CORPORATE BUDGETING TASKS SUMMARY

OF MEETING MATERIALS 1-7

By :

Aqilah Nur Falihah

A021191012

FACULTY OF ECONOMICS AND BUSINESS HASANUDDIN

UNIVERSITY
2021
Summary week 1 :

Budgeting Overview

A. Definition of budgeting

The Definition of budgeting is different from budget. Budgeting is the process of compiling a
budget/a process, starting from the preparation stage required before the start of planning,
collecting data and information, division of tasks, implementation of the plan, to the stage of
monitoring and evaluation. While the Budget (Budget) is the result obtained after completing the
planning task or the results of the budgeting.

Every company is established with the aim of getting maximum profit, to be able to generate
maximum profit, the company must have products that can be sold to the public/consumers. in
addition to products that can be sold to the public, if the company wants to increase the amount of
its production, the product must be goods needed by consumers. To achieve company profits,
apart from the products produced, it also requires adequate resources to produce these products.
These resources can be in the form of: land, machinery, labor, capital, raw materials etc.

To be able to have the required resources, the company can obtain it from the owner in the
form of a capital deposit or a loan from a creditor. Meanwhile, to obtain raw materials for the
production process, companies can obtain them from raw material suppliers. After the production
process and produce goods then sold to consumers, the company will earn operating profit.

In the process of using resources and then producing products to marketing the product, the
company needs to make a plan so that operations can run so that they can achieve the main goal of
obtaining maximum profit.So basically this budget is an organization or company's work plan in
the future.

Budget is an organization or company's work plan in the future which is realized in

quantitative, formal, and systematic form. The company's work plan is written in the form of a
series of numbers which are the company's goals to make it easier for members of the
organization to see the targets that the company wants to achieve within a certain period. The plan
should be pursued to be realized by all members. Positive steps must be taken by the company to
realize what has been planned in the budget. The budget that has been made must also be
communicated to all members of the organization and compiled using a certain order so that each
member of the organization can understand the targets that must be achieved by the company.
 B. Functions and Objectives of Budgeting

The overall goal of budgeting is to plan the different phases of business operations, coordinate
the activities of the various departments of the company and to ensure effective control over it.
To achieve this goal, budgeting aims to achieve the following objectives:

1. To forecast the company's future sales, production costs and other costs to obtain the desired
amount of revenue and minimize possible business losses.

2. To anticipate the future financial condition of the company and the need for funds to be used
in business in the future with the aim of keeping the company solvent.

3. Determine the composition of capital to ensure the availability of funds at a reasonable cost.

4. To coordinate the efforts of different departments of the company towards a common goal.

5. To accelerate the efficiency of operations of various departments, divisions and cost centers of
the company.

6. To fix the responsibilities of different department heads.

7. To ensure effective control over the company's cash, inventory and sales, and

8. To facilitate centralized control over the company through the budget system.

C. Budgeting Process
Budgeting is the process of making a work plan for a period of one year, which is expressed
in monetary units and other quantitative units. In the process of preparing the budget, the
responsibility center manager participates in preparing budget proposals as well as negotiating with
the manager above who assigns a role to him. The budgeting process can be done in three ways,
namely the top down and bottom up methods. Top-Down Budgeting, which is a way of preparing a
budget determined by the highest leadership of the company with little or no consultation with
lower-level managers. Bottom-Up Budgeting, which is how to prepare a budget prepared by the
party who will carry out the budget.
Summary week 2 :

Cash Budget

A. Defenition Cash Budget

A cash budget is a budget that plans in more detail the amount of cash along with
changes from time to time during the coming period, both changes in the form of
cash requests, and changes in the form of cash disbursements.
The cash budget is an important tool in the process of planning and controlling the
company's finances, because it contains estimates of cash receipts and disbursements
for a certain period in the future so that it will be known when the company is in a
state of cash deficit or cash surplus and also aims to determine whether the
company's budget is sufficient. or not.

