Ch-2.pptx cost and accounting management

Student s book

1. Objectives of the Chapter: Upon completing this chapter, the learner should be able to: Define master budget Enumerate the principal advantages of budgeting Explain the difficulties of budgeting Explain the fundamental elements of budget Prepare the operating budget and the supporting schedules Prepare the financial budget

2. A budget can be defined as the quantitative expression of a proposed plan of action by management for a specified period. A budget generally includes both financial and nonfinancial aspects of the plan, and it serves as a blueprin t for the company to follow in an upcoming period.

3. …cont’d Short-term planning is the process of deciding what objectives to pursue during a short period , usually one year, and what to do to achieve those objectives. Long-term planning , also known as strategic planning , is the process of setting long-term goals and determining the means to attain them.

4. Well-managed companies usually cycle through the following budgeting steps during the course of the fiscal year: 1. Working together, managers and management accountants plan the performance of the company as a whole and the performance of its subunits (such as departments or divisions). Taking into account past performance and anticipated changes in the future, managers at all levels reach a common understanding on what is expected.

5. …cont’d 2. Senior managers give subordinate managers a frame of reference, a set of specific financial or non-financial expectations against which actual results will be compared. 3. Management accountants help managers to investigate variations from plans, such as an unexpected decline in sales. If necessary, corrective action follows, such as a reduction in price to boost sales or cutting of costs to maintain profitability.

6. …cont’d 4. Managers and management accountants take into account market feedback, changed conditions, and their own experiences as they begin to make plans for the next period. For example, a decline in sales may cause managers to make changes in product features for the next period.

7. …cont’d The preceding four steps describe the ongoing budget process. The working document at the core of this process is called the master budget . The master budget expresses management’s operating and financial plans for a specified period. The master budget is the initial plan of what the company intends to accomplish in the budget period.

8. …cont’d The master budget evolves from both operating and financing decisions made by managers. Operating decisions deal with how to best use the limited resources of an organization. Financing decisions deal with how to obtain the funds to acquire those resources.

9. Budgets are an integral part of management control systems. When administered thoughtfully by managers, budgets do the following: Promote coordination and communication among subunits within the company Provide a framework for judging performance and facilitating learning Motivate managers and other employees Means of allocation resources and create cost awareness.

10. Communication is making sure those goals are understood by all employees . Coordination forces executives to think of relationships among individual departments within the company, as well as between the company and its supply chain partners. The production manager- with the company’s marketing team to understand when set-top boxes will be needed.

11. Budgets enable a company’s managers to measure actual performance against predicted performance. One of the most valuable benefits of budgeting is that it helps managers to gather relevant information for improving future performance .

12. Research shows that challenging budgets improve employee performance because employees view falling short of budgeted number as a failure. Most employees are motivated to work more intensely to avoid failure than to achieve success.

13. Each person and each organization must compare the costs and benefits of each potential project or activity and choose those that result in the most appropriate resource allocation decision. Generally, organizations resources are limited, and budgets provide one means of allocating resources among competing uses.

14. …cont’d Accountants and financial managers are concerned daily about the cost implications of decisions and activities , but many other managers are not. Production managers focus on input, marketing manager’s focuses on sales. At budgeting time, however, all managers with budget responsibility must convert their plans for projects and activities to costs and benefits.

15. The budgeting process involves all levels of management : Top managers want lower-level managers to participate in the budgeting process because lower-level managers have more specialized knowledge and first-hand experience with day-to-day aspects of running the business. Budgets should not be administered rigidly : Attaining the budget is not an end in itself, especially when conditions change dramatically.

16. the master budget is the principal output of a budgeting system that shows a comprehensive operating and financial plans of management. This budget ties together all phases of an organization’s operations and is comprised of many separate budgets and schedules that are interdependent.

17. …cont’d The usual master budget for merchandising firm has the following components: Operating Budget Sales budget (and other cost-driver budgets as necessary) Purchases budget Operating expenses budget Budgeted income statement

18. …cont’d Financial Budget Capital budget Cash budget Budgeted balance sheet

19. The operating budget focuses on the income statement and its supporting schedules. The budgeting process normally begins with the preparation of the operating budgets. An operating budget is prepared by individual sections within a company and becomes part of the company’s master budget.

20. The sales budget is the starting point for budgeting because the inventory levels, purchases, and operating expenses are geared to the rate of sales activities and other cost drivers . A sales budget is a detailed schedule showing the expected sales for the budget period.

