Management Accounting: Costing and Budgeting Cost Information Analysis Prepared for: Lecturer, Mr Jun Alejo Bathan Unit 9: Management Accounting: Costing and Budgeting Banking Academy, Hanoi BTEC HND in Business (Finance) Prepared by: Maple Group Vương Thị Quỳnh Anh - Lynn Ngô Thị Huyền Trang - Jess Nguyễn Phương Thảo - Key Nguyễn Thị Kiều Anh - Snow Submitted: 14/06/201 TABLE OF CONTENTS EXECUTIVE SUMMARY INTRODUCTION TASK 1: BUDGETING Task 1a: Budgeting process 1a.1 The purpose of the budgeting process 1a.2 The nature of budgeting process 1a.3 Budget of Healthful food, Inc 11 1a.4 Select appropriate budgeting method for the organization and its need 13 Task 1b: Prepare budgets 16 TASK 2: CASH BUDGET 25 2.1 Definition 25 2.2 Prepare cash budget for Eye Care Company 25 TASK 3: STANDARD COSTING AND VARIANCE ANALYSIS 27 Task 3a: Computation all the variances, prepare an operating statement for the management and explain about the possible causes of the variances 27 3a.1 Calculation variances 27 3a Operating statement 29 3a.3 Explanation about the possible causes of the variances with identified responsibility centres 31 Task 3b: Preparing performance report 33 3b.1 Definition 33 3b.2 Preparation a revised performance report for Branson Manufacturing, Inc 34 CONCLUSION 36 REFERENCES 36 EXECUTIVE SUMMARY In this assignment we explain the purpose and nature of the budgeting process, select appropriate budgeting methods for the organization and its need, prepare budget according to the chosen budgeting method, prepare a case budget, calculate variances, identify possible causes and recommend corrective action base on the outcomes in scenario was send from teacher The assignment is divided into main tasks based on outcomes of scenario  Task Outcome 3.1: Explain the purpose and nature of the budgeting process Outcome 3.2: Select appropriate budgeting methods for the organization and its needs Outcome 3.3: Prepare budgets according to the chosen budgeting method  Task Outcome 3.4: Prepare a cash budget  Task Outcome 4.1: Calculate variances identify possible causes and recommendation corrective action Outcome 4.2: Prepare an operating statement reconciling budgeted and actual result Outcome 4.3: Report findings to management in accordance with identified responsibility centers However, because of limitations about words, this report only gives general information about understanding costing and budget The researcher hopes that those disadvantages will be improved in the future Thanks to teacher Jun Pyo and his lectures help us to complete the assignment successfully INTRODUCTION This assignment we are talking about costing and budgeting so we will explain the purpose and nature of the budgeting process, select appropriate budgeting methods for the organization and its needs, prepare budgets according to the chosen budgeting method, calculate variances, identify possible causes and recommend corrective action, prepare an operating statement reconciling budgeted and actual results by applying new techniques were invented to present the accounts periodically, not necessarily at the end of the year, before the management From which, we can have plan to deal with budgetary and control, preparing forecasts and budgets and then comparing them to the actual results So we can improve our skill, we known how to work with numbers in accounting, how to calculated costing and budgeting TASK 1: BUDGETING Task 1a: Budgeting process 1a.1 The purpose of the budgeting process First of all, we need to understanding the word “budget”, according to American Heritage Dictionary; budgeting is a critically important part of the business planning process Business owners and managers need to be able to predict whether a business will make a profit or not A budget is basically a model of how the business might perform, financially speaking, if certain strategies, events, plans are carried out (Isaac, n.d.) Purposes/Benefits Explanation To ensure the achievement To draw up as targets to be achieved within the timescale of the of the organization’s budget plan objectives To compel planning  Planning process: Identify objectives To assess effectiveness of plans To give decision to flow the plan or