B. Cash Budget Purpose

To determine the state of a company's cash surplus or deficit as follows:
• A tool to monitor cash status continuously.
• Adjusting cash with total working capital, expenses, sales revenue and debt.
• Provide an overview of the cash position at the end of each period from its operational
activities.
• Finding cash shortages and excesses, and determining financing needs from excess cash for
investment.
• Measure the success of the targets that have been made.
• Tools to coordinate and integrate activities.

C. How to Prepare a Cash Budget

First of all, before compiling a cash budget, there are steps that need to be done first,
namely:
1. Determine the cash inflows to the company in a month
2. Determine the cash outflow from the company in a month
3. Cash inflows must be greater than outflows
4. The ending balance for the first month becomes the ending balance for the second
month
5. If the cash flow turns negative, the company must borrow money
 6. Be consistent with the cash budget during the planned period.

• There are ways to prepare a cash budget as follows:

a. Calculating Cash Receipts. In general, cash receipts come from:

- Receivables collection
- Cash sale
- Sales of fixed assets
- Other income (non-operating), for example interest income, rental income, dividend
income and so on.

b. Calculating Cash Expenditures. Cash disbursements that occur in the company are usually
in the form of expenses, both main costs (operating) and non-operating costs. For example:

- Purchase of raw materials in cash

- Debt payment
- Payment of direct labor wages
- Payment of indirect factory costs
- Payment of administration fee
- Payment of sales fees
- Purchase of fixed assets
- Miscellaneous payments such as interest, rent, etc.

D. Cash Budget Composition

After calculating the income and expenses that occur, then we can prepare a cash
budget. Arrange a balance between cash disbursements and receipts. However, it would be
even better if the expenditure was smaller than the incoming income, so that the financial
condition would experience a surplus.
Summary week 3 :

Cash Budget (surplus and deficit) and Labor Budget

Surplus is a term used when the amount of income is greater than the expenditure.
Meanwhile, the term deficit is used when expenditure is greater than income. Cash surplus and
deficit are often terms used by the government to describe a country's economy.

The notion of surplus and deficit of cash is not a common thing in society. moreover, the term
deficit is a scourge for capital owners. If the cash deficit continues, it will cause the company to
go bankrupt, let alone a country. In the financial statements, the surplus and deficit can be seen
clearly in the cash flow statement.

Impact of Surplus and Cash Deficit.

The impact of the cash surplus and deficit will be enormous on the company's activities,
including the following:

1. If you experience a cash deficit, all expenses that need to be paid during that period may be
hampered. No cash can afford

This causes the company to be unable to provide salaries, pay debts or buy raw materials in cash

2. The cash surplus gives the company many options to invest the money it has. The company is
able to pay its bills on time and even easy to invest

3. Become a benchmark for investors in assessing the performance of company management in

managing their capital. Investor confidence is higher when the company's financial statements
always show a cash surplus.

4. Cash surpluses and deficits are taken into consideration in preparing a cash budget to be used in
the next period

5. The company carries out reforms, restructuring or other company policies related to the flow of
funds based on cash surplus and deficit

6. Summarizing the description of the current condition of cash and easy to memorize

In simple bookkeeping, how to calculate surplus and deficit is very easy, only focusing on cash
income and expenditure. All transactions related to cash will be presented in the cash flow
statement which must be made as a component of the company's financial statements.

Both direct and indirect method cash flow statements are required to record all incoming and
outgoing income. The company's income can be divided into 3 types, namely work income,
portfolio and passive income.

Work income is income earned from doing work, for example cash sales for products produced by
the company.

Portfolio income is income obtained from the stock exchange, for example dividend
distribution. While passive income is income that continues to generate even though you do not do
a job such as income from renting a building.

Cash disbursements are divided into two types, namely those that are fixed and variable. Fixed
expenses are expenses that have the same value every month

For example, the cost of car insurance. Variable expenses have a value that changes every
month for example the cost of electricity and water.

