BUDGETING

Cost Accounting 14th

Edition.
By: Carter

P R E PA R E D B Y:

D R . M O H A M A D TO H A
BUDGETING

➢ BUDGETING IN BUSINESS IS A PROCESS OF LOOKING AT A BUSINESS’

ESTIMATED INCOMES (THE MONEY THAT COMES INTO THE BUSINESS FROM
SELLING PRODUCTS AND SERVICES) AND EXPENDITURES (THE MONEY THAT
GOES OUT FORM PAYING EXPENSES AND BILLS) OVER A SPECIFIC PERIOD IN
THE FUTURE.

➢ IT ALLOWS A BUSINESS TO SEE IF THEY WILL BE ABLE TO CONTINUE

OPERATING AT THEIR EXPECTED LEVEL WITH THESE PROJECTED INCOMES AND
EXPENDITURES.
LEARNING OBJECTIVES

PREPARE A COMPLETE
OPERATING BUDGET,
DISTINGUISH BETWEEN LIST THE FUNDAMENTAL INCLUDING BUDGETED
DEFINE PROFIT PLANNING LONG-TERM PLANNING AND PRICIPLES OF BUDGET FINANCIAL STATEMENTS
SHORT-TERM PLANNING MANAGEMENT AND BUDGET SCHEDULES
FOR SALES, AND
COMMERCIAL EXPENCES
DEFINE PROFIT PLANNING
PROFIT PLANNING
THE DEVELOPMENT OF OPERATIONAL PLAN TO ACHIEVE COMPANY’S
GOALS AND OBJECTIVES

IT CONSISTS OF DETAIL OPERATING BUDGET AND BUDGET FINANCIAL STATEMENT

SETTING PROFIT OBJECTIVES
APRIORI METHOD (NOT •PROFIT OBJECTIVE DOMINATE PLANNING. SET THE
BASED ON EXPERIENCE) PROFIT FIRST (USE ASSUMPTION).

•PROFIT OBJECTIVES ARE SUBORDINATE TO PLANNING

POSTERIORI AND ARE IDENTIFIED AS A RESULT OF PLANNING
(CALCULATION BASED ON EXPERIENCE).

•MANAGEMENT USES A PROFIT STANDARD THAT HAS

PRAGMATIC METHOD BEEN TESTED AND SANCTIONED BY EXPERIENCES
IN SETTING PROFIT OBJECTIVES

CONSIDER VOLUME OF SALES

BREAK EVENT POINT
SALES VOLUME VS. CAPACITY
ROCE (RETURN ON CAPITAL EMPLOYED)
LONG-TERM PLANNING VS. SHORT-TERM
PLANNING

LONG-TERM
PLANNING SHORT-TERM
PLANNING

SALES ESTIMATION FOR 3-5 YEARS, AS STARTING

POINT TO PLAN THE PROFIT AND ALL COST.
3,4,6 TO 12 MONTHS
LONG-TERM PLANNING
➢ 3-5 YEARS PLAN; TO PREPARE THE FUTURE, SOME PREPARATIONS NEED TIME MORE THEN
ONE YEAR.

➢ GUIDANCE FOR SHORT-TERM PLANNING.

➢ HOW TO SET:
➢ DEFINE YOUR VISION
➢ SET SMART GOALS
➢ BREAK DOWN YOUR GOALS INTO SMALLER ONES
➢ PRIORITIZE
➢ KEEP UPDATING YOUR LIST
SHORT-TERM PLANNING

➢ 3,4,5 OR 12 MONTHS

➢ BASED ON LONG-TERM PLAN AND THE REAL SITUATION THAT THE COMPANY FACE.

➢ HOW TO SET:
➢ SALES BUDGET
➢ PRODUCTION BUDGET
➢ PURCHASE BUDGET
➢ MARKETING BUDGET
➢ ADMINISTRATIVE BUDGET
LIST THE FUNDAMENTAL PRICIPLES OF
BUDGET MANAGEMENT
PRINCIPLE OF BUDGETING
1. PREPARATION OF A BUDGET FORCES TOP MANAGEMENT TO SET LONG-TERM GOALS.

