Page 898 - Accounting Principles (A Business Perspective)

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An accounting perspective:

Uses of technology

Imagine the difficulty of coordinating budgets in companies having worldwide operations,
companies such as PepsiCo and BP. BP has oil and gas exploration, production, and marketing
facilities in various countries. The BP plant in Singapore, for example, has to transmit its budget
information to corporate headquarters in London, where managers coordinate the budgets of
various operations worldwide, request additional information, require revisions in the budgets,
and otherwise interact constantly with far-flung operations. Recent advances in
telecommunications networks and collaboration software have made this process much faster and

easier. Managers in the Singapore plant of BP can get reactions from corporate headquarters
almost immediately. Corporate headquarters can get answers to its questions fast and can
coordinate the budgets from various worldwide operations quickly.

Budgeting in merchandising companies

Budget preparation for merchandising companies and service companies is similar to budgeting for
manufacturing companies. This section discusses budgeting in merchandising companies.
Throughout this chapter, we have focused on budgeting in a manufacturing company. Suppose managers in a
retail merchandising business, such as a dress shop or a furniture store, prepare a budget. In this case, the company
prepares a purchases budget instead of a production budget. To compute the purchases for each quarter,
management must estimate the cost of the goods to be sold during the quarter and the inventory required at the
end of the quarter.
Suppose Strobel Furniture Company prepared a sales budget like the one in Exhibit 196. Assume the company

maintains sufficient inventory to cover one-half of the next quarter's sales. Cost of goods sold is 55 per cent of sales.
The ending inventory on 2009 December 31, was USD 8,250. The purchases budget can now be prepared, as shown
in Exhibit 197. For the first quarter of 2010, notice that the ending inventory is one-half of the second quarter's cost
of goods sold [0.5 X (0.55 X USD 80,000) = USD 22,000].
Strobel can now use the information in its purchases budget to prepare the cost of goods sold section of the
operating budget, to prepare cash disbursements schedules, and to prepare the inventory and accounts payable
amounts in the financial budget.

Strobel Furniture Company
Sales budget
For quarters ending 2010 March 31,
through 2011 March 31
2010 March 2010 June 30 2010 September 30 2010 2011 March
31 December 31 31
$30,000 $80,000 $50,000 $90,000 $40,000
Exhibit 196: Strobel furniture company: Sales budget

Accounting Principles: A Business Perspective 899 A Global Text