Case 6-1 The Browning Manufacturing Company’s management team uses a projected budget in order to compare actual financial results to expected financial results. According to the management team, each department is dependent upon each other to provide estimates of future revenues and expenses. The departments consist of finance, sales, manufacturing and purchasing. The estimates are used to devise a projected profitable plan for the upcoming year. After each department supplied their estimates at the Browning Manufacturing Company, the accounting team would create a projected income statement, balance sheet, retained earnings statement, and a statement of cost of goods sold (Anthony, Hawkins, Merchant, 2011). Usually the company
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In addition, management may want to use actual utilities in future projections since they are a fixed cost. If there happens to be a decrease by some chance then it will be money saved in the end instead of an increase which costs the company money. Projections can be very useful as it allows a company to obtain an idea of how much the company may be spending or making, however, they are never accurate they are just estimates. When conducting projections a company must look at the past year or more to see if there is any fluctuations and how much of a fluctuation. Those fluctuations can help a company make better estimates in favor of the company.
Anthony, R., Hawkins, D. & Merchant, K. (2011). Accounting text and cases, 13th ed. New York, NY: McGraw-Hill
Cost of Goods Sold Materials used | | | | | | 811,000 | | Plus: Factory Expenses | | | | | | | | Direct manufacturing labor | | | | 492,000 | | | Factory overhead | | | | | | | | | Indirect manufacturing labor | | $ 198,000 | | | | | Power, heat, and light | | 135,600 | | | | | Depreciation of plant | | 140,400 | | | | | Social Security Taxes | | 49,200 | | | | | Taxes and insurance, factory | | 52,800 | | | | | Supplies | | | | 61,200 | | |