Module 47: Planning, Control, and Analysis

Planning, Control, and Analysis

Flexible Budgeting

Used to estimate revenue, costs, a group of costs, or profits at various levels of activity

  • Applies when operating within a relevant range
  • Total fixed costs remain the same at all levels within range
  • Variable costs per unit of activity remains the same within range

Master and Static Budgets

Static budget—Budget as specific level of activity

  • Can be for division of company
  • Can be for company as a whole

Master budget—Static budget for company as a whole

Master budget generally includes:

  • Operating budget
  • Budgeted cash flows
  • Budgeted financial statements

Preparing a Master Budget

  1. Estimate sales volume
  2. Use sales volume to estimate revenues
  3. Use collection history to estimate collections
  4. Estimate cost of sales based on units sold
  5. Use current finished goods inventory, budgeted ending inventory, and cost of sales to estimate units to be manufactured
  6. Use units manufactured to estimate material needs, labor costs, and overhead costs
  7. Use material needs, current raw materials inventory, and budgeted ending inventory to budget purchases
  8. Use purchase terms to estimate payments
  9. Analyze expense and payment patterns to complete operating and cash flow budgets

Budgeting Material Purchases and Payments

Units sold
+ Budgeted increase in finished goods
Budgeted decrease in finished goods
= Units to be manufactured
× Units of raw material per unit of finished goods
= Units of ...

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