21. …cont’d The sales budget typically is expressed in both sales birr and units of product. An accurate sales budget is the key to the entire budgeting process. All of the other parts of the master budget are dependent on the sales budget in some way.

22. …cont’d Notice that, to prepare the sales budget, budgeted cash sales and budgeted credit sales information of the original data are used and that information can be obtained from the marketing department or any other sales forecast related units. Thus, Total Budgeted sales= Budgeted cash sales + Budgeted credit sales

23. The schedule of expected cash collection is prepared at the same time of preparing the sales budget. Thus , after the sales budget is prepared, the schedule of expected cash collections is prepared to show how much cash is expected to be received from customers.

24. …cont’d The cash collections include to current month’s cash sales plus the previous month’s credit sales expected to be collected in the current month.

25. This budget is prepared to show the amount of goods to be purchased from suppliers during the period. Merchandising firms would prepare an inventory purchases budget for each item carried in stock. In brief, after the sales budget is prepared, the inventory purchases budget is prepared to show the amount of inventory that will be needed to satisfy the number of projected sales.

26. …cont’d Meeting the sales demand requires having enough inventories to cover expected sales and future sales between reorder points . Accordingly , the total amount of inventory needed for each month equals the amount needed to fulfill budgeted sales demand plus the desired ending inventory.

27. …cont’d

28. based on the purchases budget, this schedule is later needed to prepare the overall cash budget. Disbursements for inventory purchases consist of payments for purchases on account made in prior periods plus any payment for inventory purchases made in the current budget period.

29. This budget lists the budgeted operating expenses for the budget period. All budgeted selling and administrative expenses would be compiled and listed down. For example, the marketing manager in a large organization would submit a budget detailing the advertising expenses for each budget period.

30. …cont’d Examples of expenses driven by sales volume include sales commissions and many delivery expenses. Other expenses are not influenced by sales or other cost-driver activity, and such expenses include rent, insurance, depreciation, and salaries within appropriate relevant ranges and are regarded as fixed.

31. The operating expense budget ABC Company Operating Expense Budget For the Quarter Ended December 31, 20XX   Months Quarters   January February March Salaries and wages Birr XX Birr XX Birr XX Birr XX Advertising Birr XX Birr XX Birr XX Birr XX Shipping Birr XX Birr XX Birr XX Birr XX Depreciation Birr XX Birr XX Birr XX Birr XX Other expenses Birr XX Birr XX Birr XX Birr XX Total budgeted operating expenses Birr XXXX Birr XXXX Birr XXXX Birr XXXX

32. This schedule is based on the operating expenses budget. Notice that depreciation expense is not included in the cash disbursements for operating expenses, because depreciation is a non-cash expense.

33. …cont’d ABC Company Cash Disbursements for Operating Expense Budget For the Quarter Ended December 31, 20XX   Months Quarters   January February March Salaries and wages Birr XX Birr XX Birr XX Birr XX Advertising Birr XX Birr XX Birr XX Birr XX Shipping Birr XX Birr XX Birr XX Birr XX Other expenses Birr XX Birr XX Birr XX Birr XX Disbursements for operating expenses Birr XXXX Birr XXXX Birr XXXX Birr XXXX

34. The budgeted income statement from operations can be prepared from the data developed in all tables shown above. It shows the company’s planned profit for the upcoming budget period, and it stands as a benchmark against which subsequent company performance can be measured. If expected profitability is unsatisfactory, management may take actions, including abandoning the project for which the budget is prepared or altering planned activity .

35. …cont’d ABC Company Budgeted Income Statement For the Quarter Ended December 31, 20XX Sales   Birr XX Less cost of goods sold   Birr XX Gross margin   Birr XX Less operating expenses:     Salaries and wages Birr XX   Advertising Birr XX   Shipping Birr XX   Depreciation Birr XX   Other expenses Birr XX   Total operating expenses   Birr XX Net operating income   Birr XX Less interest expense   Birr XX Net income   Birr XX

36. …cont’d The interest expense will be computed later when the cash budget is prepared . The main reason why the budgeted income statement is prepared before the cash budget is to show that the ultimate output of the operating budgets is Performa or budgeted income statement .

37. Step1. Revenue budget: it is the usual starting point for budgeting, because production and hence costs and inventory level generally depend on the forecasted level of revenue .

38. …cont’d Step2. Production Budget (unit): after revenue is budgeted, the production budget can be prepared. The total finished goods units to be produced depend on planned sales and expected changes in inventory level .