not  Planning: Evaluate each strategy and Choose alternative courses of action To communicate ideas and To ensure that each person affected by the plans is aware of plans what he or she is supposed to be doing Communication might be one-way, with managers giving orders to subordinates, or there might be a two-way dialogue  Control: Measure actual results and compare with the plan Manage subordinates, motivate them execute the plan in order to maintain actual results same or better than expected result Co-ordinate activities To ensure maximum integration of effort towards common goals of the activities of different departments need to be coordinated  Planning: Identify alternative courses of action (strategies) which might contribute towards achieving the objects To provides a framework for Require: managers of budget center have to control under their responsibility accounting personal control achieve budget target  Control: Support manage control subordinate To establish a system of To control over actual performance is provided by the control comparisons of actual results against the budget plan To investigate departures from budget The reasons for the departures can be found and acted upon  Control: employees who join in execution of budget Motivate employees to The interest and commitment of employers can be retained if improve their performance there is a system which lets them know how well or badly they are performing The identification of controllable reasons for departures from budget with managers responsible provides an incentive for improving future performance  Control: Respond to divergences from plan Table 1: Purpose and benefit of budgeting process 1a.2 The nature of budgeting process Planning and control are important processes which contribute a lot to the success of a company Planning involves establishing a basic strategy, selecting a course of action, and specifying how the action will be implemented Control helps to ensure that the plan is actually carried out and is appropriately modified as circumstances change The overall planning and control process is summarized in the chart follows: Step 1: Identify objectives The objective of Healthful food Inc is increase sales by 12% per year, increase income before tax by 15% per year, and maintain long – term debt at a maximum of 16% of assets Budget is the most possible way to help the company achieve this because a budget assists you in striving toward financial goals Clearly seen the objectives will help Healthful Foods Inc maximize profits Although maximizing their profits is not always as easy as maximizing sales which lead to be successful From which, it can motivate their employees Step 2: Identify potential strategies In this step, budget is made to set out specific targets for each strategy Understanding the benefits of using a potential strategy will help business owners and managers of Healthful Foods Inc can appreciate the value of the invested time and money into a comprehensive plan because errors and inaccuracies will always remain since it is impossible to predict the future Major external events such as rising energy prices or the global recession may distort the whole process Step 3: Evaluate strategies Strategic evaluation is a way for entrepreneur to assess the ability and effective productivity of their firm and their future endeavors Base on terms of suitability, feasibility and acceptability in the context of strategic analysis, the Managing Director of Healthful Foods Inc can evaluate and then choose the greatest potential strategies that can help the company to achieve the objective quickly and effectively Step 4: Choose alternative courses of action After evaluating clearly, it can help increase the confidence of investors so Healthful Foods Inc with greater access to capital, which makes it easier to grow and expand operations When Healthful Foods Inc develops effective strategies, they gain a competitive advantage over their counterparts, which means greater success in the long run Step 5: Implement the long-term plan Chosen strategies together and co-ordinate them into a long- term plan so Healthful Foods Inc can anticipate roadblocks, so be useful for their managers to