Master budget in accounting (mian awais arif)


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Master budget in accounting (mian awais arif)

  2. 2.  Budgeting is a process. This means budgeting is a number of activities performed in order to prepare a budget. A budget is a quantitative plan used as a tool for deciding which activities will be chosen for a future time period. © MIAN AWAIS ARIF
  3. 3.  In a business, the budgeting for operations will include the following: - preparing estimates of future sales - preparing estimates of future cash collections and disbursements - preparing estimates of the future day-to- day activities of the organization - summarizing these estimates into an income statement and balance sheet. © MIAN AWAIS ARIF
  4. 4.  The budgeted income statement and balance sheet are also known as pro-forma financial statements. Once prepared and approved, the budgeted income statement and balance sheet are used to control the future activities of the business. © MIAN AWAIS ARIF
  5. 5.  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. © MIAN AWAIS ARIF
  6. 6.  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. © MIAN AWAIS ARIF
  7. 7.  Production requirements for a period are influenced by the desired level of ending inventory. Inventories should be carefully planned. Excessive inventories tie up funds and create storage problems. Insufficient inventories can lead to lost sales or crash production efforts in the following period. © MIAN AWAIS ARIF
  8. 8.  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. © MIAN AWAIS ARIF
  9. 9.  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. By knowing in advance how much labor will be needed throughout the budget year, the company can develop plans to adjust the labor force as situation requires. Companies that neglect to budget run the risk of facing labor shortages or having to hire and lay off workers at awkward times. Erratic labor policies lead to insecurity and inefficiency. © MIAN AWAIS ARIF
  10. 10.  The manufacturing overhead budget provides a schedule for all costs of production other than direct materials and direct labor. © MIAN AWAIS ARIF
  11. 11.  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. © MIAN AWAIS ARIF
  12. 12.  A budgeted income statement can be prepared from the data developed in: Sales budget Ending finished goods inventory budget Selling and administrative expense budget Cash budget The budgeted income statement is one of the key schedules in the budget process. It shows the companys planned profit for the upcoming budget period, and it stands as a benchmark against which subsequent company performance can be measured. © MIAN AWAIS ARIF