Planning and Short-term Budgeting

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Planning and Short-term Budgeting

  1. 1. PLANNING & SHORT-TERM BUDGETING Chapter 5
  2. 2. BUDGETING Is a process of planning organization's operating activities stated in quantitative terms, usually in units and pesos in a given period of time.
  3. 3. Objectives of Budgeting  It compels or forces managers to plan.  It provides information that can be used to improve decision making functions.  It helps to set a benchmark that can be used for performance evaluation it improves communication and coordination.
  4. 4. MASTER BUDGET Operating Budget – is the detailed schedule for each item in the operation of the business. Financial Budget – is composed of the budgeted balance sheet, cash budget, and in some cases includes capital acquisition budget.
  5. 5. Operating Budget  Sales budget is a detailed schedule showing the expected sales for the coming year.  Production budget would show the sufficient goods to be produced for the period, and the required beginning and ending inventories of finished goods.  Purchase budget will show the direct materials purchases for manufacturing and goods for sale for merchandising firms.
  6. 6.  Cost of Goods Sold budget shows the total number of units sold and its average unit prices.  Operating cost shows all the expenses for the period. This includes direct labor and manufacturing overhead budgets for a manufacturing.  Budgeted Income Statement will be used as the basis for evaluating the performance of the company by comparing the budget and the actual results at the end of each year.
  7. 7. Financial Budget  Budgeted balance sheet is a prepared beginning with the current balance sheet and adjusted by the amounts from the operating budgets.  Cash budget will outline the beginning cash balance and adjusted by the total cash receipts and cash disbursements during the year whether from operating, investing or financing activities of the firm.
  8. 8. Major Benefits of Budgeting  Planning. Budgeting compels managers to think ahead by formalizing their responsibilities in business operations.  Evaluating performance. Budgeting provides definite expectations that serve as the best framework for judging subsequent performance.
  9. 9.  Coordinating and Control. Budgeting aids managers in coordinating their efforts, so that the objectives of the organization as a whole match the objectives of its parts.  Motivation and positive behavior. People who are involved in the preparation of the budget must develop a sense of commitments to the achievement of the budget they made.

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