Budget

Abudgetis a quantitative expression

of a plan for a defined period of time.
It may include planned sales volumes
and revenues, resource quantities,
costs and expenses, assets, liabilities
and cash flows.

Master Budget
Themaster budgetis the aggregation of all lowerlevelbudgetsproduced by a company's various
functional areas, and also includes budgeted financial
statements, a cash forecast, and a financing plan.
Advantages:
Idea about overall business budget
All the functional budgets are available in one report.
The functional budgets can be checked with cross
verification of information given in the master budget.
It gives an overall estimated profit of the organization.
It gives information relating to forecast balance sheet.

Master budget includes

Sales budget
Production budget(merchandise budget)
Direct materials budget
Direct labor budget
Moh budget
Inventory budget
Cash budget
Selling and admin budget

Sales Budget
Asales budgetis a plan of a
business'salesoutlook based on the
number of units it expects to produce
within a specifiedbudgetperiod

Sales Budget

Production Budget
Theproduction budgetcalculates
the number of units of products that
must be manufactured, and is
derived from a combination of the
sales forecast and the planned
amount of finished goods inventory
to have on hand

Production Budget

Direct Materials Budget

The direct materials budget calculates
the materials that must be
purchased, by time period, in order
to fulfill the requirements of the
production budget.

MOH Budget
The manufacturing overhead budget
contains all manufacturing costs
other than the costs of direct
materials and direct labor

Cash Budget
Acash budgetis an estimation of
thecashinflows and outflows for a
business over a specific period of
time, and thisbudgetis used to
assess whether the entity has
sufficientcashto operate.

Income Statement
An income statement is a financial
statement that reports a
company'sfinancial
performanceover a
specificaccounting period by giving
a summary of how the business
incurs itsrevenuesand expenses
through both operating and nonoperating activities.

Balance Sheet
It is a statement of the assets,
liabilities, and capital of a business or
other organization at a particular
point in time, detailing the balance of
income and expenditure over the
preceding period.

Problem 9-17
Hillyard Company, an office supplies specialty store, prepares its master
budget on a quarterly basis. The following data have been assembled to
assist in preparing the master budget for the first quarter.
a) As of December 31(the end of the prior quarter), the companys
balance sheet showed the following account balances:
Cash

$ 48,000

Accounts
Receivable

224,000

Inventory

60,000

Buildings and
Equipment
(net)

370,000

Accounts
Payable

$93,000

Capital Stock

500,000

Retained

109,000

b) Actual Sales for December and budgeted sales for the next four months
are as follows:
December (actual)

$280,000

January

$400,000

February

$600,000

March

$300,000

April

$200,000

c) Sales are 20% for cash and 80% on credit. All payments on credit sales
are collected in the month following sale. The accounts receivable at
December 31 are a result of December credit sales.

d) The company's gross margin is 40% of sales.

e) Monthly expenses are budgeted as follows: Salaries and wages, $27,000 per
month: advertising $70,000 per month: shipping, 5% of sales: other expenses,
3% of sales, Depreciation, including depreciation on new assets acquired during
the quarter, will be $ 42,000 for the quarter.
f) Each months ending inventory should equal 25% of the following months cost
of goods sold.
g) One half of a month Inventory purchases is paid for in the month of purchase:
the other half is paid in the following month
h) During February, the company will purchase a new copy machine for $ 1,700
cash. During March, other equipment will be purchased for cash at a cost of $
84,500.
i) During January, the company will declare and pay $45,000 in cash dividends.
j) The company must maintain a minimum cash balance of $30,000. An open line
of credit is available at a local bank for borrowing that may be needed during the
quarter. All borrowing is done at the beginning of a month and all repayments
are made at the end of a month. Borrowings and repayments of principles must
be in multiples of $ 1,000. interest is paid only at the time of payment of
principal. The annual interest rate is 12%.

Schedule of Expected Cash

Collection
January

February

March

Quarter

$80,000

$120000

$60000

$260000

Credit Sales, 224000

80%

120000

60000

1024000

Total Cash
Collections

$440000

$540000

$1284000

Cash
sales,20%

$304000

Merchandise Purchases
Budget
January

February

March

Quarter

Cost of
goods sold
(60% of
sales)

$240000

$360000

$180000

$780000

+ Desired
Ending
Inventory*

90,000

45,000

30000

30,000

Total Needs

330000

405000

210000

810000

- Beginning
Inventory

60,000

90,000

45,000

60,000

Required
Purchases

270000

315000

165000

750000

25% of following months cost of goods sold

and in March-

Cash Disbursement for

purchase
January
December
purchase

93000

January
Purchase

135000

February
Purchase

February

157500

228000

Quarter

135000

March
Purchase
Total cash
disburseme
nt for
purchase

March

292500

157500
82500

82500

240000

760500

Cash Disbursement for selling and

administrative expense
January

February

March

Quarter

Salaries and
wages

27000

27000

27000

81000

Advertising

70000

70000

70000

21000

Shipping 5% 20,000
of sales

30,000

15,000

65,000

Other
expenses,
3% of sales

12,000

18,000

9,000

39000

Total

129000

145000

121000

395000

 Cash Budget

January

February

March

Quarter

Cash
Balance,
beginning

48000

30000

30800

48000

+ Cash
Collections

304000

440000

540000

1284000

Total Cash
Available
-Cash
disburseme
nts

352000
January

470000
February

570800
March

1332000
Quarter

Inventory
purchases

228000

292500

240000

760500

Selling and
administrativ
e expenses

129000

145000

121000

395000

Equipment
Purchases

1700

84500

86200

Cash
dividends

45000

45000

439200

445500

1286700

Total cash
402000
disbursement

Cash Budget contd.

Financing

January

February

March

Quarter

Borrowings

80000

80000

Repayments

(80000)

(80000)

Interest(80,0
00*1%*3)

(2400)

(2400)

Total
Financing

80000

(82400)

(2400)

Cash
Balance,endi
ng

30000

30800

42900

42900

Income Statement
Sales

1300000

Cost of Goods sold:

Beginning Inventory

60000

Purchases

750000

Goods Available for

sale

810000

Ending Inventory

30000

Gross Margin

780000
520000

Income Statement
Selling and
administrative
expense

1300000

Salaries and wages

81000

Advertising

210000

Shipping

65000

Depreciation

42000

Other expenses

39000

437000

Net Operating Income

83000

Interest Expense

24000

Net Income

80600

Balance Sheet: Assets

Current assets
Cash
Accounts receivable

42,900
80% of 300000

240000

Inventory

30,000

Total Current Assets

312900

Buildings and
equipment
Total assets

370,000+8620042000

414200
727100

Balance Sheet: liabilities

and equity
Current Liabilities:
Accounts payable

50% of 165000

82500

Stockholdes equity:
Capital Stock

500,000

Retained earnings:
beginning

109000

+ net income

80,600

total

189600

- Cash dividends

45000

Retained earnings
ending

144600

Total liabilities and

equity

644600
727100