Budgeting and Planning:

After studying this chapter you should be able to:

1. Understand why organizations budget and the processes they use to create budgets.
2. Prepare a sales budget, including a schedule of expected cash receipts.
3. Prepare a production budget.
4. Prepare a direct materials budget, including a schedule of expected cash disbursements for the purchase of materials.
5. Prepare a direct labor budget.
6. Prepare a manufacturing overhead budget.
7. Prepare a selling and administrative budget.
8. Prepare a cash budget.
9. Prepare a budgeted income statement.
10. Prepare a budgeted balance sheet.

Profit Planning:

Profit planning can be defined as the set of steps that are taken by firms to achieve the desired level of profit. Planning is accomplished through the preparation of a number of budgets, which, when brought through, from an integrated business plan known as master budget. The master budget is an essential management tool that communicates management's plan through out the organization, allocates resources, and coordinates activities. Click here to read full article.

Participative or Self Imposed budgeting:

The budgeting approach in which managers prepare their own budget estimates is called self imposed or participatory budget. This is generally considered to be the most effective method of budget preparation. Managers at all levels participate and coordinate with each other in budgeting. Click here to read full article.

Human Factors in Budgeting:

If a budget program is to be successful, it must have the complete acceptance and support of the persons who occupy key management positions. Click here to read full article.

Zero Based Budgeting (ZBB):

Zero based budgeting (ZBB) is an alternative approach that is sometimes used particularly in government and not for profit sectors of the economy. Click here to read full article.

Budget Committee:

A standing budget committee will usually be responsible for overall policy matters relating to the budget program and for coordinating the preparation of the budget itself.

Master Budget:

The master budget is a summary of company's plans that sets specific targets for sales, production, distribution and financing activities. It generally culminates in a cash budget, a budgeted income statement, and a budgeted balance sheet. Click here to read full article.

Sales Budget:

A sales budget is a detailed schedule showing the expected sales for the budget period; typically, it is expressed in both dollars and units of production. An accurate sales budget is the key to the entire budgeting in some way. If the sales budget is sloppily done then the rest of the budgeting process is largely a waste of time. Click here to read full article.

Production Budget:

The production budget is prepared after the sales budget. The production budget lists the number of units that must be produced during each budget period to meet sales needs and to provide for the desired ending inventory. Click here to read full article.

Inventory Purchases Budget for a Merchandising Firm:

Manufacturing firms prepare production budget but merchandising firms prepare merchandising purchase budget instead. Merchandising purchase budget shows the amount of goods to be purchased from its suppliers during the period. Click here to read full article.

Material Budgeting | Direct Materials Budget:

Direct materials budget is prepared after computing production requirements by preparing a production budget. Direct materials budget or materials budgeting details the raw materials that must be purchased to fulfill the production requirements and to provide for adequate inventories. Click here to read full article.

Labor Budget:

The direct labor budget is developed from the production budget. Direct labor requirements must be computed so that the company will know whether sufficient labor time is available  to meet the budgeted production needs. Click here to read full article.

Manufacturing Overhead Budget:

The manufacturing overhead budget provides a schedule for all costs of production other than direct materials and direct labor. Click here to read full article.

Ending Finished Goods Inventory Budget:

After preparing sales budget, production budget, direct materials budget, direct labor budget, and manufacturing overhead budget the management has all the data needed to calculate unit product cost. This calculation is needed for two reasons: first, to determine cost of goods sold on the budgeted income statement; and second, to know what amount to put on the balance sheet inventory account for unsold units. The carrying cost  of unsold units is calculated on the ending inventory finished goods budget. Click here to read full article.

Selling and Administrative Expense Budget:

Selling and administrative expense budget lists the budgeted expenses for areas other than manufacturing. Click here to read full article

Cash Budget:

Cash budget is a detailed plan showing how cash resources will be acquired and used over some specific time period. Click here to read full article.

Budgeted Income Statement:

The budgeted income statement is one of the key schedules in the budget process. 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. Click here to read full article.

Budgeted Balance Sheet:

The budgeted balance sheet is developed by beginning with the current balance sheet and adjusting it for the data contained in other budgets. Click here to read full article.

International Aspects of Budgeting:

A multinational company faces special problems when preparing a budget. The problems arise because of fluctuations in foreign currency exchange rates, the high inflation rates found in some countries, and local economic conditions and governmental policies that affect everything from labor costs to marketing practices. Click here to read full article.

 

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