Budget i

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Budget i

  1. 1. BudgetBudget and Budgetaryand Budgetary ControlControl
  2. 2. Why Corporates DoWhy Corporates Do Budgeting?Budgeting? Goals and Objectives Budgets
  3. 3. Compels managers to think ahead Aids managers in coordinating their efforts Provides definite expectations that are the best framework to evaluate performance Advantages of BudgetsAdvantages of Budgets
  4. 4. Types of BudgetsTypes of Budgets Strategic Plan Long-Range Plan Capital Budget Master Budget Continuous Budget
  5. 5. Strategic PlanStrategic Plan  The most forward-looking budget is theThe most forward-looking budget is the strategic plan, which sets the overallstrategic plan, which sets the overall goals and objectives of the organization.goals and objectives of the organization.
  6. 6. Long-Range PlanLong-Range Plan  The strategic plan leads to long-rangeThe strategic plan leads to long-range planning, which produces forecastedplanning, which produces forecasted financial statements for five- to ten-yearfinancial statements for five- to ten-year periods.periods.
  7. 7. Capital BudgetCapital Budget Long-range plans… are coordinated with capital budgets, which detail the planned expenditures for facilities, equipment, new products, and other long-term investments.
  8. 8. Master Budget…Master Budget… summarizes the planned activities of all subunits of an organization. Sales Production Distribution Finance
  9. 9. Operating Budget Financial Budget Master BudgetMaster Budget
  10. 10. Purchases Budget ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ Purchases Budget ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ Cost of Goods Sold Budget ____ ____ ____ ____ ____ ____ ____ ____ Cost of Goods Sold Budget ____ ____ ____ ____ ____ ____ ____ ____ Operating Expenses Budget ____ ____ ____ ____ ____ ____ ____ ____ Operating Expenses Budget ____ ____ ____ ____ ____ ____ ____ ____ Budgeted Income Statement ____ ____ ____ ____ ____ ____ ____ ____ Budgeted Income Statement ____ ____ ____ ____ ____ ____ ____ ____ Sales Budget ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ Sales Budget ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ Inventory Budget ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ Inventory Budget ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ Operating Budget Components of MasterComponents of Master BudgetBudget
  11. 11. Budgeted Balance Sheet _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ Budgeted Balance Sheet _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ Capital Budget _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ Capital Budget _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ Cash Budget _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ Cash Budget _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ Components of MasterComponents of Master BudgetBudget Financial Budget
  12. 12. Operating BudgetOperating Budget Sales Budget Purchases Budget Operating Expenses Budget Cash collections from customers Disbursements for purchases Disbursements for operating expenses
  13. 13. Cash CollectionsCash Collections  It is easiest to prepare budgeted cashIt is easiest to prepare budgeted cash collections at the same time as the salescollections at the same time as the sales budget.budget.  Cash collections include the currentCash collections include the current month’s cash sales plus the previousmonth’s cash sales plus the previous month’s credit sales.month’s credit sales.
  14. 14. Purchases BudgetPurchases Budget Budgeted purchases = Desired ending inventory + Cost of materials to be used for sales – Beginning inventory
  15. 15. Disbursements forDisbursements for PurchasesPurchases  For example, 50% of the current month’sFor example, 50% of the current month’s purchases and 50% of the previouspurchases and 50% of the previous month’s purchases may be included.month’s purchases may be included.  The total disbursements are then used inThe total disbursements are then used in preparing the cash budget.preparing the cash budget.
  16. 16. Operating ExpenseOperating Expense BudgetBudget  Expenses driven by sales volume includeExpenses driven by sales volume include sales commissions and many deliverysales commissions and many delivery expenses.expenses.
  17. 17. Operating ExpenseOperating Expense BudgetBudget  Other expenses are not influenced byOther expenses are not influenced by sales or other cost-driver activity and aresales or other cost-driver activity and are regarded as fixed, within appropriateregarded as fixed, within appropriate relevant ranges.relevant ranges. Rent Insurance Depreciation Salaries
  18. 18. Operating ExpenseOperating Expense DisbursementsDisbursements  Disbursements forDisbursements for operatingoperating expenses areexpenses are based on thebased on the operating expenseoperating expense budget.budget.
  19. 19. Operating ExpenseOperating Expense DisbursementsDisbursements  For example, 50% of last month’s andFor example, 50% of last month’s and this month’s wages and commissionsthis month’s wages and commissions plus miscellaneous and rent expensesplus miscellaneous and rent expenses may be included.may be included.  The total of these disbursements is thenThe total of these disbursements is then used in preparing the cash budget.used in preparing the cash budget.
  20. 20. Budgeted IncomeBudgeted Income StatementStatement The income statement will be complete after addition of the interest expense, which is computed after the cash budget has been prepared.
  21. 21. Budgeted IncomeBudgeted Income StatementStatement Budgeted income from operations is often a benchmark for judging management performance.

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