39. …cont’d Step-3 . Direct Material Usage Budget & Direct Material Purchase Budget The decision on the number of units to be produced is the key to computing the usage of direct material in quantities and currency.

40. These costs depend on wage rates, production methods and hiring plans Budgeted Labor Hours = Budgeted Production X Time Required per Unit Budgeted Labor Cost = Budgeted Labor Hours X Labor Cost per hour

41. The total of these costs depends on hours individual over head costs vary with the assumed cost driver, direct manufacturing labor hours. Based on allocation base of DLH Total MOH/ Total labor hour

42. RM ending Budget = Unit cost of RM X Quantity of Ending Inventory FG Ending inventory = Unit Cost of Production X Quantity of Ending Inventory

43. Illustration RAMA Engineering is a machine shop that uses skilled labor and Metal alloy to manufacture two types of air craft replacement parts Regular & Heavy duty . After carefully examining relevant factors, the executive of RAMA Engineering forecasts the following figures for 2006. You are now expected to prepare the budgeted income statement for RAMA engineering. Assume that work in process inventory is zero, units costs of direct material purchased & finished goods sold is remain unchanged throughout the budgeted year and variable production costs are variable with respect to direct manufacturing labor hours.

44. Direct Material cost per unit Direct Material cost per unit Material 111 alloy $ 7perKG Material 112alloy $ 10perKg Direct manufacturing labor $ 20 per hour

45. Products (Regular and Heavy Duty) Content of each product unit Regular Heavy duty Direct material 111alloy 12 kgs per unit 12kgs per unit Direct material 112 alloy 6 kgs per unit 8 kgs per unit Direct manufacturing labour 4 hours per unit 6 hours per unit

46. additional information regarding the year 2006 is as follows:   Regular Heavy duty Expected sales in units 5000 1000 Selling price per unit $600 $800 Target ending inventory in unit 1,100 50 Beg. Inventory in units 100 50 Beg. Inventory in dollars $38,400 $26,200

47. Direct Material   111 alloy 112alloy Beg. Inventory in kg 7,000 6000 Target ending inventory in Kg 8000 2000

48. Budgeted Manufacturing Overhead Cost

49. …cont’d Solution

50. 1. Budgeted Revenue = Budgeted quantity x unit selling price Items Value Regular 5,000 X 600 = Birr 3,000,000 Heavy Duty 1,000 X 800 = 800,000 Total Birr 3,800,000

51. 2. Budgeted Production (unit) = Budgeted sales + TE FG I (U) – BFGI (U)   Product   Regular Heavy Duty Budgeted sales in unit 5,000 1,000 Add: target ending inventory in units 1,100 50 Total Requirement 6,100 1,050 Less: beginning inventory 100 50 Product budget 6,000 1,000

52. 3.Direct Material usage Budget In Kgs & in Birr DM usage (in units) = budgeted production * quantity of Dm required per unit Dm usage (in birr) = Total Dm usage * cost per unit

53. …cont’d   Material Total   111 Alloy 112 Alloy   DM to be used for R (12, 6 X 6,000) 72,000 36,000   DM to be used for HD (12, 8 X 1,000) 12,000 8,000   Total DM to be used 84,000 kg 44,000 kg   Multiplied by: Unit cost Birr 7 Birr 10   Cost of DM to be used Birr 588,000 Birr 440,000 Birr 1,028,000

54. 4. DM Purchase Budget DMPB = DM usage + Targeted Ending RmI (in unit) – Beg. RMI (in unit) DMPB (in biir ) = DMP * cost per unit

55. …cont’d   Material Total   111 Alloy 112 Alloy   DM to be used (in KG) 84,000 44,000   Add: Targeted ending DMI (kgs) 8,000 2,000   Total Requirement 92,000 46,000   Less: BDMI (kgs) 7,000 6,000   DM to be purchased 85,000 40,000   Multiplied By: Unit Cost Birr 7 Birr 10   Cost of DM purchased Birr 595,000 Birr 400,000 Birr 995,000

56. 5. Direct Manufacturing Labor Budget Budgeted Labor Hours = Budgeted Production X Time Required per Unit Budgeted Labor Cost = Budgeted Labor Hours X Labor Cost per hour

57. …cont’d Product Output units produced Direct mfg labor hours per unit Total hours Hourly wage rate Total Regular 6,000 4 hrs. 24,000 Birr 20 Birr 480,000 Heavy Duty 1,000 6 hrs. 6,000 Birr 20 120,000 Total     30,000   Birr 600,000

58. 6.Manufacturing Overhead Budgets At the budgeted level of 30,000 direct manufacturing labor hours MOH per Hours = Birr 1,200,000/ 30,000 = Birr 40/hours, when production increases MOH decreases .

