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Business Finance: Types, Formula, and Format For Budget Preparation
Business Finance: Types, Formula, and Format For Budget Preparation
HIGH
Finance SCHOOL
Budget Preparation 7
Quarter 3
Business Finance
Quarter 3 – Module 7: Types, Formula, and Format for Budget Preparation
First Edition, 2020
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Finance SCHOOL
Self-Learning
Module
7
Quarter 3
Types, Formula, and
Format for Budget
Preparation
Introductory Message
This learning material hopes to engage the learners in guided and independent
learning activities at their own pace and time. Further, this also aims to help learners
acquire the needed 21st century skills especially the 5 Cs, namely: Communication,
Collaboration, Creativity, Critical Thinking, and Character while taking into
consideration their needs and circumstances.
In addition to the material in the main text, you will also see this box in the
body of the module:
As a facilitator you are expected to orient the learners on how to use this
module. You also need to keep track of the learners' progress while allowing them to
manage their own learning. Moreover, you are expected to encourage and assist the
learners as they do the tasks included in the module.
For the Learner:
This module was designed to provide you with fun and meaningful
opportunities for guided and independent learning at your own pace and time. You
will be enabled to process the contents of the learning material while being an active
learner.
Posttest - This measures how much you have learned from the
entire module.
EXPECTATIONS
PRETEST
Directions. Read the questions. Write the letter of your answer before the number.
_________1. It is an estimate or allocation made in advance regarding the
expenditure of money based on available income.
A. Budget C. Sales budget
B. Production budget D. Cash budget
________ 3. This is a type of budget that provides information on how many units
should be produced over a given accounting period based.
A. Sales budget C. Cash budget
B. Production budget D. Operating budget
LESSON
Budget is a financial plan for a defined period, often one year. It may also include
planned sales volumes and revenues, resources quantities, costs, expenses, assets,
liabilities, and cash flows. Companies, governments, families, and other
organizations use it to express strategic plans of activities or events in measurable
terms. A budget is a sum of money allocated for a particular purpose and the
summary of intended expenditures along with proposals on how to meet them.
External Internal
• Gross Domestic Product (GDP) • Production capacity
growth rate • Manpower requirements
• Inflation • Management style of managers
• Interest rate • Reputation and network of the
• Foreign Exchange Rates controlling stockholders
• Developments in the industry • Financial resources of the
• Competition company
• Economic Crisis
• Regulatory Environment
• Political Crisis
Table 1 : Factors that Influence Sales
• Macroeconomic Variables (external)
Macroeconomic variables such as the GDP rate, inflation rate, and interest
rates, among others play an important role in forecasting sales because it tells us
how much the consumers are willing to spend. A low GDP rate coupled with a high
inflation rate means that consumers are spending less on their purchases of goods
and services. This means that we should not forecast high sales of the periods of low
GDP.
• Developments in the Industry (external)
Products and services which have more developments in their industry would
likely have a higher sales forecast than a product or service in slow-moving industry.
Consumer trends are always changing, thus the industry should be competitive to
be able to appeal to more customers and stay in the market.
• Competition (external)
Suppose you are selling bread and you know that each person in your
community eats an average of one loaf of bread a day. The population of your
community is 500 people. If you are the only person selling bread in your town, then
your sales forecast is 500 units of bread. However, you also have to take account of
your competition. What if there are 4 other sellers of bread? You will need to have
to divide the sales between the 5 of you. Does this mean your new forecast should
be 100 units of bread? Not necessarily. You should also know the preference of your
consumers. If more of them would prefer to buy more bread from you, then you
should increase your sales forecast.
• Production Capacity and manpower (internal)
Suppose that you have already evaluated the macroeconomic factors and
identified that there is a very strong market for your product and consumers are very
likely to buy from you. You forecasted that you will be able to sell 1,000 units of
your product. However, you only have 20 employees who can produce 20 units each.
Your capacity cannot cover your expected demand; hence, you are limited by it. To
be able to increase capacity, you should be able to expand your operations.
2) Production Budget provides information regarding the number of units that
should be produced over a given accounting period based on expected sales and
targeted level of ending inventories. It also estimates the various costs involved with
manufacturing those units, including labor and material. Created by product-
oriented companies.
It is computed as follows:
Month
Jan Feb Mar Apr May Total
Projected Sales/Expected Sales xxx xxx xxx xxx xxx xxx
Target Ending inventories xxx xxx xxx xxx xxx xxx
Total xxx xxx xxx xxx xxx xxx
Less: Beginning Inventories (xxx) (xxx) (xxx) (xxx) (xxx) (xxx)
Required Production xxx xxx xxx xxx xxx xxx
• Variable costs are costs that change as the quantity of the good or service that a
business produces changes. Examples of this are sales commissions, utility cost,
direct labor costs, cost of raw materials used in productions, tax payments, travel,
and representations expenses.
• Fixed costs are the costs that remain constant with an increase or decrease in the
number of goods or services produces or sold. Example of this are rent or mortgage,
professional fees, insurance, interest payment, loan payment, wages, and salaries.
(Company Name)
Operations Budget
For the months of _______________
Operational Income
Revenue from operations xxx
Operational Expenses
Cost of Good Sold xxx
Rent-Building xxx
Salaries and Wages xxx.
SSS & Pag-ibig Contribution xxx
Advertising xxx
Less: Total Expenses (xxx)
Profit xxx
Cash Receipts xxx xxx xxx ... xxx xxx xxx xxx
Less: Cash Disbursements xxx xxx xxx ... xxx xxx xxx xxx
Net Cash Flow xxx xxx xxx ... xxx xxx xxx xxx
Add: Beginning Cash xxx xxx xxx ... xxx xxx xxx xxx
Ending Cash xxx xxx xxx ... xxx xxx xxx xxx
Cash Receipts include all of a firm’s inflows of cash in a given financial period. The
most common components of cash receipts are cash sales, collections of accounts
receivable, and other cash receipts.
Cash Disbursements include all outlays of cash by the firm during a given financial
period. The most common cash disbursements are:
• Cash purchases
• Purchasing fixed assets
• Payments of accounts payable
• Interest payments
• Rent (and lease) payments
• Cash dividend payments
• Wages and salaries
• Principal payments (loans)
• Tax
ACTIVITIES
1. What is budget?
2. How does budgeting become a useful tool in business?
3. What are the different types of budgets?
4. Are external and internal factors considered in forecasting the sales budget?
5. How does the production budget helps giving information on the number of
units to be produced over a given period?
6. Does an operations budget help in knowing the expected profit?
7. What is the use of a cash budget in the cash position of a company in the
future?
VALUING
Directions. Read the questions and encircle the letter of your answer.
2. Which types of the budget will you use to know you have right amount of
money to continue the business operation?
A. Budget C. Sales budget
B. Cash budget D. Operations budget
3. Malinao Bakery owner forecasted that he will able to sell 2,000 loaves of
tasty in his community has 30 employees who are able to produce 30 loaves of
tasty each. This means the employees will not be able to cover the demand.
This internal factor that needs to consider in sales budgeting refers to the
_____________.
A. Competition C. Financial resources
B. Economic Crisis D. Production Capacity and manpower
https://en.wikipedea.org>wiki
https://www.corporatefinanceinstitute.com
https://www.investopedia.com>ask
https://www.myaccountingcourse.com
https://www.mymoneycoach.com>
https://www.tutorialspoint.com>sales