make decision easily, quickly and correctly In addition, it helps investors see clearly the efficiency of the firm so that they can know what to and should invest or not 10 Step and 7: Measure actual results and compare with plan Respond to divergences from plan Particularly, when we have long- term plan we can comparing actual results with plans that set out so we can know how many percentage of the plan that has been done and hence we know how much work to so from which we can balance the performance of the work effectively include money and human resources in the best way Finally, evaluating the actual results and comparison with the plan, its helps the company realizes what the activity is inconsistent from which to set out plans to resolve the problem and avoid wasting time and human resources 1a.3 Budget of Healthful food, Inc a Meet or not meet objective of company Objective 1: Increase sales by 12% per year Increase sales = × 100% = × 100% = 11.5%  Not meet objective Objective 2: Increase income before tax by 15% per year Increase income before tax = = × 100% × 100% = 15%  Meet objective Objective 3: Maintain long – term debt at a maximum of 16% of assets Percentage of long – term debt = × 100% = × 100% = 15%  Meet objective 11 Objective 4: Maintaining cost of goods sold at maximum of 70% of sales Maintaining cost of goods sold = × 100% = × 100% = 60.64%  Meet objective With this budget, company meet objective and objective is nearly with the number that company gave for accountant (the objective of company is 12% increase sales and according to budget, sales increase 11.5% when compared with sales value of previous year) In summary, this budget is seem to meet all the objective of company in year 20x2 b The influence of behavior of John Winslow – cost accountant of Healthful Foods Inc To have a budget that can meet the objective of company, Wilson did two activities and it make slack in accounting First, he overestimates the ending inventory This activity can make increase the ending inventory of company from that, make decrease cost of goods sold as a result, it make increase income before tax of company.This activity gives wrong information for director of company and makes a gap in accounting system of company As a result, Director cannot see the right problem that company have and hardly give right solution to deal it Second, he move reclassify fruit and gain inspection cost from manufacturing cost to administrative cost His activity make decrease manufacturing cost so can make decrease inventory and cost of goods sold of company It influences income of company and make manager of company not have right information about the actual situation of company because of that company’ manager cannot find solution to help company deal its problem 12 1a.4 Select appropriate budgeting method for the organization and its need a Fixed and flexible method Advantage Disadvantage - Allowing a business to measure - Preparing fixed budgets based on both short-term and long-term one activity level may not give an budgets Fixed budget indication of what may happen if - Allocating a set amount of money actual sales and production differ towards essentials such as overhead from expected levels cost - Fixed budgets will often fail to - Making profit measurement easier, provide a realistic target against since you allocate the same amount which performance can be judged of money toward necessities on a Certain costs production regular basis (Miriam, n.d.) will vary with - Improved performance evaluation, - Not allowing the manager to insert this allows the company to evaluate set figures, prediction is difficult the manager performance more fairly - Too many variables, when one Flexible budget - Useful variance analysis, a flexible variable in a flexible budget is budget considers cost increases due subject to change, other variables in to increased activity levels, the budget can also change, too eliminating the impact - Complicated because flexible budget require the prepares to insert a range of estimates Table 2: Comparison between fixed and flexible method 13 Ending inventory budget for finished goods Truong Hai Tire Company Ending Inventory Budget For Finished Good