Direct labor costs are the composition of the budget associated with the manufacturing process of
the product. Furthermore, direct labor is also understood as someone who is involved in the work
of making the production process.

In other terms, labor costs are usually called direct labor costs. Generally, these costs also include
elements that are included in the budget management by the company and are given strict
supervision. Thus, you can also understand that these costs are directly related to the processing of
production materials into finished goods.

For example, it can include machine operator salaries, overtime pay, bonuses, and so on. For
each production expense in the business, the amount paid to employees will exceed the total
wages.

This is due to the fact that the company does not only provide basic salary, but can also be
used for other benefits, including direct labor costs such as life insurance, pensions, health
insurance and a number of taxes on employee salaries paid.
Summary week 4 :

Budget Overload Cost

• Definition of overhead costs

Factory overhead costs are costs that cannot be directly related to the production of a product
or service. Overhead costs are a type of expense that are common in all types of companies. These
costs have a very important role in the survival of businesses and companies.

Overhead costs can also be interpreted as costs that exist in the company's Income Statement that
are outside the company's production activities. In simple terms, the purchase of inventory does
not include overhead costs. This is because these costs are directly related to the company's
production activities.

• Overhead Calculating Function

After discussing the definition of overhead costs, this time we will discuss how important the
role of overhead costs is for companies. More about the function to calculate overhead costs are as
follows:

a. Controlling Non-Production Expenses

b. Basis of Budget Estimation for Each Division

c. Reducing Overhead Costs Not Necessary

d. As a Basis for Formulating Company Strategy

• Types of Factory Overhead Costs

Broadly speaking, overhead costs can be categorized into 3, namely fixed, variable, and
mixed/semi-variable overhead costs. A complete description of the three types of overhead costs
is as follows:

a. Fixed Overhead Cost

Fixed overhead costs or fixed overhead costs are overheads whose amount does not change each
time a payment is made. Examples of fixed overhead costs are taxes, salaries of non-production
employees, rental costs of non-production assets, and so on.
b. Variable Overhead Cost

The second type of overhead cost is variable overhead cost, which is the amount of overhead that
varies according to the intensity of the company's activities. Main features

variable overhead cost is the company can adjust its expenses to the current strategy. Examples of
variable overhead costs include advertising costs, bonuses/commissions, payment for agency
services, office stationery, photocopying ink, and so on.

c. Mixed/Semi Variable Variable Costs

The last type of overhead is semi variable, which is a combination of fixed and variable overhead.
The main characteristic of mixed variable costs is the nominal which varies according to the
company's activities. However, when the activity reaches point 0, the company is still obliged to
make the minimum payment for the overhead costs.

• How to Calculate Factory Overhead Biaya

How to calculate factory overhead costs to be applied in the company, among others:

1. Separate Overhead Costs for Each Division

The first way to calculate factory overhead costs is to separate the budget per division. To apply
this method, we only need to collect the projected costs of each division and analyze their
proposed overhead costs one by one.
2. Estimating Overall Overhead Costs
The next way to calculate factory overhead costs is to collect all the company's overhead costs and
do a budget analysis in one read. In this case, the authority to determine overhead costs is absolute
in the hands of the owner or the finance division.
3. By Percentage
The last way to calculate factory overhead costs is to analyze the percentage of the required
overhead cost for each division and divide it according to its size. Compared to the previous two
methods, this method is most often used by companies today.
Summary week 5 :

Marketing and Administration Budget

A. Marketing Budget

Marketing budget is all expenditure plans related to all sales and distribution activities of the
company's products. Marketing costs begin when production is complete and goods are ready for
sale. This fee includes:

1. Selling costs, namely all activities related to efforts to find and obtain sales of company
products. These costs include advertising costs, product samples, sales commissions, demo
fees, and so on.
2. Order Fulfillment Costs, which are all costs incurred related to efforts to fulfill orders
according to consumer wishes, which include warehousing, packing and shipping costs,
crediting and billing as well as marketing administration.