59. …cont’d Variable Manufacturing Over Head Birr 780,000 Fixed Manufacturing Over Head 420,000 Total Birr 1,200,000

60. 7. Ending Inventory Budget RM ending Budget = Quantity of Ending Inventory X Unit cost of RM FG Ending inventory = Quantity of Ending Inventory X Unit Cost of Production

61. Computation of unit cost of Manufacturing Finished Goods     Product     Regular Heavy Duty   Cost per unit of input Input per unit of output Amount Input Amount Material 111 Alloy Birr 7 12 Kg Birr 84 12 Kg Birr 84 Material 112 Alloy 10 6 Kg 60 8 Kg 80 D Mfg Labor 20 4 Hrs 80 6 Hrs 120 MOH 40 4 Hrs 160 6 Hrs 240 Total     Birr 384   Birr 524

62. Ending Inventory Budget DM ending inventory Kgs Cost per KG Total 111 Alloy 8,000 Birr 7 Birr 56,000 112 Alloy 2,000 10 20,000 Total     Birr 76,000 FG ending inventory Units Cost Per Unit Total FG regular 1,100 Birr 384 Birr 422, 400 FG Heavy Duty 50 524 26,200 Total     Birr 448,60

63. 8. Cost of Goods Sold Budget Beginning FGI {(R, 100*384(unit cost); (HD, 50*524) Birr 64,600 DM cost Birr 1,028,000   Direct labor cost 600,000   MOH 1,200,000   Cost of Goods Manufactured   2,828,000 Goods Available for Sale   Birr 2,892,600 Less: Ending FGI   448,000 CGS   Birr 2,444,600

64. 9. Budget Income statement Revenue   Birr 3,800,000 Less: CGS     2,444,000 Gross Margin   Birr 1,356,000 Operating Cost Operating Variable Cost Birr 475,000   Operating Fixed Cost 395,000 870,000 Operating Income   Birr 486,000

65. The second major part of the master budget is the financial budget, which consists of the capital budget, cash budget, budgeted balance sheet, & budgeted statement of cash flows . The financial budget focuses on the effects that the operating budget and other plans (such as capital budgeting and repayment of debt) will have on cash.

66. The capital budget is prepared for additions to property and equipment. This budget is used to describe a company’s long-term plans regarding investment in facilities, equipment, new products, store outlets, and lines of business .

67. …cont’d The capital expenditure budget or capital budget is a very important budget as it throws light on a firm’s outlay and expansion and diversification program . . While preparing this budget, factors such as sales potential for the increased production, possibility of price reduction, and increased selling and administrative costs are to be considered

68. A cash budget is a detailed plan showing how cash resources will be acquired and used over some specified time period . All of the operating budgets have an impact on the cash budget. In the case of the sales budget , the impact comes from planned cash receipts to be collected from sales to customers.

69. …cont’d Most of the raw data needed to prepare the cash budget are included in the cash receipts and disbursements schedules. The cash budget is composed of four major sections. 1. The cash receipt section 2. The cash disbursement section 3. The excess (deficiency) of cash section 3. Financing section

70. …cont’d The Receipts Section. This section consists of a listing of all of the cash inflows , except for financing, expected during the budget period. Generally, the major source of receipts will be from sales .

71. …cont’d 2. The Disbursements Section. This section consists of all cash payments that are planned for the budget period. These payments will include raw materials purchases, direct labor payments, manufacturing overhead costs, operating expenses, and so on, as contained in their respective budgets. In addition, other cash disbursements such as equipment purchases, dividends , and other cash withdrawals by owners

72. …cont’d The Cash Excess or Deficiency Section. Cash Balance, Beginning Birr XX Add Cash Received Birr XX Total cash available before financing Birr XX Less disbursement Birr XX Excess (deficiency) of cash Birr XX

73. …cont’d If there is a cash deficiency during any budget period, the company will need to borrow funds. If there is cash excess during any budget period, funds borrowed in previous periods can be repaid or the idle funds can be placed in short-term or other investments.

