Professional Documents
Culture Documents
CHAPTER 22
BUSINESS PLANNING
I.
Questions
1. Strategy, plans, and budgets are interrelated and affect one another.
Strategy describes how an organization matches its own capabilities with
the opportunities in the marketplace to accomplish its overall objectives.
Strategy analysis underlies both long-run and short-run planning. In
turn, these plans lead to the formulation of budgets. Budgets provide
feedback to managers about the likely effects of their strategic plans.
Managers use this feedback to revise their strategic plans.
2. Budgeted performance is better than past performance for judging
managers. Why? Mainly because the inefficiencies included in past
results can be detected and eliminated in budgeting. Also, new
opportunities in the future, which did not exist in the past, may be
ignored if past performance is used.
3. A company that shares its own internal budget information with other
companies can gain multiple benefits. One benefit is better coordination
with suppliers, which can reduce the likelihood of supply shortages.
Better coordination with customers can result in increased sales as
demand by customers is less likely to exceed supply. Better coordination
across the whole supply chain can also help a company reduce
inventories and thus reduce the costs of holding inventories.
4. The sales forecast is typically the cornerstone for budgeting, because
production (and, hence, costs) and inventory levels generally depend on
the forecasted level of sales.
5. Sensitivity analysis adds an extra dimension to budgeting. It enables
managers to examine how budgeted amounts change with changes in the
underlying assumptions. This assists managers to monitor those
assumptions that are most critical to a company attaining its budget or
make timely adjustments to plans when appropriate.
22-1
1.
2.
3.
4.
II. Problems
Problem 1 (Budgeted Income Statement)
Globalcom Company
Budgeted Income Statement for 2006
(in thousands)
Net sales
P6,996
Equipment (P6,000 x 1.06 x 1.10)
1,908
Maintenance contracts (P1,800 x 1.06)
Total net sales
Cost of goods sold (P4,600 x 1.03 x 1.06)
Gross margin
Operating costs:
Marketing costs (P600 + P250)
850
Distribution costs (P150 x 1.06)
159
Customer maintenance costs (P1,000 + P130) 1,130
Administrative costs
900
Total operating costs
Operating income
P8,904
5,022
3,882
3,039
P
843
Units
1,000
Selling Price
P450
Total Revenues
P450,000
1,000
200
1,200
100
1,100
Requirement 3
Schedule 3A: Direct Materials Usage Budget
For the Year Ended December 31, 2006
Wood
Physical Budget
To be used in production
(Wood: 1,100 x 5.00 b.f.
Fiberglass: 1,100 x 6.00 yards)
Fiberglass
Total
5,500
6,600
Cost Budget
Available from beginning inventory
(Wood: 2,000 b.f. x P28.00
Fiberglass: 1,000 b.f. x 4.80)
To be used from purchases this period
(Wood: (5,500 2,000) x P30.00
Fiberglass: (6,600 1,000) x P5.00)
Total cost of direct materials to be used
5,500
6,600
56,000
4,800
105,000
P161,000
28,000
P32,800
P193,800
5,500
1,500
7,000
2,000
5,000
P150,000
P150,000
Requirement 4
Schedule 4: Direct Manufacturing Labor Budget
22-3
Fiberglass
Total
6,600
2,000
8,600
1,000
7,600
P38,000
P38,000
P188,000
Cost Driver
Units
1,100
Total
Hours
5,500
Wage
Rate
P25.00
Total
P137,500
Requirement 5
Schedule 5: Manufacturing Overhead Budget
For the Year Ended December 31, 2006
At Budgeted Levels of 5,500
Direct Manufacturing Labor-Hours
Variable manufacturing overhead
costs (P7.00 x 5,500)
Fixed manufacturing overhead costs
Total manufacturing overhead costs
P 38,500
66,000
P104,500
Requirement 6
Budgeted manufacturing overhead rate:
P104,500
5,500
Requirement 7
Budgeted manufacturing overhead cost per output unit:
P104,500
=
1,100
= P95.00 per output unit
Requirement 8
Schedule 6A: Computation of Unit Costs of Manufacturing Finished
Goods in 2006
Cost per Unit
of Inputa
Inputsb
Total
Direct materials
Wood
P30.00
5.00
P150.00
Fiberglass
5.00
6.00
30.00
22-4
25.00
5.00
125.00
95.00
P400.00
Requirement 9
Schedule 6B: Ending Inventory Budget
December 31, 2006
Units
Direct materials
Wood
1,500
Fiberglass
2,000
Finished goods
Skateboards
200
Total Ending Inventory
Total
P 30.00
5.00
P 45,000
10,000
400.00
80,000
P135,000
Requirement 10
Schedule 7: Cost of Goods Sold Budget
for the year Ended December 31, 2006
From
Schedule
Beginning finished goods
inventory, January 1,
2006
Direct materials used
Direct manufacturing labor
Manufacturing overhead
Cost of goods manufactured
Cost of goods available for
sale
Deduct ending finished
goods inventory,
December 31, 2006
Cost of goods sold
Given
3A
4
5
Total
P 37,480
P193,800
137,500
104,500
435,800
473,280
6B
Requirement 11
Budgeted Income Statement for Pacific
22-5
80,000
P393,280
A
B
C
D
D
6.
7.
8.
9.
10.
A
B
D
A
C
11.
12.
13.
14.
15.
22-6
D
D
B
C
A
P450,000
393,280
56,720
P 7,500
30,000
37,500
P 19,220