Tuesday, April 13th, 1999
Announcements:

Exam #3 Results: Range = 13-100, Average = 67.4%, Average to date = 68.2%

At this point, A = 88, B = 78, C = 68, D = 58

Lecture notes:

Sales	800,000
- VC	- 600,000
CM	200,000
- FC	- 150,000
Net Income	50,000

Activity level = 50,000 units

800,000 / 50,000 = $16

600,000 / 50,000 = $12

200,000 / 50,000 = $4

What is the change in net income if sales were to increase by 100 units?

100 x 4 = $400

Change in sales = 1,600
Change in VC = 1,200
Change in CM = 400
Change in FC = 0

A customer has placed an order for 200 units at $14 per unit. What is the change in net income as a result of the order?

Sales price	14
- VC	- 12	200 x 2 = $400
CM per unit	2

Chapter 20

• It requires all levels of management to plan ahead
• It provides objectives for evaluating performance
• It provides information regarding future cash flows
• It functions as a control device

• Sales budget
• Production budget
• Materials purchase / usage budget
• Direct labor budget
• Factory overhead budget

*see page 872

Example:

Budgeted December Sales = 12,000 units
each unit produced consumes 2 pounds of materials

Budgeted Inventory Levels
	12/1	12/31
Finished Goods	3,000 units	2,500 units
Direct Materials	5,000 lbs.	6,000 lbs.

What is the budgeted production for the month of December? 11,500 units

How many pounds of materials need to be purchased during December? 24,000 lbs.

Budgeted Production

Budgeted sales	12,000
+ end inventory	+ 2,500
# units needed	14,500
- beginning inventory	- 3,000
	11,500

Budgeted Purchases

Units needed	23,000
+ end inventory	+ 6,000
# raw materials needed	29,000
- beginning inventory	- 5,000
	24,000

Budgeted Unit Sales
Dec 98	8,000
Jan 99	7,000
Feb 99	7,500
Mar 99	7,400

The company's policy is to maintain a finished goods inventory equal to 40% of the following month's sales.

How many units will be produced during Feb 99?

Unit sales, Feb	7,500
+ end inventory, Feb	2,960
# units needed	10,460
- beginning inventory	- 3,000
	7,460

Budgeted Sales
	On Account	Cash
Dec 98	100,000	25,000
Jan 99	125,000	35,000
Feb 99	130,000	37,000
Mar 99	128,000	34,000

Sales on account are collected as follows: 40% during the month of sales, 60% following the month of sales

January 99
Cash sales	35,000
Collection on account, Jan sales	50,000
Collection on account, Dec sales	60,000
	145,000
February 99
Cash sales	37,000
Collection on account, Feb sales	52,000
Collection on account, Jan sales	75,000
	164,000

Purchases Budget
	On Account	Cash
Dec 98	50,000	20,000
Jan 99	60,000	25,000
Feb 99	68,000	28,000
Mar 99	65,000	30,000

70% of the purchases on account are paid for in the month of purchase, and the remaining 30% are paid for in the month following the purchase