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Operational Budgeting. Chapter 23. Control Steps taken by management to ensure that objectives are attained. Planning Developing objectives for acquisition and use of resources. Budgeting: The Basis for Planning and Control.
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Operational Budgeting Chapter 23
Control Steps taken by management to ensure that objectives are attained. Planning Developing objectives for acquisitionand use of resources. Budgeting: The Basis for Planning and Control A budget is a comprehensive financialplan for achieving the financial andoperational goals of an organization.
Budget Problems Perceived unfair or unrealistic goals. Poor management-employee communications. Solution Reasonable and achievable budgets. Employee participation in budgeting process. Establishing Budgeted Amounts: Behavioral Approach
EstimatedUnit Sales EstimatedUnit Price Steps in Preparing a Master Budget SalesBudget Analysis of economic and market conditions+Forecasts of customer needs frommarketing personnel
The Sales Budget Bob Poole, NTI’s marketing director, is optimistic that demand for the company’s product will continue to grow in 2015. He estimates that sales will reach 8,000 units in the first quarter and 10,000 units in the second quarter. Sales estimates for the third and fourth quarters are 30,000 units and 40,000 units, respectively. 8,000 units to Production Budget
Budgeted product sales in units • + Desired product units in ending inventory • = Total product units needed • – Product units in beginning inventory • = Product units to produce The Production Budget: Units Production must be adequate to meet budgeted sales and to provide sufficient ending inventory.
Cost of Goods Manufactured and Sold Budget The budget estimates for cost of goods sold are computed using the beginning finished goods inventory figure from the beginning balance sheet and information from the production budgets. Beginning Balance Sheet Production Budget Information Cost of Goods Manufactured and Sold Budget
Selling expense budgets contain both variable and fixed items. Variable items: shipping costs and sales commissions. Fixed items: advertising and sales salaries. Administrative expense budgets contain mostly fixed items. Executive salaries and depreciation on company offices. Selling and Administrative(S&A) Expense Budget
Cash Budget Estimates The estimates and data necessary to prepare the cash budget and budgeted balance sheets are called cash budget estimates. These include budgeted disbursements for payables, prepayments, debt service, and taxes. In addition, NTI must budget cash receipts from collection of receivables.
Benefits of Budgeting Advance warning and assignment of responsibility for conditions that require corrective actions. BUDGETS Coordination of activities among all departments within the organization. The creation of standards for evaluating performance.
To a budget for different activity levels, we must know how costs behave with changes in activity levels. Total variable costschangein direct proportion to changes in activity. Total fixed costs remainunchanged within therelevant range. Flexible Budgeting Variable Fixed