74. …cont’d The Financing Section. This section provides a detailed account of the borrowings and repayments projected to take place during the budget period. It also includes a detail of interest payments that will be due on money borrowed .

75. …cont’d Cash balance, beginning . It is taken from the original information given or available, that is, a cash balance on December 31, 20XX in the case of ABC Company Moreover, the beginning cash balance for the quarter means the same as the beginning cash balance for January . This is so because the quarter begins on January 1. Collections from customers. The collections from customers are brought from the schedule of expected cash collections.

76. …cont’d Purchases of inventory . The figures for purchases of inventory are taken from the schedule of expected cash disbursements for purchases. Operating expenses . The figures for operating expenses are taken from the schedule of expected cash disbursements for operating expenses. Purchases of equipment and cash dividends . While the figures for purchases of equipment are taken from information given or available and the figure for cash dividends. Financing. From money borrowed and principal and interest repaid.

77. …cont’d Budgeted Balance Sheet To construct the budgeted balance sheet, we start with the general ledger account balances as of December 31,20XX given or available data in the case of ABC Company and adjust each balance sheet account balance for the changes expected to take place during 20XX. The budgeted balance sheet for ABC Company is shown in table below.

78. …cont’d ABC Company Budgeted Balance Sheet December 31, 20XX Assets     Current assets:     Cash Birr XX   Accounts receivable Birr XX   Inventory Birr XX   Total current assets   Birr XX Plant assets:     Building and equipment (net)   Birr XX Total Assets   Birr XX Liabilities and Stockholders’ Equity     Current liabilities:     Accounts payable   Birr XX Stockholders’ equity:     Capital stock Birr XX   Retained earnings Birr XX   Total stockholders’ equity   Birr XX Total Liabilities and Stockholders’ Equity   Birr XXX

79. …cont’d Example 1: To illustrate the budget process for merchandising firms , a hypothetical office supplies specialty store in Addis Ababa called ANC Company will be considered. The company prepares its master budget on a quarterly basis. The following data have been assembled to assist in the preparation of the master budget for the first quarter of 2007:

80. As of December 31, 2006, the company’s general ledger showed the following account balances:   Debit Credit Cash Birr 48,000   Accounts receivable 224,000   Inventory 60,000   Building and equipment (net) 370,000   Accounts payable   Birr 93,000 Capital stock   500,000 Retained earnings   109,000 Total Birr 702,000 Birr 702,000

81. (b). Actual sales for December 2006 and budgeted sales for the next four months of 2007 are as follows: December (actual) Birr 280,000 Budgeted sales of 2007:   January 400,000 February 600,000 March 300,000 April 200,000

82. …cont’d (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, 2006 are a result of December credit sales. (d). The company’s gross profit rate is 40% of sales.

83. (e) Monthly expenses are budgeted as follows: Salaries and wages Birr 27,000 per month Advertising Birr 70,000 per month Shipping 5% of sales Depreciation Birr 14,000 per month Other expenses 3% of sales

84. …cont’d (f) . At the end of each month, inventory is to be on hand (minimum required or desired inventory level) equal to 25% of the following month’s sales needs , stated at cost . (g) . One-half of a month’s inventory purchases are paid for in the month of purchase, the other half is paid for in the following month . (h) . During February, the company will purchase a new copy machine for Birr 1,700 cash. During March, other equipment will be purchased for cash at a cost of Birr 84,500.

85. …cont’d (i) . During January, the company will declare and pay Birr 45,000 in cash dividends. (j) . The company must maintain a minimum cash balance of Birr 30,000 each month.

86. …cont’d (k). An open line of credit is available at a local bank for any 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 principal Birr 80,000. Interest is paid only at the time of payment of principal. The annual interest rate is 12 %.

87. Schedule 1(b): Schedule of Expected Cash Collections ANC Company Cash Collection Budget For the Quarter Ended March 31, 2007   Months Quarters   January February March Accounts Receivable-beginning balance Birr 224,000 * - - Birr 224,000 January sales (Birr 400,000)X20%, 80% 80,000 Birr 320,000 - 400,000 February sales (Birr 600,000) X 20%,80% - 120,000 480,000 600,000 March sales (Birr 300,000) X 20% - - 60,000 ** 60,000 Total expected cash collections Birr 304,000 Birr 440,000 Birr 540,000 Birr 1,284,000 * Cash collection from last year’s (year 2006) December sales. ** 80% X Birr 300,000 = Birr 240,000. This represents uncollected march sales and will appear as accounts receivable on the balance sheet prepared as of March 31, 2007.

