3. BASIC FRAMEWORK OF BUDGETING
Budget is a detailed quantitative plan for
acquiring and using financial and other
resources over a specified forthcoming
time period.
The act of preparing a budget is called
budgeting.
Budgetary control - use of budgets to
control an organization’s activities
4. Communicate management's plans
Think about and plan for the future
Provides a means of allocating
resources
Uncover potential bottlenecks
Coordinate activities by integrating the
plans of its various parts
ADVANTAGES OF BUDGETING
5. 1.It brings about efficiency and improvement in the working of the
organization.
2.It is a way of communicating the plans to various units of the
organization. By establishing the divisional, departmental, sectional
budgets, exact responsibilities are assigned. It thus minimizes the
possibilities of buck passing if the budget figures are not met.
3.It is a way or motivating managers to achieve the goals set for the
units.
4.It serves as a benchmark for controlling on-going operations.
5.It helps in developing a team spirit where participation in budgeting is
encouraged.
6.It helps in reducing wastage and losses by revealing them in time for
corrective action.
7.It serves as a basis for evaluating the performance of managers.
8.It serves as a means of educating the managers.
A BUDGET HELPS US IN THE FOLLOWING
WAYS:
6. • Managers should be held responsible for
those items - and only those items - that
the manager can actually control to a
significant extent.
• Personalize accounting information
• Manager is not penalized if budgeted
goals not achieved
RESPONSIBILITY ACCOUNTING
7. direct labor budget.
production budget.
direct materials budget .
sales budget.
Inventory purchase budget.
TYPES OF BUDGET
8. • Required production xxx
• Direct labor hours per unit xx
Total direct labor hours needs xxxx
• Direct labor cost per hour xxx
Total direct labor cost xxxxxx
DIRECT LABOR BUDGET
9. 1st Q 2ndQ 3rdQ 4thQ Total
Production 800 6500 7000 7500 29000
DLH 0.35 0.35 0.35 0.35 0.35
Total direct labor 2800 2275 2450 2625 10150
DLRPH 12 12 12 12 12
Total direct labor 33600 27300 29400 31500 121800
cost.
E.G
IF WE PRODUCED THE UNIT; 1Q 8000 2Q 6500 3Q 7000 4Q 7500 AND
EACH UNIT REQUIRED DIRECT LABOR HOURS 0.35 AND DIRECT LABOR
HOUR PAID 12 PER HOUR;