B. Administration Cost Budget

General and Administrative Budgets are all cost plans related to office operational activities to
regulate and control the organization in general. Administrative and general activities cover all
production and marketing activities. The scope of administrative and general activities is very
broad, including administrative staff salaries, Manager and director salaries, Office rental fees,
vehicles, etc., Legal fees, Correspondence fees, Administrative office telephone costs,
Administrative office electricity costs, Administrative office electricity costs, Interest costs
credit, administrative office stationery and printing costs, administrative office building
depreciation costs, depreciation costs for public vehicles and directors, as well as various other
general and administrative costs.

An administrative budget is essentially all planned selling, general and administrative (SGA)
expenses for a period of time. In an administrative budget, only non-production costs are
accounted for, including supervisor payroll, depreciation, amortization, consulting, sales, dues
and fees, legal fees and marketing, rent, and insurance. An administrative budget enables
management to exercise control of the day-to-day activities of the business. An administrative
budget deals with the administrative side of running a business.
Summary week 6 :

Budget of Cost of Good Sold

A. Definition of cost of good sold

Cost of Goods Sold (COGS) or Cost of Goods Sold (HPP) is a calculation of the “direct
costs” incurred in the production of any good or service. This includes material costs, direct
labor costs, and direct factory overhead costs, and is directly proportional to revenue. When
income increases, more resources are needed to produce goods or services. COGS is often the
second line item to appear on the income statement, appearing right after sales revenue. COGS is
deducted from revenue to get gross profit. Cost of Goods Sold (COGS) consists of all costs
associated with producing goods or providing services offered by a company. For goods, these
costs may include the variable costs involved in manufacturing products, such as raw materials
and labor.

B. Purpose of Cost of Goods Sold

The basic purpose of finding COGS is to calculate the “cost of goods” of merchandise sold
in the period. It does not reflect the cost of goods purchased in the period and not sold or simply
held in inventory. It helps management and investors monitor business performance.

C. Steps in Calculating COGS

• Step 1: Determine Direct and Indirect Costs

The process of calculating COGS to reduce all costs of products sold, whether producing
them or buying and reselling them. List all costs, including labor costs, materials and supplies
costs, and other costs. There are two types of costs included in COGS: Direct costs are costs
associated with the production or purchase of products. Indirect costs are costs associated with
warehousing, facilities, equipment, and labor.
 • Step 2: Determine Facility Fee

Facility costs (for buildings and other locations) are the most difficult to determine. This is
where a good tax professional comes into play. assigns a percentage of the facility fee (rent or
mortgage interest, utilities, and other costs) for each product, for the accounting period concerned
(usually one year, for tax purposes).

• Step 3: Define Initial Inventory

Inventory or inventory includes merchandise in stock, raw materials, work in progress,

finished products, and inventory that is part of the goods you sell. need to physically count
everything in inventory or keep counting throughout the year.

• Step 4: Add Purchase Item Inventory

Most businesses add inventory throughout the year. must track the cost of each shipment or
the total manufacturing cost of each product added to inventory.

• Step 5: Determine Ending Inventory

The cost of ending inventory is usually determined by taking a physical inventory of the
product, or by estimating. The cost of ending inventory can be reduced for damaged, lost, or
obsolete inventory. For defective supplies, report the estimated value.