2. A BUDGET’S SUCCESS OR FAILURE IS MAINLY DETERMINED BY HOW WELL THE HUMAN ASPECTS OF THE
PROCESS ARE HANDLED.

3. BUDGET SHOULD ALWAYS BE TREATED AS GUIDES—NOT AS ABSOLUTE TRUTHS.

4. BUDGETS ARE PREPARED ALMOST A YEAR IN ADVANCE AND A TIMETABLE WITH DEADLINES IS ALSO SET FOR ALL
LEVELS AND PARTS OF THE YEAR’S OPERATING PLANS.

5. BUDGETARY CONTROL AND PLANNING WORK HAND-IN-HAND IN ANY GOOD MANAGEMENT SYSTEM.. IF PLANNING
IS UNSATISFACTORY, THE PLAN SHOULD BE CORRECTED; IF THE PLAN IS SATISFACTORY BUT PERFORMANCE CAN
BE IMPROVED, STEPS ARE TAKEN TO BRING FUTURE PERFORMANCE IN LINE WITH THE PLAN.

IT IS REQUIRED: BUDGET COMMITTEE, BUDGET DEVELOPMENT AND IMPLEMENTATION, BUDGET AND HUMAN
BEHAVIOR
PREPARE A COMPLETE OPERATING BUDGET, INCLUDING
BUDGETED FINANCIAL STATEMENTS AND BUDGET SCHEDULES
FOR SALES, AND COMMERCIAL EXPENCES
PLANNING AND BUDGETING PROCESS

SALES BUDGET

PRODUCTION BUDGET

MARKETING BUDGET

ADMINISTRATIVE BUDGETS

PROFIT PLANNING BUDGET

Assume Data!
DATA: SALES FORECAST & MATERIALS

SALES FORECAST
SALES
PRODUCT WEST SALES PRICE
EAST (UNITS)
(UNITS) (PER-UNIT)
A 4,000 3,000 200
B 6,000 5,000 150
C 9,000 6,000 100
DATA: INVENTORY

BEGINNING INVENTORY UNITS

PRODUCT ENDDING
UNIT UNIT COST INVENTORY
A 200 140 250
B 400 95 200
C 500 75 400
DATA: MATERIAL REQUIREMENT AND LABOR
HOUR

MATERIAL REQUIREMENTST
MATERIALS
PRODUCT
X Y Z
A 12 5 2
B 8 3 1
C 6 2 1
MAT UNIT COST 1.00 14.00 2.50
DATA: MANUFACTURING OVERHEAD (MOH)
CUTTING DEPARTMENT ASSEMBLY DEPARTMENT FINISHING DEPARTMENT
VARIABLE
VARIABLE VARIABLE
DESCRIPTION FIXED COST RATE PER FIXED COST FIXED COST
RATE PER RATE PER
ESTIMATED MACHINE ESTIMATE ESTIMATE
LABOR HOUR LABOR HOUR
HOURS
Indirect Materials and Supplies 5,957.00 0.35 9,949.00 0.50 6,185.00 0.20
Indirect Labor 25,000.00 0.50 25,000.00 0.20 22,000.00 1.00
Payroll Taxes 13,030.00 0.05 67,800.00 0.02 56,585.00 0.10
Employee Fringe Benefits 14,333.00 74,580.00 62,244.00
Equipment Depreciation 5,000.00 2,000.00
Small Tools 2,500.00 0.25
Repair and Maintenance 2,000.00 0.10 1,500.00 0.10 1,500.00 0.10
Allocated Building Cost 1,000.00 1,000.00 1,000.00
Allocated General Factory Cost 6,000.00 9,000.00 7,500.00

Estimated Cutting Department Machine Time Required for Each Unit of Product
product A Product B Product C
Machine Time in Hours 0.80 0.60 0.40

Commercial Expenses and Tax

Marketing Expenses 356,790.00
Administrative Expenses 290,000.00
Income Tax Rate 40%
 SALES BUDGET

PRODUCTION BUDGET

Develop MARKETING BUDGET

Budget! ADMINISTRATIVE BUDGETS

PROFIT PLANNING BUDGET

SALES BUDGET
Territories
East West Total
Product A
Unit 4,000.00 3,000.00 7,000.00
Unit Price 200.00 200.00 200.00
Total 800,000.00 600,000.00 1,400,000.00