For the year 2013 Passenger Truck Total Budgeted cost of direct materials to be used Steel belts 607,500 360,000 2,700,000 1,800,000 Budgeted Direct labor cost 285,862.5 168,075 Budget manufacturing overhead 434,092.5 256,695 Total budgeted manufacturing cost 4,027,455 2,584,770 Good production in unit 117,990 27,360 Budgeted cost per unit 34.1 94.5 6,590 2,360 224,719 223,020 Rubber Budgeted ending Finished goods, in unit Budgeted cost of ending Finished goods 6,612,225 447,739 Budgeted cost per unit =  Passenger = Truck = = $34.1 = $94.5 Budgeted cost of ending Finished goods = Budgeted cost per unit × Budgeted ending Finished goods, in unit  Passenger = 34.1 x 6,590 = $224,719 Truck = 94.5 x 2,360 = $223,020 22 Budget cost of goods sold Truong Hai Tire Company Cost Of Goods Sold Budget For the year 2013 Beginning Finished goods inventory Total budgeted manufacturing cost Cost of good available for sale Less: Budgeted ending Finished goods inventory Budgeted cost of goods sold Passenger 175,000 Truck 240,000 Total 415,000 6,612,225 7,027,225 447,739 6,579,486 Beginning FG inventory = Beginning inventory × Cost per unit  Passenger = 2,000 × 120 = $240,000 Truck = 5,000 × 35 = $175,000 Cost of good available for sale = Beginning Finished good inventory + Total budgeted manufacturing cost = 415,000 + 6,612,225 = $7,027,225 Budget cost of goods sold = Cost available for sales - Budgeted ending Finished goods inventory = 7,027,225– 447,739 = $6,579,486 23 Budget income statement Truong Hai Tire Company Budget Income Statement For the year 2013 $ Sales 12,966,000 Cost of goods sold 6,579,486 Gross profit 6,386,514 Operating cost Advertising expense 942,000 Office rent expense 123,000 Office salaries expense 821,000 Office supplies expense 45,500 Officers' salaries expense 661,000 Sales salaries expense 868,000 Telephone and fax expense Travel expense 33,500 443,000 Total operating cost 3,937,000 Net income 2,449,514 Gross profit = Sales – Cost of goods sold = 12,966,000 - 6,579,486 = $6,386,514 Net income = Gross profit – Operating cost = 6,386,514 - 3,937,000 = $2,449,514 24 TASK 2: CASH BUDGET 2.1 Definition Cash budget is the financial plan that is a summary of estimated receipts (cash inflows) and payments (cash outflows) over a stated period Two common methods of cash-budgeting are adjusted net income approach and Cash receipts and disbursements approach (BusinessDictinary, n.d.) 2.2 Prepare cash budget for Eye Care Company a Cash budget of Eye Care Company Eye Care Company CASH BUDGET For the third quarter of 20XX July ($) August ($) September ($) 3rd quarter ($) 342,000 369,000 964,500 RECEIPTS Sales 253,500 May 10,000 10,000 June 156,000 12,000 July 87,500 227,500 17,500 332,500 102,500 266,500 369,000 85,000 85,000 August September Loan 168,000 30,000 30,000 283,500 342,000 369,000 994,500 157,500 210,000 246,000 613,500 Salaries and wages 29,000 30,000 30,000 89,000 Advertising 78,000 91,000 67,000 236,000 7,000 7,000 7,000 21,000 PAYMENT Merchandise purchase Rent payment Equipment purchase 47,000 47,000 Interest Loan payment 900 900 30,000 30,000 318,500 338,000 380,900 1,037,400 Surplus/ Deficit -35,000 4,000 -11,900 -42,900 Opening balance 46,000 11,000 15,000 46,000 Closing balance 11,000 15,000 3,100 3,100 25  Sales According to scenario, 25% of a month’s sales are collected in the month of sale, 65% in the month following sale, and 5% in the second month following sale As a result, the sales that company will receipt in July, August and September as follow: In July: 5% sales in May = 200,000 × 5% = $10,000 65% sales in June = 240,000 × 65% = $156,000 25% sales in July = 350,000 × 25% = $87,500  Total sales that receipt in July = 10,000 + 156,000 + 87,500 = $253,500 In August: 5% sales in June = 240,000 × 5% = $12,000 65% sales in July = 350,000 × 65% = $227,500 25% sales in August = 410,000 × 25% = $102,500  Total sales that receipt in July = 12,000 + 227,500 + 102,500 = $342,000 In September: 5% sales in July = 350,000 x 5% = $17,500 65% sales in August = 410,000 x 65% = $166,500 25% sales in September = 340,000 x 25% = $85,000  Total sales that receipt in July = 17,500 + 166,500 + 85,000 = $369,000  Merchandise purchases Merchandise purchases are paid