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Powerpoint on budgets

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  • 1. Budgets
  • 2. What is a Budget ?A budget is a financial plan of future costs and revenues for a specific period in the future.
  • 3. What are the purposes of Budgeting ? To compare budgeted costs with actual costs at the same level of activity To help in controlling costs To plan product levels To compare like with like
  • 4. Operating /Subsidiary BudgetsSales Budget = Budgeted Unit sales X Budgeted Selling PriceProduction Budget = Budgeted Sales + Budgeted Closing Stock – Budgeted Opening StockMaterial Usage Budget = Production Units X Units of Different Materials Required per ProductMaterials Purchase Budget = Materials Usage Budget + Closing Stock of Materials – Opening Stock of Materials
  • 5. Principal Budgets1. Cash Budget2. Master Budget3. Flexible Budget (Higher Level only)
  • 6. Principal Budgets Cash Budget*prepared on weekly/monthly basis to allow management deal with shortages or surpluses.*show the opening cash position + inflows – outflows = closing cash
  • 7. Cash Budget• Only actual receipts and payments are included• Only when actually received and paid, not due• Depreciation is always excluded• Credit sales and purchases at the end of the period are excluded• Changes in stock level will affect cash budgets• The closing balance at the end of the period one is equal to the opening balance of period two.
  • 8. Principal Budgets Master Budget*Includes all subsidiary budgets*Consists of budgeted profit and loss account and budgeted balance sheet*If manufacturing firm a budgeted manufacturing account and budgeted trading account will be also prepared
  • 9. Principal Budgets Flexible Budgets ( Higher Level )*adjusting the original budget to the actual level of activity so that comparisons can be made*separate costs into fixed costs and variable costs using the high low method
  • 10. Exam Tips Order you Prepare Budgets sales, production, materials usage , material purchasesCan be asked in 3 parts A schedule of receipts A schedule of payments A cash budget
  • 11. Budgeting Exam Paper Question 9Higher 2012 2011 2010 2009 2008 2007 2006 2005 2004LevelCash 1 1 1 1 1BudgetFlexible 1BudgetProduction 1 1 1Budget Ordinary 2012 2011 2010 2009 2008 2007 2006 2005 Level Cash 1 1 1 1 Budget Flexible Budget Production 1 1 1 1 Budget