Your SlideShare is downloading. ×
0
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Finance for non finance :  part4 : budget and budgetory control
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Finance for non finance : part4 : budget and budgetory control

1,819

Published on

1 Comment
8 Likes
Statistics
Notes
  • may i have the ppt pls?
    thank you
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
No Downloads
Views
Total Views
1,819
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
0
Comments
1
Likes
8
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Budget and Budgetory ControlMr. Kaushal Mandaliakaushalmandalia@gmail.comwww.Learningmadesimple.webs.com+919825300447
  • 2. Act before there is a problem Lao Tzu Bring order before there is a disorder(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 3. What we cover in this module Importance of Strategy Budget – Introduction Preparing Budgets(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 4. Understanding Strategies and its relationship to Budgets Leads to Broad Strategy Key Strategic Tasks Helps in Resource Budgeting Allocation and Monitoring(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 5. Understanding Strategies and its relationship to Budgets Although strategic choices are different at different hierarchical level, there is a clear need for consistency in strategies across business unit and corporate levels.(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 6. Budget - Understanding Planning and Budgeting can help us lead our team to success. Budget is a plan that includes the money you will spend and when you will spend it. Budgeting for Short Term = Operational Budgeting Budgeting for Long Term = Long term planning(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 7. Nature of Budget Estimates profit potential Make or Buy Decision Period of One Year Management Commitment Reviewed and Approved by Authorities Actual Financial Performance is compared to Budget(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 8. Use of Budget Fine tuning with strategic plan Coordination Assigning Responsibility Basis for performance evaluation(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 9. Behavioral Aspects Participation Top down or bottom up approach Degree of Budget Target Difficulty Senior Management Involvement(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 10. Behavioral Aspects Organization Goals Degree of Attainment Goal Congruence means that, insofar as is feasible, the goal of an organization’s individual members should be consistent with the goal of organization itself.(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 11. Budgeting : Coordinate Budgeting Process Investment Strategy with Investment Strategy Financing Strategy Financing Strategy Working Capital Decisions, Capital Budgeting Short term Investment and Capital Structure Decisions Financing Decisions Develop Firm’s Budgets and Projections Other Budgets – Marketing, Sales Forecast Production Budget Advertising, R&D Cash Budget Pro Forma BS and PL A/c Verify that investment and financing decisions are consistent with firm’s objective and its investment and financing strategy.(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 12. Cash Budgeting Helpful in Estimating Cash Requirements Planning short term financing Scheduling payments in connection with capital expenditure projects Planning purchase of Materials Developing Credit Policies Checking Accuracy of long term forecast Commonly used designs One Year – 4 Quarters Quarter to Months Months to Weeks Principal Method Receipt and Payments Method Adjusted Net Income Method(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 13. Receipt and Payment Method Timing and Magnitude of Expected Cash Receipts and Payments over the forecast period. It includes all expected receipts and payments irrespective of how they are classified in accounting.(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 14. Illustration ABC Company Estimated Sales : Jan to Jun : 1Lac till Mar and 1.2 Lac from Apr to Jun Estimated Sales in Nov – Dec 1 Lac Cash : 20%, Credit : 80% A/c Receivable : 50% after one month and rest on second month. Other Receipts : 5000 in March, and 2000 in June Purchase Plan : 40,000 in Dec, Jan, Feb and thereafter 48,000, A/c Payable Period : 1 Month Manufacturing Exp : 20,000 / Month, Wages 15000 / Month, Misc : 2000/Month, General Admin : 10,000/M Dividend : 20,000 in June, Tax : 20,000 in June Prepare Cash Receipt Statement, Cash Payment Statement and Summary Statement(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 15. Illustration(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 16. Illustration(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 17. Precaution Cash Budget though give precise picture, but they are forecast Difference between actual cash flow and Projected Cash flow becomes important. Hence, Contingency Plan is required.(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 18. Advantages and Drawbacks Advantages Provides complete picture of cash flows Control over day to day transactions Drawbacks Its reliability is impaired by delays in collection or sudden demand of large payments or by similar factors Fails to give clear picture of important changes in company’s working capital movement (Strategies) , especially those relating to inventories and receivables.(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 19. Creating a Budget Two Approaches Take reference from the Previous Year Budget (Most widely Used) Backward Approach where we look at the written plan of what we are going to do and ask, “What will I need to buy?”