in full during the month following purchase so: In July, company has to pay merchandise purchases in June: $157,500 In August, company has to pay merchandise purchases in July: $210,000 In September, company has to pay merchandise purchases in August: $246,000 b The plan repaid loan If company need a minimum cash balance of $10,000 to start each month, company can pay loan as planned (pay $30,000 in September) Instead of that, company can pay 50% of loan in September and 50% in after months This activity can ensure the minimum such balance of $10,000 to start each month for Eye Care Company 26 TASK 3: STANDARD COSTING AND VARIANCE ANALYSIS Task 3a: Computation all the variances, prepare an operating statement for the management and explain about the possible causes of the variances 3a.1 Calculation variances a Material variance According to scenario: Standard cost: Direct material (1 petrie dish @ $2 per dish): $2.00  Standard price (SP) = $2.00 Standard quantity (SQ) = 2,500 Actual cost: Direct materials (2,530 dishes): $5,313  Actual quantity (AQ) = 2,530 Actual price (AP) = = 2.1 Material price variance (AQ × AP) (2,530 × 2.1) $5,313 - (AQ × SP) (2,530 × $2.00) $5,060 = $253 (A) = $60 (A) Material price variance = $253 (U) Material quantity variance (AQ × SP) (2,530 × $2.00) $5,060  Material quantity variance = $60 (U) (SQ × SP) (2,500 × $2.00) $5,000 Material variance = Material price variance + Material quantity variance = $253 + $60 = $313 (U) b Labor Variance According to scenario Standard cost: Direct labor (0,5 hours @ $20 per hour) : 10.00  Standard rate (SR) = $20 Standard hour (SH) = 2,500 × 0.5 = 1,250 Actual cost: Direct labor (1,240 hours): 26,040  Actual hour (AH) = 1,240 Actual rate (AR) = = 2.1 27 Labor price variance (AH × AR) (1,240 × $21) $26,040 - (AH × SR) (1,240 × $20) $24,800 = $1,240 (A) (SH × SR) (1,250 × $20) $250,00 = $200 (F)  Labor price variance = $1,240 (U) Labor quantity variance (AH × SR) (1,240 × $20) $24,800 -  Labor quantity variance = $200 (F) Labor variance = Labor price variance + Labor quantity variance = 1240 - 200 = 1,040 (A) c Variable manufacturing overhead According to scenario: Standard cost: Variable overhead (0.5 hours @ $8 per hours): 4.00  Budgeted overhead rate (SP) = Standard quantity (SQ) = 2,500 × 0.5 = 1,250 Actual cost: Variable overhead: 10,100 Actual overhead rate (AP) = Actual quantity (AQ) = 1,240 Spending variance (PV) AQ × 1,240 × (AP - SP) ( - 8) 1,240 = 180 (A)  Spending variance = 180 (A) Efficiency variance (EV) SP 8 × × (AQ - SQ) (1,240 - 1,250) 10  Efficiency variance = 80 (F) 28 = 80 (F) Variable manufacturing overhead = Spending variance + Efficiency variance = 180 - 80 = 100 (A) d Fixed manufacturing overhead variance According to scenario: Standard cost: Fixed overhead (0.5 hours @ $4 per hour): 2.00  Standard hour = 2,500 × 0.5 = 1,250 Standard rate = $4 Actual fixed overhead = 5,700 Budgeted fixed overhead = 6,000 Expenditure variance Actual fixed overhead 5,700 - Budgeted fixed overhead 6,000 = 300 (F)  Expenditure variance = 300 (F) Volume variance Budgeted fixed overhead 6,000 6,000 - (SH × SR) (1,250 × 4) 5,000 = 1,000 (A)  Volume variance = 1,000 (A) Fixed manufacturing overhead = Expenditure variance + Volume variance = -300 + 1,000 = 700 (A) 3a Operating statement 29 MORAN LABS - OPERATING STATEMENT MAY 2012 $ $ Budgeted profit before sales and admin cost 24,600 Sales volume variances 11,600 (A) Budgeted profit from actual sales 13,000 Selling price variance Actual sales minus standard cost of sales 13,000 Cost variances (F) (A) $ $ Material variances Price variance 253 Efficiency variance 60 Direct labor variances Rate variance 1,240 Efficiency variance 200 Variable MOVH variance Spending variances 180 Efficiency variance 80 Fixed MOVH variance Expenditure variances 300 Volume variances 1,000 580 2,733 Actual profit before sales and admin costs 2,153 (A) 10,847 Sales and administration 2,000 Actual profit 8,847 CHECK Sales 58,000 Materials 5,313 Labor 26,040 Variable overhead 10,100 Fixed overhead 5,700 Sales and administration cost 2,000 49,153 Profit 8,847 30  Budgeted profit before sale and admin cost Budgeted sale volume = = 3,000 Actual sale volume = 2,500 = 23.2 Standard