Budgeting

1. Quantitative plan

2. Expressed in financial terms

3. Specified period (year, quarter or month)

Purpose of budget

1. Corporate plan: Where would company like to be in ten years time?

2. Company’s objectives: What company wants to achieve?

3. Company’s strategy: How company intends to achieve its objectives?

4. Company’s operating plan: What resources will be required to execute the plan?

5. Company’s control: Company’s performance compared with objectives?

Operating Budget (OPEX)

Cash Budget/ Budgeted Cash flow

Month Quarter Year Total

Receipts:

Cash Sales

Accounts receivables

Dividend income

Interest income

Sale of asset

Total Receipts

Payments:

Cash Purchases

Accounts payables

Income Tax payable

Interest payable

Dividend Payable

Utilities

Purchase of asset

Total Payments

Excess of receipts over payments or

payments over receipts

Add: Opening balance(cash)

Closing balance
Revenue /sales Budget page 453

Product Units Unit Sale Price Total Sales

Product X

Sales Budget

(By Customer Group) or (By Territory)

For Year Ending December 20__

Customer January February December Total

Group/
Qty Value Qty Value Qty Value Qty Value
Territory

Total

Product X

Sales Budget

(By Territory and By Customer Group)

For Year Ending December 20__

Territory Customer January February December Total

Group
Qty Value Qty Value Qty Value Qty Value

North A

Total

Total
Production Budget page 455

Product X

Production Budget

For Year Ending December 20__

January February December Total

Sale units

Add desired closing inventory

of Finished Goods

Total Units required

Less opening inventory of

Finished Goods

Desired production

Direct Material Usage Budget

Product-A Product-B Product-C Product-D

Desired production

No of Raw Material required per unit

Raw Material usage (in Units)

Price per unit

Raw Material usage (in Rs.)

Direct Material Purchase Budget

January February December Total

Raw Material usage

Add desired closing inventory of Raw Material

Total Units required

Less opening inventory of Raw Material

Desired purchase

Rate per unit (kg/ltr)

Purchase Budget in Rs.

Direct Labor Budget

Product Production (Units) Hours per unit Total Hours Labor Rate per Hour Labor Cost

Manufacturing overhead Budget

Product Production (Units) Hours per unit Total Hours FOH Rate per Hour FOH Cost
Manufacturing Cost Budget Page 456

Product X

Manufacturing Cost Budget

For Year Ending December 31, 2018

Production 120,000 Units 125,000 Units

Direct Material Cost, $5 per unit $600,000 $625,000

Direct Labor Cost, $3 per unit 360,000 375,000

Variable Factory overhead, $1 per unit 120,000 125,000

Fixed factory overhead Total 240,000 240,000

Fixed factory overhead per unit ($2) ($1.92)

Administrative Expenses Budget

Administrative Expenses - Budget Review

Sr Variance Variance
.
Description Budget Actual
Rs. %
12,000,00 8,419,10 3,580,89
1 Salaries, Allowances & Benefits 30%
0 7 3
600,00 239,07 360,92
2 Traveling & Daily Allowance 60%
0 3 7
225,00 92,45 132,54
3 Utility Bills 59%
0 1 9
750,00 363,00 387,00
4 Legal & Professional Fee 52%
0 0 0
135,00 69,41 65,58
5 Postage & Courier 49%
0 7 3
262,50 131,26 131,23
6 Telephone, Fax, Mobile & Internet 50%
0 4 6
37,50 8,74 28,75
7 Office Entertainment 77%
0 8 2
375,00 268,56 106,44
8 Repair & Maintenance 28%
0 0 0
225,00 149,64 75,35
9 Printing & Stationery 33%
0 7 3
225,00 122,50 102,49
10 Vehicle Running Expenses 46%
0 2 8
75,00 26,49 48,50
11 Sales Promotion & Advertisement 65%
0 5 5
150,00 100,00 50,00
12 Audit Fee 33%
0 0 0
450,00 270,61 179,38
13 Insurance 40%
0 9 1
150,00 98,24 51,75
14 Misc/Unforeseen 35%
0 7 3
811,47 515,15 296,31
15 Office Rent 37%
0 3 7
750,00 492,79 257,20
16 Depreciation 34%
0 3 7
17,221,47 11,367,07 5,854,39
Total 34%
0 6 4