(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 20. Creating a Budget Steps Gather Information Understand Each items in budget description Predicting future Review results Finishing the budget Checking with your work Present your Budget(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 21. Gathering Information Identify the source of information Make sure that the information is precise and accurate Understand each budget items clearly(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 22. Predicting the Future Integrity Expert managers understand the It should be reasonable difference between what they know and what they don’t know. Its better to say prediction and not unreasonable honestly, "We spent Rs 3 Lacs on guesses supplies last year, but we lost track of Prediction is ultimately Rs 50,000" than to try to hide that fact. prediction – may turn into reality Involve Customers or not… hence we must check Help your customers / dealers think regular performance act when the what they need from you. It will not deviation is beyond the limit. only give you more accurate budget and make it easier to plan your team’s workload, but also help them to appreciate you more.(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 23. Time Period Time Period Mostly Accounting Year Year can be broken into Quarters and Months Short term Budget (Within a year) and Long Term Budget (More than a year)(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 24. Budget and Vision VISION -------- PLANNING ---------- Budgeting Share this vision with TEAM(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 25. Production Budget Steps Calculate – How much to produce Direct Material Budget Direct Labor Budget Calculate Overheads Calculate Cost of Goods Sold(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 26. Production Budget How much we will produce? If we can sell just about as many as we can produce, we don’t change what we are doing If Sales > Capacity, Increase capacity Capacity utilization with no physical expansion (Adding a shift etc) Expansion with Fixed Assets – Capital Structure Decisions If Sales < Capacity, Lower Capacity Lowering capacity can be to a certain point only Adding new product line to use spare capacity can be an option Multiple Product – for Some products Sales > Capacity, and for others Sales < Capacity. We can convert assembly line to produce more of what we will sell and less of what we wont. This is called the changing of product mix(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 27. Production Budget How much we will produce? This yearly budget can be bifurcated into Quarterly and Monthly Based on this bifurcation – Further planning and subsequent budgets can be done by Purchase Department Inventory Department (Store) Quality Department etc,(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 28. Production Budget Inventory Management Inventory is the quantity of items we have on hand Number in Accounting Book (Book Inventory) Actual Number in Warehouse (Physical Inventory) Three Basic Approach First in First Out (FIFO) Last in First Out (LIFO) Just in Time (JIT) Choice of FIFO and LIFO depends on how you value inventory, Price fluctuation of parts etc.(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 29. Calculating Direct Material Budget(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 30. Calculating Direct Labor Cost Key Terms Direct Labor : used directly in the production of finished goods, which is counted in the cost of goods sold. Direct labor is calculated as a variable cost of manufacturing: the more we produce, the more labor we need. Indirect labor : is not directly tied to manufacturing costs, such as supervisors and administrative staff. It may be counted in the cost of goods sold or it may be an expense item.(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 31. Calculating Direct Labor Cost Key Terms Direct Labor : used directly in the production of finished goods, which is counted in the cost of goods sold. Direct labor is calculated as a variable cost of manufacturing: the more we produce, the more labor we need. Indirect labor : is not directly tied to manufacturing costs, such as supervisors and administrative staff. It may be counted in the cost of goods sold or it may be an expense item.(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 32. Calculating Overheads Key Terms Fixed Overhead : Costs that are same whatever the quantity of finished goods you produce Variable Overheads: Costs that vary with the quantity of finished goods you produce Indirect Material : Items purchased by production department that are not included in the actual items being produced. Example – packing material(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 33. Completing Cost of Goods Sold No beginning and ending work in process inventory We end year with all parts assembled into finished goods Price of parts hasn’t changed from last year to this year(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 34. Sales Budget Targets – Achievements - Projection Projected Revenue (Units sold) Projected Expense (Direct and Indirect) Forecasting Exercise Straight Line Forecasting (Setting up the trend) Seasonality Data Gathering Previous Experience(C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)
  • 35. (C) InsightHR, www.insightHR.co.in Prepared by, Kaushal Mandalia (kaushal@insightHR.co.in, +919825300447)

×