Product B
Unit 6,000.00 5,000.00 11,000.00
Unit Price 150.00 150.00 150.00
Total 900,000.00 750,000.00 1,650,000.00

Product C
Unit 9,000.00 6,000.00 15,000.00
Unit Price 100.00 100.00 100.00
Total 900,000.00 600,000.00 1,500,000.00

TOTAL 4,550,000.00
CASE-1 SALES BUDGET
PT XYZ has two products i.e. Product-1 and Product-2. The unit basic price of Product-1 is IDR
2.000.000; basic unit price of Product-2 is IDR 3.500.000. the company plan so sell both
products in Jakarta, West Java, Middle of Java and East Java with the each quantity of Product 1 is
1.500.000, 1.000.000, 750.000, and 1.200.000 and for Product 2 is 1.o00.000, 1.100.000,
750.000, and 1.000.000 . Additional unit price for DKI Jakarta, West Java, Middle of Java and
East Java is IDR 300.000, IDR 200.000, IDR 600.000, and IDR 700.000.

Develop Sales Budget!

PRODUCTION PLAN
DIRECT MATERIALS REQUIREMENT
Description Direct Material
X Y Z
Product A
Units to be Manufactured 7,050.00 7,050.00 7,050.00
Materials Required per Unit 12.00 5.00 2.00
Units of Material Required 84,600.00 35,250.00 14,100.00

Product B
Units to be Manufactured 10,800.00 10,800.00 10,800.00
Materials Required per Unit 8.00 3.00 1.00
Units of Material Required 86,400.00 32,400.00 10,800.00

Product C
Units to be Manufactured 14,900.00 14,900.00 14,900.00
Materials Required per Unit 6.00 2.00 1.00
Units of Material Required 89,400.00 29,800.00 14,900.00

TOTAL 260,400.00 97,450.00 39,800.00

PURCHASES BUDGET
Territories
DESCRIPTION TOTAL
Material X Material Y Material Z
Unit Required for Production (Sch-3) 260,400.00 97,450.00 39,800.00
Add Desired Ending Inventory 40,000.00 12,000.00 2,500.00
Quantity Required 300,400.00 109,450.00 42,300.00
Less Beginning Inventory 30,000.00 10,000.00 2,000.00
Unit to be Purchased 270,400.00 99,450.00 40,300.00
Unit Cost 1.00 14.00 2.50
Total Cost of Purchase 270,400.00 1,392,300.00 100,750.00 1,763,450.00
DIRECT MATERIAL BUDGET
Direct Material
Description Total
X Y Z
Product A
Units Materials Required 84,600.00 35,250.00 14,100.00
Unit Cost 1.00 14.00 2.50
Total Cost 84,600.00 493,500.00 35,250.00 613,350.00

Product B
Units Materials Required 86,400.00 32,400.00 10,800.00
Unit Cost 1.00 14.00 2.50
Total Cost 86,400.00 453,600.00 27,000.00 567,000.00

Product C
Units Materials Required 89,400.00 29,800.00 14,900.00
Unit Cost 1.00 14.00 2.50
Total Cost 89,400.00 417,200.00 37,250.00 543,850.00

Total Cost of Material Req'd 260,400.00 1,364,300.00 99,500.00 1,724,200.00

DIRECT LABOR BUDGET
Direct Labor
Description Total
A B C
Cutting Department
Units to be Manufactured (Scd 2) 7,050.00 10,800.00 14,900.00
Hours Req't Per Unit 0.50 0.38 0.38
Total Hour Req't 3,525.00 4,050.00 5,587.50
Departemental Labor Rate 8.00 8.00 8.00
Total Dep'l Labor Rate 28,200.00 32,400.00 44,700.00 105,300.00

Assembling Department
Units to be Manufactured (Scd 2) 7,050.00 10,800.00 14,900.00
Hours Req't Per Unit 2.50 2.00 1.75
Total Hour Req't 17,625.00 21,600.00 26,075.00
Departemental Labor Rate 10.00 10.00 10.00
Total Dep'l Labor Rate 176,250.00 216,000.00 260,750.00 653,000.00