Payroll Budget

Rent Budget

Schedules
Marketing Expenses Budget

Selling Expenses Budget

Distribution Expenses Budget

General Expenses Budget

Capital Expenditure (CAPEX Budget)

Budgeted Income Statement

Budgeted Balance Sheet

Flexible budget

Budgeted number of client visits 5,000

Budgeted variable overhead costs:

Supplies 6,000
Treatment 20,000
Electricity 1,000
Total variable overhead costs 27,000

Budgeted fixed overhead costs:

Salaries 8,000
Rent 12,000
Insurance 1,000
Utilities other than electricity 500
Total fixed overhead cost 21,500

Total budgeted overhead cost 48,500

Actual Budgeted Variance

Client visits 5,200 5,000 200 F
Budgeted variable overhead costs:

Supplies 6,400 6,000 400 U

Treatment 22,300 20,000 2300 U

Electricity 1,020 1,000 20 U

Total variable overhead costs 29,720 27,000 2720 U

Budgeted fixed overhead costs:

Salaries 8,100 8,000 100 U

Rent 12,000 12,000 0

Insurance 1,000 1,000 0

Utilities other than electricity 470 500 30 F

Total fixed overhead cost 21,570 21,500 70 U

Total budgeted overhead cost 51,290 48,500 2,790 U

The cost variances for variable costs and for total

overhead are useless for evaluating how well
costs were controlled since they have been
derived by comparing actual costs at one level of
activity to budgeted costs at a different level of
activity.
Overhead 5,000 Activity (in client visits)
Costs
(per client
visit) 4,900 5,000 5,100 5,200
Variable overhead costs:
Supplies $ 1.20 5,880 6,000 6,120 6,240
Treatment 4.00 19,600 20,000 20,400 20,800
Electricity 0.20 980 1,000 1,020 1,040
Total variable 5.40 26,460 27,000 27,540 28,080
overhead costs
Budgeted fixed overhead costs:
Salaries 8,000 8,000 8,000 8,000
Rent 12,000 12,000 12,000 12,000
Insurance 1,000 1,000 1,000 1,000
Utilities 500 500 500 500
Total fixed 21,500 21,500 21,500 21,500
overhead cost
Total budgeted 47,960 48,500 49,040 49,580
overhead cost

Budgeted number of client visits 5,000

Actual number of client visits 5,200

 Actual
Cost cost Budgeted
formula incurred based on
(per for 5,200 Variance
client 5,200 Client
visit) Client Visits
Visits

Variable overhead costs:

Supplies $ 1.20 6,400 6,240 160 U

Treatment 4.00 22,300 20,800 1,500 U

Electricity 0.20 1,020 1,040 20 F

Total variable overhead costs 5.40 29,720 28,080 1,640 U

Budgeted fixed overhead costs:

Salaries 8,100 8,000 100 U

Rent 12,000 12,000 0

Insurance 1,000 1,000 0

Utilities other than electricity 470 500 30 F

Total fixed overhead cost 21,570 21,500 70 U

Total budgeted overhead cost 51,290 49,580 1,710 U

Flexible budget performance provides a more valid

assessment of performance. Apples are compared to
apples. Actual costs are compared to what cost should
have been at the actual level of activity.
Aims of Budgeting

1. Planning: Set and plan future course of action. It involves developing objectives and preparing
various budgets to achieve those objectives. Without short term, medium term and long term
planning, it’s hard to achieve objectives.

2. Control: Control involves the steps taken by management to increase the likelihood that the
objectives set at the planning stage are attained and that all the parts of the organization are
working together toward that goal. To be completely effective, a good budgeting system must
provide for both planning and control.

Comparison of actual with budget and take remedial actions accordingly.

Good planning without effective control is time wasted.

3. Coordination: Synchronization-coordinate all diverse actions towards common goal.

4. Evaluation criteria: Performance evaluation of manager, department and organization.

5. Motivation: Positive attitude of employees in setting standards and implementing.

6. Communication: Reporting channel within organization from juniors to seniors and across
department/ organization.