profit per unit = Total standard cost per test = 18  Budgeted profit before sales and admin cost = (23.2 × 3000) - (18 × 2,500)  Sale volume variance Sales volume profit variances in units = Budgeted sale volume - Actual sales volume = 3,000 - 2,500 = 500 Sales volume profit variance = Sales volume profit variance in units × Standard profit per unit = 500 × 23.2 = 11,600 (A) 3a.3 Explanation about the possible causes of the variances with identified responsibility centres Variances Possible causes Responsibility centre Recommendation Direct material - Price increase Cost centre Moran should sign the price variance - Do not achieve - Warehouse and stock contract with good 253 (A) good deal in control department: manage suppliers who can provide purchasing output and input of material high quality product and - Using the wrong - Price negotiation reasonable prices, choose shipping method department transportation suitable to deliver goods for reducing cost Direct material - Inexperience Cost center - Should invest more on quantity workers Human resource manager human resources to variance 60 (A) - Faulty test who have responsibility to improve their working procedures train employees performances and reduce - Poor quality Profit centre mistakes in test procedures material Product department: control errors in test procedure 31 Direct labor - Rising labor cost Cost centre - Using skilled labor prices variance - Assigning the Human resources: have instead of inexperienced 1,240 (A) wrong workers to responsibility to recruit staff employees to lower the perform the tests labor cost - Pay salary depend on their contribution in working Labor efficiency Use effectively direct Cost centre Continue promoting staff 200 (F) labor hours and Human resources: have work effectively and arrange test order responsibility control and responsible for help to logically arrange working time of increase productivity by employees applying more work motivation Variable production - Increase cost of services used Should manage well all Have responsibility in costs for overhead controlling costs invest in overhead expenditure Investment centre - Excessive use of overhead such as indirect variance 180 (A) services labor Variable - Higher grade of Cost centre Applying more welfare production worker Human resources: have policies for employees to overhead - More efficient responsibility control and increase productivity and efficiency working through assess employees efficiency variance 80 (F) improved motivation performance Fixed product - Savings in costs Investment centre Continue using tight with overhead incurred Control effectively fixed product overhead like expenditure 300 - More economical investment sources water, electricity when (F) use of services Fixed overhead - Equipment Investment centre Should invest more volume variance breakdown Have responsibility in modern equipment to carry 1000 (A) - Labor force assess feasibility of invest out steroid testing services working less project for attract customers implementing tests… efficiency 32 Task 3b: Preparing performance report 3b.1 Definition Flexible budget: is a budget which by recognizing different cost behavior patterns, is designed to change as volume of activity changes (BPP, 2004, p 168) A flexible budget is designed to vary based on volume The company may reasonably expect that expenses will be constant at a particularly volume But if sales grow or fall by a large amount, the fixed budget may not be useful Flexible budget will help businesses identify variances better Fixed budget: is a budget which is set for single level of activity (BPP, 2004 p 168) Furthermore fixed budget is based on planned volumes of production and sales but not include any provision for the event that actual volumes may differ from the budget For example, master budget is fixed budget 33 3b.2 Preparation a revised performance report for Branson Manufacturing, Inc Branson Manufacturing, Inc PERFORMANCE REPORT For the month May, 2011 Sales Flexible Budget Actual Result Master Budget Per Unit (45,000 units) (45,000 units) ($) ($) ($) Variance ($) 25 1,125,000 1,125,000 Direct material 212,500 202,500 10,000(A) Direct labor 175,750 168,750 7,000(A) Variable