• Step 6: Perform COGS Calculations, At this point, have all the information needed to
perform a COGS calculation.
 Summary week 7 :

Receivable Budget

• Definition Receivable
(receivable) is the right to collect a number of assets from the creditor (lender) to the
debtor (loan recipient) who is willing to pay it off in the future. So, the receivables exist because
(1) there are two parties, namely the creditor and the debtor, (2) there is the willingness of the
debtor to pay off his obligations to the debtor,
(3) there is a time gap from when the receivables arise until the time they are repaid, (4) there is
a right to collect that is owned by the creditor.
Receivable budget is a budget that plans in more detail the amount of the company's receivables
and their changes from time to time during the coming period. The accounts receivable budget
shows the amount of receivables that occur from time to time because the company holds sales
transactions on credit, shows the amount of receivables that are collectible from time to time, and
also shows the remaining uncollected receivables from time to time during the period to come.
Types of Receivables

• Receivable Management

In the company, receivables must be managed properly. The management of receivables

includes the following activities:

➢ Planning the amount and collection of accounts receivable

The plan for the amount of receivables in the future is prepared based on the sales budget
by taking into account the payment terms offered by the company and customer habits in
paying interest.
➢ Accounts Receivable Control
In giving out receivables, it must be done strictly (selectively), both in screening
subscriptions, determining risk, determining receivables discounts, determining
 administrative expenses and stipulating other provisions related to creditors.
➢ Use of ratio
Companies can compare accounts receivable turnover rates from certain companies with
other companies, this helps managers in determining receivables policies in their own
companies.

• Accounts Receivable Turnover

Receivables as an element of working capital, then the situation will always rotate in the
sense that receivables will arise when there is a credit sale and will be collected at a certain
time and there will be more credit sales and so on. So the longer the payback period, the
longer the working capital will rotate in one period. Therefore, the faster the receivables
turnover, the better the

company's financial condition. The receivables turnover rate can be calculated by the following
formula.

Accounts Receivable Turnover Rate = (Sales Rate)/(Average Accounts Receivable)

Average age of receivables = 360/(Receivable turnover rate)

It is important for the company to compare the average day of collection of receivables
with the payment terms set by the company. If the average day of collection of
receivables is greater than the specified payment deadline, it is considered less efficient.
This means that many customers do not meet the payment terms set by the company.

• Benefits of Accounts Receivable

The benefits of the accounts receivable budget can be seen from two sides, namely in
general and in particular. In general, the accounts receivable budget has 3 main uses, namely:
➢ As a work guide
As the basis for preparing the receivables budget for the coming year, it is known that
the amount of receipt of the settlement of accounts receivable in the previous months is
known.
 ➢ As a work coordination tool
As a tool to control the amount of receivables within the billing period so that there is
no delay in payment of sales credit.
➢ As a work supervisor
To assess the company's performance in managing receivables turnover which will
later result in the amount of cash in the company. While specifically the purpose of the
Accounts Receivable Budget is as a basis for preparing the Cash Budget, because
receivables collected will result in additional cash.

• Factors Affecting the Preparation of the Accounts Receivable Budget

In order for a budget to function properly, the estimates contained in it must be quite
accurate, so that the results are not much different from the realization. To make an accurate
estimate, it is necessary to have complete information and experience that has occurred in
previous years which

are used as factors for determining receivables. The factors that must be considered in
preparing the accounts receivable budget are as follows:
➢ The greater the number of sales, the greater the credit sales transactions that will be
carried out, so that the company's receivables will also increase.
➢ The state of competition in the market. The higher the level of competition in the
market, the volume of sales on credit also increases.
➢ Company policy in collection of receivables The more intense the company collects
receivables, the number of company receivables decreases, but on the contrary if the
company is not active, the number of receivables will also accumulate.
➢ The company's plan to make sales on credit. The bigger the credit sales plan, the
greater the amount of receivables, and vice versa if the credit sales plan is deducted,
the receivables are also getting smaller.
 • Budgeting for Receivables

The steps for compiling an accounts receivable budget are as follows.

➢ Determine the amount of cash sales and credit sales generated by the company within a
month or quarter.
➢ Determining the amount of credit sales terms, this will affect the amount of receivables
that will be received by the company and stimulate customers to immediately pay off
their receivables.
➢ Determine the amount of reserve for bad debts which is usually determined by
percentage and in accordance with the experience of the previous period.
Determine the term of credit, namely the period of repayment of receivable