education, Inc., Publishing
20、 as Prentice Hall. 2777-B1 (60-120 min.) $ refers to Australian dollars.1. See Exhibits I, II, and III and supporting schedules a, b, c, d.2. The cash budget and balance sheet clearly show the benefits of moving to just-in-time purchasing (though the transition would rarely be accomplished as easily
21、 as this example suggests). However, the company would be no better off if it left much of its capital tied up in cash - it has merely substituted one asset for another. At a minimum, the excess cash should be in an interest bearing account - the interest earned or forgone is one of the costs of inv
22、entory.Schedule a: Sales Budget January February MarchTotal sales (100% on credit) $248,000 $280,000 $152,000Schedule b: Cash Collections60% of current months sales $148,800 $168,000 $91,20030% of previous months sales 30,000 74,400 84,00010% of second previous months sales 10,000 10,000 24,800Total
23、 collections $188,800 $252,400 $200,000December January February MarchSchedule c: Purchases BudgetDesired ending inventory $156,200 $ 24,000* $ 24,000$ 24,000Cost of goods sold 50,000 124,000 140,000 76,000Total needed $206,200 $148,000 $164,000 $100,000Beginning inventory 64,000 156,200 32,200 24,0
24、00Purchases $142,200$ - $131,800 $ 76,000* Actual ending January (and beginning February) inventory level is $32,200, as inventory levels are drawn down toward desired level of $24,000.Schedule d: Disbursements for Purchases100% of previous months purchases $142,200 $ - $131,800March 31 accounts pay
25、able $76,000Copyright 2011 Pearson Education, Inc., Publishing as Prentice Hall. 278Exhibit IWALLABY KITECash BudgetFor the Three Months Ending March 31, 20X2January February MarchCash balance, beginning $ 20,000$ 20,400$138,767Minimum cash balance desired 20,000 20,000 20,000(a) Available cash bala
26、nce 0 400 118,767Cash receipts and disbursements:Collections from customers(Schedule b) 188,800 252,400 200,000Payments for merchandise (Schedule d) (142,200) - (131,800)Rent (32,200) (1,000) (1,000)Wages and salaries (60,000) (60,000) (60,000)Miscellaneous expenses (10,000) (10,000) (10,000)Dividen
27、ds (6,000) - Purchase of fixtures - - (12,000)(b) Net cash receipts & disbursements $ (61,600) $181,400 $ (14,800)Excess (deficiency) of cash before financing (a + b) $ (61,600) $181,800 $103,967Financing:Borrowing, at beginning of period $ 62,000$ - $ - Repayment, at end of period - (62,000)Simple
28、interest, 10% monthly - (1,033)(c) Total cash increase (decrease)from financing $ 62,000 $ (63,033)$ - (d) Cash balance, end (beginningbalance + c + b) $ 20,400 $138,767 $123,967Copyright 2011 Pearson Education, Inc., Publishing as Prentice Hall. 279Exhibit IIWALLABY KITEBudgeted Income StatementFor
29、 the Three Months Ending March 31, 20X2Sales (Schedule a) $680,000Cost of goods sold (Schedule c) 340,000Gross margin $340,000Operating expenses:Rent* $ 67,000Wages and salaries 180,000Depreciation. 3,000Insurance 1,500Miscellaneous 30,000 281,500Net income from operations $ 58,500Interest expense 1
30、,033Net income $ 57,467*(January-March sales less $40,000) .10 plus 3 $1,000Copyright 2011 Pearson Education, Inc., Publishing as Prentice Hall. 280Exhibit IIIWALLABY KITEBudgeted Balance SheetMarch 31, 20X2AssetsCurrent assets:Cash (Exhibit I) $123,967Accounts receivable* 88,800Merchandise inventor
31、y (Schedule c) 24,000Unexpired insurance 4,500 $241,267Fixed assets, net: $50,000 + $12,000 - $3,000 59,000Total assets $300,267Liabilities and Stockholders EquityLiabilities:Accounts payable (Schedule d) $76,000Rent payable. 64,000Dividends payable 6,000 $146,000Stockholders equity* 154,267Total li
32、abilities and stockholders equity. $300,267*February sales (.10 $280,000) plus March sales (.40 $152,000) = $88,800*Balance, December 31, 20X1 $102,800Add: Net income 57,467Total $160,267Less: Dividends paid 6,000Balance, March 31, 20X2 $154,267Copyright 2011 Pearson Education, Inc., Publishing as P
33、rentice Hall. 2817-1 Budgeting 1) provides an opportunity for managers to reevaluate existing activities and evaluate possible new activities, 2) compels managers to think ahead by formalizing their responsibilities for planning, 3) aids managers in communicating objectives to units and coordinating
34、 actions across the organization, and 4) provides benchmarks to evaluate subsequent performance.7-2 Budgeting is primarily attention directing because it helps managers to focus on operating or financial problems early enough for effective planning or action.7-3 Strategic planning covers no specific
35、 time period, is quite general, and often is not built around financial statements. Long-range planning usually has a 5- or 10-year horizon and consists of financial statements without much detail. Budgeting usually has a horizon of one year or less, and consists of financial statements with much de
36、tail.7-4 Continuous budgets add a month (or quarter) in the future as the month (or quarter) just ended is dropped. Therefore, the continuous budget provides a continually updated budget looking twelve months ahead. When the new month (or quarter) is added, the budget for the remainder of the curren
37、t year may also be revised. When companies revise the budgets for the remainder of the current year, they usually compare subsequent results to the original budget (a fixed target) in addition to comparing them to the latest revised budget.7-5 If the measures used to reward employees in the performa
38、nce evaluation system are not aligned with the goals of the company, the incentives from the evaluation system may lead employees to take actions that conflict with the interests of the company.7-6 Lower-level managers bias their forecasts to create budgetary slack or padding. Upper-level managers a
39、djust for this bias in creating a revised budget. Therefore, lower-level managers introduce additional bias to compensate for the adjustment that will be made by upper-level managers, and upper-level managers introduce additional adjustments for the additional bias. This cycle can quickly destroy th
40、e potential benefits of budgets.7-7 A manager may make short-run decisions to increase profits that are not in the companys best long-run interests, such as offering customers excessively favorable credit terms or cutting discretionary expenditures such as R&D and advertising, trading future sales f
41、or current profits. In the extreme, the manager might choose to falsely report inflated profits.7-8 First, by moving this years sales into next year or moving next years expenses into this year, the manager ensures a higher level of reported profit (and probably a higher bonus) next year. Second, by
42、 decreasing this years income, the manager avoids ratcheting up of performance expectations in setting the bonus target for the next year.7-9 Budgeted performance is better than past performance as a basis for judging current performance because the budget contains no hidden inefficiencies and can be founded on current rather than past economic conditions.