Finishing Department
Units to be Manufactured (Scd 2) 7,050.00 10,800.00 14,900.00
Hours Req't Per Unit 0.80 0.50 0.50
Total Hour Req't 5,640.00 5,400.00 7,450.00
Departemental Labor Rate 9.00 9.00 9.00
Total Dep'l Labor Rate 50,760.00 48,600.00 67,050.00 166,410.00

TOTAL 255,210.00 297,000.00 372,500.00 924,710.00

 CUTTING DEPARTMENT MACHINE HOUR
BUDGET
Machine Hours
Description Total
A B C
Cutting Department
Units to be Manufactured (Scd 2) 7,050.00 10,800.00 14,900.00
Hours of Machine Time Req't Per Unit 0.80 0.60 0.40
Total Machine Hour Req't 5,640.00 6,480.00 5,960.00 18,080.00
OVERHEAD BUDGET
VARIABLE RATE PER
DESCRIPTION FIXED COST ESTIMATED BUDGETED ACTIVITY VARIABLE COST TOTAL
MACHINE HOURS

Cutting Department
Indirect Materials and Supplies 5,957.00 0.35 18,080.00 6,328.00 12,285.00
Indirect Labor 25,000.00 0.50 18,080.00 9,040.00 34,040.00
Payroll Taxes 13,030.00 0.05 18,080.00 904.00 13,934.00
Employee Fringe Benefits 14,333.00 14,333.00
Equipment Depreciation 5,000.00 5,000.00
Small Tools 0.00
Repair and Maintenance 2,000.00 0.10 18,080.00 1,808.00 3,808.00
Allocated Building Cost 1,000.00 1,000.00
Allocated General Factory Cost 6,000.00 6,000.00
Total Dept Overhead ………………………………………………………………………………………………………………………………………………. 90,400.00
Budgeted Overhead Allocation Base ……………………………………………………………………………………………………………………… 18,080.00
Departemental Predetermined Factory Overhead Rate ………………………………………………………………………………………….. 5.00

Assembling Department
Indirect Materials and Supplies 9,949.00 0.50 65,300.00 32,650.00 42,599.00
Indirect Labor 25,000.00 0.20 65,300.00 13,060.00 38,060.00
Payroll Taxes 67,800.00 0.02 65,300.00 1,306.00 69,106.00
Employee Fringe Benefits 74,580.00 74,580.00
Equipment Depreciation 0.00
Small Tools 2,500.00 0.25 65,300.00 16,325.00 18,825.00
Repair and Maintenance 1,500.00 0.10 65,300.00 6,530.00 8,030.00
Allocated Building Cost 1,000.00 1,000.00
Allocated General Factory Cost 9,000.00 9,000.00
Total Dept Overhead ………………………………………………………………………………………………………………………………………………. 261,200.00
Budgeted Overhead Allocation Base ……………………………………………………………………………………………………………………… 65,300.00
Departemental Predetermined Factory Overhead Rate ………………………………………………………………………………………….. 4.00

Finishing Department
Indirect Materials and Supplies 6,185.00 0.20 18,490.00 3,698.00 9,883.00
Indirect Labor 22,000.00 1.00 18,490.00 18,490.00 40,490.00
Payroll Taxes 56,585.00 0.10 18,490.00 1,849.00 58,434.00
Employee Fringe Benefits 62,244.00 62,244.00
Equipment Depreciation 2,000.00 2,000.00
Small Tools 18,490.00 0.00 0.00
Repair and Maintenance 1,500.00 0.10 18,490.00 1,849.00 3,349.00
Allocated Building Cost 1,000.00 1,000.00
Allocated General Factory Cost 7,500.00 7,500.00
Total Dept Overhead ………………………………………………………………………………………………………………………………………………. 184,900.00
Budgeted Overhead Allocation Base ……………………………………………………………………………………………………………………… 18,490.00
Departemental Predetermined Factory Overhead Rate ………………………………………………………………………………………….. 10.00

Total Budget 536,500.00

UNIT PRODUCT COST BUDGET
Prod A Input Input Unit Cost per Prod B Input Input Unit Cost per Prod C Input Input Unit Cost per
Description
Quantity Cost Unit Prod A Quantity Cost Unit Prod B Quantity Cost Unit Prod C
Materials
X 12 1.00 12.00 8 1.00 8.00 6 1.00 6.00
Y 5 14.00 70.00 3 14.00 42.00 2 14.00 28.00
Z 2 2.50 5.00 1 2.50 2.50 1 2.50 2.50
Total 87.00 52.50 36.50