factor overhead 110,250 101,250 9,000(A) administrative expense 70,500 67,500 3,000(A) Total variable expense 12 569,000 540,000 29,000(A) Contribution margin 13 556,000 585,000 29,000 (A) 100,000 95,000 100,000 5,000 (F) administrative expense 150,000 160,000 150,000 10,000(A) Total fixed expense 250,000 255,000 250,000 5,000(F) 301,000 335,000 34,000 (A) Less variable expense Variable selling and Less fixed expense Fixed factory overhead expense Fixed selling and Income from operations Budget for 45,000 units Sales = x 45,000 = $1,250,000 Direct materials = Direct labor = x 45,000 = $202,500 x 45,000 = $168,750 Variable factory overhead = x 45,000 = $101,250 34 Variable selling and administrative expense = x 45,000 = $67,500 Contribution margin = Sales – total variable expense = 1,125,000 – 540,000 = $585,000 Comment Comment about performance report of company: In this case, almost actual result higher than master budget so company fail in give a budget for production 45,000 units In the fact that, all actual expense of company higher than budgeted expense that company give before It mean that in actual, there are many thing that effect on the cost of company For example, in material, the change in supplier, the discount rate that company will receive from supplier, the different type of material purchase and the waste material in production because of old machine may be the reasons that make increase the expense of company Comment about the claim of production manager: The claim of production manager mean that production can help company control cost in the great way, The way controlling cost of production are based on manage material, labor and selling and administrative activity First, with material, company will control cost through change supplier that have price of material lower than other supplier, choose a different type of material instead of material that company used in the previous and calculate the number of material that company use in future to avoid the material inventory in company from that can reduce cost of production Secondly, in labor, based on the different production activity, company will choose staff that suitable with each activity so production can control labor expense (increase or decrease) for company Finally, selling and administrative activity have to based on the result of production process (finish product) and this activity have to suitable with product that produce before Because of this, production can control the decrease or increase of companyselling and administrative expense 35 CONCLUSION The report gives readers a view on budgetary planning and control and it is an important tool for any business owner Budgeting allows a company to have a certain degree of control over costs A budget also gives a company a benchmark by which to evaluate business units, departments, and even individual managers Understanding the purpose and nature of budgeting process is necessary for a company to execute any business operations such as monitoring performance against budget such as unfavorable variances between budgeted and actual results is also important From that, the management can have appropriate adjustments or make another plan that is more feasible in the futures, the company might evaluate its performance and capacity to control the budgets REFERENCES Arthur, L., n.d Advantages and Disadvantages of Bottom-up Budgeting [Online] Available at: http://www.ehow.com/info_8767093_advantages-disadvantages-bottomup-budgetingprojects.html [Accessed 29 May 2013] BusinessDictinary, n.d What is cash budget? [Online] Available at: http://www.businessdictionary.com/definition/cash-budget.html [Accessed 25 May 2013] Isaac, L., n.d Purpose of budgeting [Online] Available at: http://www.in.gov/dlgf/files/CountyBudgetManual_Chp1.pdf [Accessed 28 May 2013] McQuerrey, L., n.d The Advantages and Disadvantages of Top-Down Budgeting [Online] Available at: http://www.ehow.com/info_12031520_advantages-disadvantages-topdownbudgeting.html [Accessed 28 May 2013] Miriam, C., n.d The advantages of using a fixed budget [Online] Available at: http://www.ehow.com/info_7747158_advantages-using-fixed-budget.html [Accessed 29 May 2013] 36 [...]... 