2-Training Material - Budget - 22nd & 23rd Feb 2010

8/11/2019 2-Training Material - Budget - 22nd & 23rd Feb 2010

1/22

BUDGETING


2/22

2

Strategic Planning

Every enterprise has a set of goals

Every enterprise has a set of goals

Strategic

Planning

StrategicPlanning

PublicService

PublicService

Profitability

Profitability

Growth

Growth

Achieving and

Maintaining

a Competitive

Advantage

Achieving and

Maintaininga Competitive

Advantage

IDENTIFY

CRITICAL SUCCESSFACTORS

IDENTIFY

CRITICAL SUCCESSFACTORS


3/22

3

What is a Strategic Long-Range Plan?

What is a Strategic Long-Range Plan?

Strategic Planning

It discusses the major capital investments required to:

It discusses the major capital investments required to:

It expresses the specific steps required toachieve the organizations goal

It expresses the specific steps required to

achieve the organizations goal

Increase

Capacity

Increase

Capacity

Diversify

Products or

Processes

Diversify

Products or

Processes

Maintain

PresentFacilities

Maintain

PresentFacilities

Develop

ParticularMarkets

Develop

ParticularMarkets


4/22

4

Budget

A budget is the quantitativeexpression

of a proposed plan of action by management

for a future time period and

an aid to the coordination andimplementation of the plan.


5/22

5

Definition of Budget Donella Rapier

Budget is a quantitative expressionof a plan of action.

Budget serves as a goal that

organisation strives to achieve.

What is a budgetingsystem?What is a budgetingsystem?

The procedures used todevelop a budgetThe procedures used todevelop a budget


6/22

6

Why do we need Budgets? 1. To aid the planning of actual

operations:

by forcing managers to consider howconditions might change and whatsteps should be taken now.

by encouraging managers to considerproblems before they arise.

2. To co-ordinate the activities of the

organization:by compelling managers to examine

relationships between their own

operation and those of otherdepartments.


7/22

7

Why do we need Budgets?...(2) 3. To communicate plans to various

responsibility centre managers:

everyone in the organization shouldhave a clear understanding of the partthey are expected to play in achieving

the annual budget.by ensuring appropriate individuals are

made accountable for implementing thebudget.

4. To motivate managers to strive toachieve the budget goals:

by focusing on participation

by providing a challenge/target.


8/22

8

Why do we need Budgets?...(3) 5. To control activities:

by comparison of actual with budget(attention directing/management byexception).

6. To evaluate the performance ofmanagers:

by providing a means of informing

managers of how well they areperforming in meeting targets they havepreviously set.


9/22

9

Budgeting Cycle

Planning the performance of theorganization

Providing a frame of reference, a set

of specific expectations againstwhich actual results can becompared

Investigating variations from plans Correcting action follows, if

necessary

Planning again


10/22

10

Stages in Budgeting Process1.Communicate details of budget policy and

guidelines to those people responsible for

preparing the budget.

2. Determine the factor that restricts output.

3. Preparation of the sales budget.

4. Initial preparation of budgets.

5. Negotiation of budgets with higher management.

6. Co-ordination and review of budgets.

7. Final acceptance of budgets.

8. Ongoing review of the budgets.


11/22

11

Budgeting

CycleBudgeting

Cycle Evaluating Performanceand Providing

Incentives

Evaluating Performance

and Providing

Incentives

PlanningPlanning

Facilitating

Communication

and Coordination

Facilitating

Communication

and Coordination

Managing Financial

and

Operating Performance

Managing Financial

and

Operating Performance

Allocating

ResourcesAllocating

Resources

Budgeting Cycle


12/22

12

Master Budget?

MB is a comprehensive expression

of managements operating and

financial plans

for a future time period

MB includes Operating &Financing.


13/22

13

Master Budget Components

Operating budget

Revenue budget

Production budget in units

Direct materials purchase budget

Direct labour budget

Cost of goods sold budget Nonmanufacturing costs budget

Budgeted income statement


14/22

14

Time Coverage of Budgets

Budgets typically have a set timeperiod (month, quarter, year).

This time period can itself be brokeninto sub-periods.


15/22

15

MASTER BUDGETSales Budget

Production Budget

Direct MaterialBudget

Budgeted schedule

cost of goods

manufactured and sold

Budgeted balance

Statement

Direct LaborBudget

Mft. OverheadBudget

Cash budget

Budgeted income

Statement

Budgeted Statement

of Cash Flows

Sales Budget

Selling, General

and Administrative

Budget

R&D

Budget

MarketingBudget

Customer Service

Budget

OperationalBudget

Budgeted

FinancialStatements

Capital Budget


16/22

16

Master Budget Components

Financial budget Capital budget

Cash budget

Budgeted balance sheet

Budgeted statement of cash flows


17/22

17

Production Budget

Budgeted sales (units)+ Target ending finished goods

inventory (units)

Beginning finished goods inventory(units)

= Budgeted production (units)


18/22

18

Cost of Goods Sold Budget

Cost of goods manufactured+ Finished goods beginning inventory

= Cost of goods available for sale

Finished goods ending inventory

= Cost of goods sold


19/22

19

Cash Budget

Cash Budget A cash budget shows expected cash

receipts and disbursements; it

indicates the months having cashshortages and excesses.


20/22

20

Feedback and Fixing Blame

Budgets coupled with responsibilityaccounting provide systematic helpfor managers, particularly if

managers interpret the feedbackcarefully.

Use of variances


21/22

21

Activity-based budgeting (ABB)

Conventional budgeting is inappropriate for those activities

where the consumption of resources does not vary

proportionately with the volume of the final output of

products or services.

For support activities conventional incremental budgetsmerely serve as authorization levels for certain levels of

spending.

Incremental budgeting results in the cost of non-unit level

activities becoming fixed.

ABB aims to authorize only the supply of those resources

that are needed to perform activities required to meet

budgeted production and sales volumes.


22/22

22

Thank you

2-Training Material - Budget - 22nd & 23rd Feb 2010

Documents