Direct Labor
Cutting Dept 0.5 8.00 4.00 0.375 8.00 3.00 0.375 8.00 3.00
Assembl Dept 2.5 10.00 25.00 2 10.00 20.00 1.75 10.00 17.50
Finishing Dept 0.8 9.00 7.20 0.5 9.00 4.50 0.5 9.00 4.50
Total 36.20 27.50 25.00

Applied Overhead
Cutting Dept 0.8 5.00 4.00 0.6 5.00 3.00 0.4 5.00 2.00
Assembl Dept 2.5 4.00 10.00 2 4.00 8.00 1.75 4.00 7.00
Finishing Dept 0.8 10.00 8.00 0.5 10.00 5.00 0.5 10.00 5.00
Total 22.00 16.00 14.00
Total Cost petr Unit 145.20 96.00 75.50
BEGINNING AND ENDING INVENTORY
Beginning Inventory Ending Inventory
Description
Units Cost Total Units Cost Total
Materials
X 30,000 1.00 30,000.00 40,000 1.00 40,000.00
Y 10,000 14.00 140,000.00 12,000 14.00 168,000.00
Z 2,000 2.50 5,000.00 2,500 2.50 6,250.00
Total 175,000.00 214,250.00

WIP None
Finished Goods
A 200 140.00 28,000.00 250 145.20 36,300.00
B 400 95.00 38,000.00 200 96.00 19,200.00
C 500 75.00 37,500.00 400 75.50 30,200.00
Total 103,500.00 85,700.00

Total Cost petr Unit 278,500.00 299,950.00

COST OF GOODS SOLD
DESCRIPTION $
MATERIALS
BEGINNING INVENTORY 175,000.00
ADD PURCHASES 1,763,450.00
TOTAL MATERIAL AVAILABLE FOR USE 1,938,450.00
LESS ENDING INVENTORY 214,250.00
COST OF MATERIALS USED 1,724,200.00

DIRECT LABOR 924,710.00

FACTORY OVERHEAD 536,500.00
TOTAL M,ANUFACTUIRING COST 3,185,410.00
ADD BEGINNING FINISHED GOODS INVENTORY 103,500.00
COST OF GOODS AVAILABLE FOR SALES 3,288,910.00
LESS ENDING FINISHED GOODS INVENTORY 85,700.00
COST OF GOODS SOLD 3,203,210.00
Marketing Expenses Budget

No Description Budget
1 Advertising 107.037
2 Internet and Communication 35.679
3 Staffs 178.395
5 Others 35.679
356.790
Administrative Expenses
Budget
No Description Budget
1 General Management and Staff 116.000
2 Internet and Communication 29.000
3 Depreciation 87.000
5 Others 58.000
290.000
INCOME STATEMENT
DESCRIPTION $ $
SALES 4,550,000.00
COST OF GOODS SOLD 3,203,210.00
GROSS PROFIT 1,346,790.00
COMMERCIAL EXPENSES
MARKETING EXPENSES 356,790.00
ADMINISTRATOIVE EXPENSES 290,000.00 646,790.00
INCOME BEFORE TAX 700,000.00
LESS PROVISION INCOME TAXX 40% 280,000.00
NET OINCOME 420,000.00
BUDGETED BALANCE SHEET
DESCRIPTION $ $
ASSETS
CASH 245,750.00
ACCOUNTS RECEIVABLE 370,260.00
LESS ALLOWENCE FOR DOUBFUL ACCVOUNTS 7,400.00 362,860.00
INVENTORIES
FINISHES GOODS 85,700.00
MATERIALS 214,250.00 299,950.00
PLANT AND EQUIPMENT 2,604,740.00
LESS ACCUMULATED DEPRECIATION 418,610.00 2,186,130.00
OTHER ASSETS 105,310.00
TOTAL ASSETS 3,200,000.00

LIABILITY
CURRENT LIABILITIES 327,900.00
LONG-TERM DEBT 850,000.00
COMMON STOCK 1,000,000.00
RETAIN EARNINGS 1,022,100.00
OTHER ASSETS 3,200,000.00