Cost Accounting (14th Edition)

196 CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING
Step 8: Prepare the Nonmanufacturing Costs Budget. Schedules 2 through 7 cover
budgeting for Stylistic’s production function of the value chain. For brevity, other parts of
the value chain—product design, marketing, and distribution—are combined into a single
schedule. Just as in the case of manufacturing costs, managers in other functions of the
value chain build in process and efficiency improvements and prepare nonmanufacturing
cost budgets on the basis of the quantities of cost drivers planned for 2012.
Product design costs are fixed costs, determined on the basis of the product design
work anticipated for 2012. The variable component of budgeted marketing costs is the
commissions paid to sales people equal to 6.5% of revenues. The fixed component of
budgeted marketing costs equal to $1,330,000 is tied to the marketing capacity for 2012.
The cost driver of the variable component of budgeted distribution costs is cubic feet of
tables moved (Casual: 18 cubic feet * 50,000 tables + Deluxe: 24 cubic feet * 10,000
tables = 1,140,000 cubic feet). Variable distribution costs equal $2 per cubic foot. The
fixed component of budgeted distribution costs equals $1,596,000 and is tied to the distribution
capacity for 2012. Schedule 8 shows the product design, marketing, and distribution
costs budget for 2012.
Schedule 8: Nonmanufacturing Costs Budget
For the Year Ending December 31, 2012
Business Function Variable Costs Fixed Costs Total Costs
Product design — $1,024,000 $1,024,000
Marketing (Variable cost: $38,000,000 * 0.065) $2,470,000 1,330,000 3,800,000
Distribution (Variable cost: $2 * 1,140,000 cu. ft.) ƒ2,280,000 ƒ1,596,000 ƒ3,876,000
$4,750,000 $3,950,000 $8,700,000
Step 9: Prepare the Budgeted Income Statement. The CEO and managers of various
business functions, with help from the management accountant, use information in
Schedules 1, 7, and 8 to finalize the budgeted income statement, shown in Exhibit 6-3.
The style used in Exhibit 6-3 is typical, but more details could be included in the income
statement; the more details that are put in the income statement, the fewer supporting
schedules that are needed for the income statement.
Budgeting is a cross-functional activity. Top management’s strategies for achieving
revenue and operating income goals influence the costs planned for the different business
functions of the value chain. For example, a budgeted increase in sales based on spending
more for marketing must be matched with higher production costs to ensure that there is
an adequate supply of tables and with higher distribution costs to ensure timely delivery
of tables to customers.
Rex Jordan, the CEO of Stylistic Furniture, is very pleased with the 2012 budget. It
calls for a 10% increase in operating income compared with 2011. The keys to achieving
a higher operating income are a significant increase in sales of Deluxe tables, and process
improvements and efficiency gains throughout the value chain. As Rex studies the budget
Exhibit 6-3
Budgeted Income
Statement for Stylistic
Furniture
costs