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Budgeting
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Budget
A sum of money allocated for a particular purpose
A summary of intended expenditures along with proposals for how to meet them
A comprehensive plan in financial terms for operations and resources of an organization for a specific period time in future
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Budgetary Control One of the three main functions of
management is to control. Budgets are useful in controlling
operations
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Budgetary Control
The use of budgets to control operations. Compare actual results with planned objectives. B
UDGET
FINAN
CIAL
STATE
MEN
TS
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Budgetary Control Reporting System
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Budget - Types Master Budget The comprehensive and coordinated budget Master Budget
1. Operation budget Physical Activities
2. Financial budget expected cash receipts &
payment, financial positions etc
3. Special purpose
1. Static budget2. Flexible budget
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A. Operation Budget1. Sales budget 2. Production budget3. Purchase budget4. Labour budget5. Manufacturing expense6. Administration expenses
Financial budget1. Cash Budget2. Budgeted financial statement3. Budgeted retained earning
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Static Budget
A projection of budget data at one level of activity.
Budgeted Production in units 10,000Budgeted Costs Indirect materials $ 250,000 Indirect labor 260,000 Utilities 190,000 Depreciation 280,000 Property taxes 70,000 Supervision 50,000
$1,100,000
Budgeted Production in units 10,000Budgeted Costs Indirect materials $ 250,000 Indirect labor 260,000 Utilities 190,000 Depreciation 280,000 Property taxes 70,000 Supervision 50,000
$1,100,000
Tata SteelOverhead Budget (Static)
For the Year Ended December 31, 2002
Illustration 7-6
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Flexible Budget
A projection of budget data for various levels of activity.
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Flexible Budget
Activity level 8,000 9,000 10,000 11,000 12,000
Variable costs Indirect materials ($1.50) $12,000 $13,500 $15,000 $16,500 $18,000 Indirect labor ($2.00) 16,000 18,000 20,000 22,000 24,000 Utilities ($.50) 4,000 4,500 5,000 5,500 6,000 Total variable 32,000 36,000 40,000 44,000 48,000
Fixed costs Depreciation 15,000 15,000 15,000 15,000 15,000 Supervision 10,000 10,000 10,000 10,000 10,000 Property taxes 5,000 5,000 5,000 5,000 5,000 Total fixed 30,000 30,000 30,000 30,000 30,000
Total costs $62,000 $66,000 $70,000 $74,000 $78,000
Activity level 8,000 9,000 10,000 11,000 12,000
Variable costs Indirect materials ($1.50) $12,000 $13,500 $15,000 $16,500 $18,000 Indirect labor ($2.00) 16,000 18,000 20,000 22,000 24,000 Utilities ($.50) 4,000 4,500 5,000 5,500 6,000 Total variable 32,000 36,000 40,000 44,000 48,000
Fixed costs Depreciation 15,000 15,000 15,000 15,000 15,000 Supervision 10,000 10,000 10,000 10,000 10,000 Property taxes 5,000 5,000 5,000 5,000 5,000 Total fixed 30,000 30,000 30,000 30,000 30,000
Total costs $62,000 $66,000 $70,000 $74,000 $78,000
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Cash Budget
Receipts
Opening balance
Total
Payments
Total
Closing balance
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Flexible Budget
Activity Level
Variable Cost
Total
Fixed Cost
Total Cost