116,400 x 65 = $7,566,000 Truck = 27 ,000 x 20 0 = $5,400,000 2 Production budget Truong Hai Tire Company Production Budget For the year 20 13 Passenger Budgeted sales in units Truck 116,400 27 ,000 6,590 2, 360 122 ,990 29 ,360 5,000 2, 000 117,990 27 ,360 92 96 Gross production in Finishing Department 128 ,25 0 28 ,500 Good production required in Molding Department 128 ,25 0 28 ,500 95 95 135,000 30,000 Desired... variance = $25 3 + $60 = $313 (U) b Labor Variance According to scenario Standard cost: Direct labor (0,5 hours @ $20 per hour) : 10.00  Standard rate (SR) = $20 Standard hour (SH) = 2, 500 × 0.5 = 1 ,25 0 Actual cost: Direct labor (1 ,24 0 hours): 26 ,040  Actual hour (AH) = 1 ,24 0 Actual rate (AR) = = 2. 1 27 Labor price variance (AH × AR) (1 ,24 0 × $21 ) $26 ,040 - (AH × SR) (1 ,24 0 × $20 ) $24 ,800 = $1 ,24 0 (A)... x 6,590 = $22 4,719 Truck = 94.5 x 2, 360 = $22 3, 020 22 7 Budget cost of goods sold Truong Hai Tire Company Cost Of Goods Sold Budget For the year 20 13 Beginning Finished goods inventory Total budgeted manufacturing cost Cost of good available for sale Less: Budgeted ending Finished goods inventory Budgeted cost of goods sold Passenger 175,000 Truck 24 0,000 Total 415,000 6,6 12, 225 7, 027 ,22 5 447,739 6,579,486... 2, 700,000 1,800,000 Budgeted Direct labor cost 28 5,8 62. 5 168,075 Budget manufacturing overhead 434,0 92. 5 25 6,695 Total budgeted manufacturing cost 4, 027 ,455 2, 584,770 Good production in unit 117,990 27 ,360 Budgeted cost per unit 34.1 94.5 6,590 2, 360 22 4,719 22 3, 020 Rubber Budgeted ending Finished goods, in unit Budgeted cost of ending Finished goods 6,6 12, 225 447,739 Budgeted cost per unit =  Passenger... 156,000 + 87,500 = $25 3,500 In August: 5% sales in June = 24 0,000 × 5% = $ 12, 000 65% sales in July = 350,000 × 65% = $22 7,500 25 % sales in August = 410,000 × 25 % = $1 02, 500  Total sales that receipt in July = 12, 000 + 22 7,500 + 1 02, 500 = $3 42, 000 In September: 5% sales in July = 350,000 x 5% = $17,500 65% sales in August = 410,000 x 65% = $166,500 25 % sales in September = 340,000 x 25 % = $85,000  Total... manufacturing budget = $6 92, 100 Total direct labor hours = 13,500 + 7,500 + 64 12. 5 + 427 5 = 31,687.5 OVH per hour = = 21 .8 Truong Hai Tire Company Manufacturing budget For the year 20 13 Passenger Truck Molding Department Total direct labor hours required Overhead per direct labor hour Overhead absorpted 13,500 7,500 21 .8 21 .8 29 4,300 163,500 6,4 12. 5 4 ,27 5 21 .8 21 .8 139,7 92. 5 93,195 434,0 92. 5 25 6,695 Finishing... (45,000 units) (45,000 units) ($) ($) ($) Variance ($) 25 1, 125 ,000 1, 125 ,000 0 Direct material 5 21 2,500 20 2,500 10,000(A) Direct labor 4 175,750 168,750 7,000(A) Variable factor overhead 2 110 ,25 0 101 ,25 0 9,000(A) administrative expense 2 70,500 67,500 3,000(A) Total variable expense 12 569,000 540,000 29 ,000(A) Contribution margin 13 556,000 585,000 29 ,000 (A) 100,000 95,000 100,000 5,000 (F) administrative... 0.1 = 13,500 Truck = 30,000 x 0 .25 = 7,500 Budgeted direct labor in Molding Department: Passenger = 13,500 x 15 = $20 2,500 Truck = 7,500 x 15 = $1 12, 500  Finishing Department Total direct labor hours required: 20 Passenger = 128 ,25 0 x 0.05 = 6,4 12. 5 Truck = 28 ,500 x 0.15 = 4 ,27 5 Budgeted direct labor in Finishing Department: Passenger = 6,4 12. 5 x 13 = $83,3 62. 5 Truck = 4 ,27 5 x 13 = $55,575 5 Manufacturing... Actual cost: Direct materials (2, 530 dishes): $5,313  Actual quantity (AQ) = 2, 530 Actual price (AP) = = 2. 1 Material price variance (AQ × AP) (2, 530 × 2. 1) $5,313 - (AQ × SP) (2, 530 × $2. 00) $5,060 = $25 3 (A) = $60 (A) Material price variance = $25 3 (U) Material quantity variance (AQ × SP) (2, 530 × $2. 00) $5,060  Material quantity variance = $60 (U) (SQ × SP) (2, 500 × $2. 00) $5,000 Material variance... inventory × Cost per unit  Passenger = 2, 000 × 120 = $24 0,000 Truck = 5,000 × 35 = $175,000 Cost of good available for sale = Beginning Finished good inventory + Total budgeted manufacturing cost = 415,000 + 6,6 12, 225 = $7, 027 ,22 5 Budget cost of goods sold = Cost available for sales - Budgeted ending Finished goods inventory = 7, 027 ,22 5– 447,739 = $6,579,486 23 8 Budget income statement Truong Hai