Business SENIOR

HIGH
Finance SCHOOL

Types, Formula, and Format for Self-Learning

Module

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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Business SENIOR
HIGH

Finance SCHOOL

Self-Learning
Module

7
Quarter 3
Types, Formula, and
Format for Budget
Preparation
Introductory Message

For the Facilitator:

Welcome to the Business Finance Self-Learning Module on Types, Formula,

and Format for Budget Preparation!

This Self-Learning Module was collaboratively designed, developed and

reviewed by educators from the Schools Division Office of Pasig City headed by its
Officer-in-Charge Schools Division Superintendent, Ma. Evalou Concepcion A.
Agustin, in partnership with the City Government of Pasig through its mayor,
Honorable Victor Ma. Regis N. Sotto. The writers utilized the standards set by the K
to 12 Curriculum using the Most Essential Learning Competencies (MELC) in
developing this instructional resource.

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:

Notes to the Teacher

This contains helpful tips or strategies that
will help you in guiding the learners.

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:

Welcome to the Business Finance Self-Learning Module on Types, Formula,

and Format for Budget Preparation!

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.

This module has the following parts and corresponding icons:

Expectations - This points to the set of knowledge and skills

that you will learn after completing the module.

Pretest - This measures your prior knowledge about the lesson

at hand.

Recap - This part of the module provides a review of concepts

and skills that you already know about a previous lesson.

Lesson - This section discusses the topic in the module.

Activities - This is a set of activities that you need to perform.

Wrap-Up - This section summarizes the concepts and

application of the lesson.

Valuing - This part integrates a desirable moral value in the

lesson.

Posttest - This measures how much you have learned from the
entire module.
 EXPECTATIONS

At the end of this module, you are expected to:

1. define budget;
2. identify the types of budget; and
3. learn the formula and format of different types of budget.

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

________ 2. Which of the following is an example of a fixed expense?

A. Food and groceries C. Raw materials costs
B. Gas for your car D. Mortgage or Rent payment

________ 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

________ 4. It is a budget that focuses on the income and expenditure of a company

or organization over a set of periods.
A. Sales budget C. Cash budget
B. Production budget D. Operations budget

________ 5. Which internal factor should be considered in forecasting sales?

A. Inflation rate C. Production capacity
B. Discount rate D. Developments in the industry
 RECAP
You learned from previous lessons that the financial planning process involves
setting up long term and short term goals. What are the specific steps or actions that
ultimately reach the company’s goals or objectives?

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.

Budgeting is the process of preparing the budget.

Types of Budget
1) Sales Budget is an estimate of future sales, often broken down into both units.
The most important account in the financial statement in making a forecast. The
main purpose of the sales budget is to plan for the maximum utilization of resources
and forecast sales.
The following external and internal factors should be considered in forecasting
sales:

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:

Required production in units = ES + TEI – BI

ES > Expected Sales

TEI> Target Ending Inventories
BI> Beginning Inventories
Note: Ending inventory of the current period is beginning inventory of the next
period.
 (Company Name)
Production Budget
For the months of ______________

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

3) Operations budget is a detailed projection of estimated income and expenses

based on forecasted sales revenue in a given period. This refers to the variable and
fixed costs needed to run the operations of the company but is not directly
attributable to the generation of sales.

• 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

4) Cash Budget is a budget or plan of expected cash receipts and disbursements

during the period. These cash inflows and outflows include revenues collected,
expenses paid, and loan receipts and payments. In other words, a cash budget is
an estimated projection of the company’s cash position in the future. Having the
right amount of cash in a business enterprise is very important it give access to
whether business or company will continue to operate.
. • Below is the general form of the Cash Budget:
 (Company Name)
Cash Budget

For the months of _______________

Jan Feb Mar ...... Oct Nov Dec Total

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

Required Ending Cash

xxx xxx xxx ... xxx xxx xxx xxx
Balance

Required total financing (xxx) ... (xxx)

Excess cash balance 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

Directions. Below is the list of items/transactions in preparing the budget.

Group them according to the budget where they are needed at the space
provided below.
Advertising Manpower Capacity
Beginning inventories Production Capacity
Cash disbursements Projected Sales
Cash receipts Rent
Competition Required ending cash balance
Cost of good sold Required production
Economic crisis Required total financing
Ending inventories Revenue from sales
Excess cash balance Salaries and Wages
Interest rate

Sales Budget Productions Budget Operations Budget Cash Budget

 WRAP-UP

In this lesson, you learned:

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

1. Do you think budget preparation plays an important role in everyday life?

2. As a student, have you learned how to budget or allocate your school allowance?
3. Do you think budgeting mostly talks about money matters?
4. Is managing money difficult?
5. Do you think no matter how big or small the amount of money you have you
need to learn how to budget it properly?
6. Do you think budgeting is an easy and useful tool in making you financially
secure?
 POSTTEST

Directions. Read the questions and encircle the letter of your answer.

1. This refers to the sum of money allocated for a particular expenditure.

A. Budget C. Plan
B. Budgeting D. Projected

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

4. Fixed costs is a cost that remains constant. Which of the following is an

example of fixed costs?
A. Tuition fees C. Travel expenses
B. Professional fees D. Direct labor costs

5. Which one is a variable cost?

A. Rent C. Loans payment
B. Professional fees D. Direct labor costs
 Sales Budget Productions Budget Operations Budget Cash Budget
Competition Projected Sales Revenue from sale Cash disbursements
Economic crisis Beginning inventories Advertising Cash receipts
Interest rate Ending inventories Cost of good sold Excess cash balance
Manpower capacity Required production Rent Required ending balance
Production capacity Salaries and Wages Required total financing
Post-Test Pre-Test
1. a 1. a
2. b 2. d
3. d 3. b
4. b 4. d
5. d 5. c
1. D
KEY TO CORRECTION
 References
Business Finance Teachers Guide

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