88. Budgeted cost of goods sold Months Budgeted sales [a] Cost of goods sold to sales percentage [b] Budgeted Cost Of goods sold [c] = [a] x [b] January Birr 400,000 60% Birr 240,000 February 600,000 60% 360,000 March 300,000 60% 180,000

89. …cont’d

90. Months Budgeted sales [a] Cost of goods sold to sales percentage [b] Sales needs stated At cost [c] = [a] x [b] January Birr 400,000 60% Birr 240,000 February 600,000 60% 360,000 March 300,000 60% 180,000 April 200,000 60% 120,000 Desired ending inventory: January = 25% x Birr 360,000 = Birr 90,000 February = 25% x Birr 180,000 = Birr 45,000 March = 25% x Birr 120,000 = Birr 30,000

91. Schedule 1(d): Schedule of Expected Cash Disbursements for Inventory Purchases ANC Company Expected Cash Disbursements for Purchases Budget For the Quarter Ended March 31,2007   Months Quarters   January February March Accounts payable-beginning balance Birr 93,000* - - Birr 93,000 January purchases (Birr 270,000) X 50%, 50% Birr 135,000 Birr 135,000 - Birr 270,000 February purchases (Birr 315,000) X 50%, 50% - 157,500 157,500 315,000 March purchases (Birr 165,000) X 50% - - 82,500** 82,500 Total disbursements for purchases Birr 228,000 Birr 292,500 Birr 240,000 Birr 760,500

92. Schedule 1 (e): Operating Expense Budget ANC Company Operating Expense Budget For the Quarter Ended December 31, 20XX   Months Quarters   January February March Salaries and wages Birr 27,000 Birr 27,000 Birr 27,000 Birr 81,000 Advertising 70,000 70,000 70,000 210,000 Shipping (5% of sales) * 20,000 30,000 15,000 65,000 Depreciation 14,000 14,000 14,000 42,000 Other expenses (3% of sales) ** 12,000 18,000 9,000 39,000 Total budgeted operating expenses Birr 143,000 Birr 159,000 Birr 135,000 Birr 437,000

93. Months Budgeted sales [a] Shipping * (5% of sales) [b] = 5% x [a] Other expenses (3% of sales) ** [c] = 3% x [a] January Birr 400,000 Birr 20,000 Birr 12,000 February 600,000 Birr 30,000 18,000 March 300,000 Birr 15,000 9,000

94. Schedule 1(f): Schedule of Expected Cash Disbursements for operating expenses ANC Company Schedule of Expected Cash Disbursements for Operating Expense For the Quarter Ended March 31,2007   Months Quarters   January February March Salaries and wages Birr 27,000 Birr 27,000 Birr 27,000 Birr 81,000 Advertising 70,000 70,000 70,000 210,000 Shipping (5% of sales) 20,000 30,000 15,000 65,000 Other expenses (3% of sales) 12,000 18,000 9,000 39,000 Total disbursements for operating expenses Birr 129,000 Birr 145,000 Birr 121,000 Birr 395,000

95. Schedule 1 (g): Budgeted Income Statement ANC Company Budgeted Income Statement For the Quarter Ended March 31, 2007       Data Source Sales   Birr 1,300,000 schedule 1(a) Less: cost of goods sold   780,000 schedule1 (c) Gross margin   520,00   Less: operating expenses:       Salaries and wages Birr 81,000   schedule 1(e) Advertising 210,000   schedule 1(e) Shipping 65,000   schedule 1(e) Depreciation 42,000   schedule 1(e) Other expenses 39,000   schedule 1(e) Total operating expenses   Birr 437,000 schedule 1(e) Net operating income   Birr 83,000   Less interest expense *   2,400 schedule 2(a) Net income   Birr 80,600  

96. Schedule 2 (b): Budgeted Balance Sheet ANC Company Budgeted Balance Sheet March 31,2007 Assets     Current assets:     Cash Birr 42,900   Accounts receivable 240,000   Inventory 30,000   Total current assets   Birr 312,900 Plant assets:     Building and equipment (net)   414,200 Total Assets   Birr 727,100 Liabilities and Stockholders’ Equity     Current liabilities:     Accounts payable   Birr 82,500 Stockholders’ equity:     Capital stock Birr 500,000   Retained earnings 144,600   Total stockholders’ equity   Birr 644,600 Total Liabilities and Stockholders’ Equity   Birr727,100