Budget

A budget is a list of all planned expenses and revenues. The budget is a quantitative expression of management objectives and means of monitoring progress towards achievement of the same.

Approaches to the Budgets

Master Budget Zero based budget system

Developing the Master Budget

Sales budget Inventory and production Materials, labor and FOH combined for CGS Marketing and Administrative expenses Estimates for income and expenses items and taxes Budgeted income statement

 Cash budgets Budgeted balance sheet

Sales Budget
In Units
Territory 1 January 1000 February 1125 March 1210 TOTAL 3335

2
3 4 TOTAL

600
925 430 2955

650
900 450 3125

675
960 475 3320

1925
2785 1355 9400

In Dollars
Territory 1 2 3 4 TOTAL January 33000 19800 30525 14190 97515 February 37125 21450 29700 14850 103125 March 39930 22275 31680 15675 109560 TOTAL 110055 63525 91905 44715 310200

Production Budget
Formula: Sales Budget (units)+ desired ending inventory- beginning inventory
Units
January
Budgeted sales Add: desired ending inv. Sub Total 2955 2050 5005

February
3125 2175 5300

March
3320 2215 5535

Quarter
9400 2215 11615

Less: Budgeted Op. inv. Production Required

2140
2865

2050
3250

2175
3360

2140
9475

Direct Material Purchased Budget

Formula: production required+ desired ending inventory- beginning inventory= purchased required (units) x per unit cost= purchase cost
January Production required Add: desired ending inv. Sub Total Less: Beginning inventory Purchase Required (units) Price per unit Purchase cost ($) 2865 1950 4815 1719 3096 X 8.5 26315 February 3250 2016 5266 1950 3316 X 8.5 28186 March 3360 2100 5460 2016 3444 X 9.00 30996 Quarter 9475 2100 11575 1719 9856 X 8.675 85498

Direct Material Usage Budget

Formula: Direct material required x per unit cost
January Direct material required Unit cost Direct material usage 2865 X 8.5 24353 February 3250 X 8.5 27625 March 3360 9.00 30240 Quarter 9475 8.68 82218

Direct Labor Budget

Formula: Production requirement x direct labor hours per unit x labor rate
January Production required Direct labour hours 2865 5730 February 3250 6500 March 3360 6720 quarter 9475 18950

Labor rate
Direct labor cost

X 3.00
17190

X 3.50
22750

X 3.50
23520

X 3.35
63460