Saka) (CTT

A ; mes their organizational

Budgetin
tative terms their operat ions, usually in units and pesos and planned
; the proces s of statin g in quanti
of time.
activities for a given period
.
ning is the steps on how to achie ve those goals and objectives.
Short-term planning or profit plan use 5 of financial and other resources of the
company ina
ing or outlining the sourcing and
Budget is a detailed plan defin
given period of time.

arized as follows:
The objectives of budgeting could be summ
to plan.
« — It compels or forces managers
ve it decision making functions.
* It provides information that can be used to impro
for performance evaluation.
» — {thelps to set a benchmark that can be used
» — |timproves communication and coordination.

Definition and Components of a Master Budget

in the operation of the business.
Operating Budget — is the detailed schedule for each item
It is a detailed schedule showing the expected sales for the
= Sales Budget— is the starting point of all operating budget.
coming year.
for the period, and the required beginning and
= Production Budget — It would show the sufficient goods to be produced
ending inventories of finished goods.
cturing and goods for sale for merchandising
= Purchases Budget- it will show the direct materials purchases for manufa
firms.
= COGS budget- shows the total number of units sold and its average unit prices.
. Operating Expenses budget- Shows all the expenses for the period.
budgets and will show how profitable
= _ Budgeted Income Statement— is prepared based on the detailed operating
operations inthe period. . ¢:
in some cases includes capital acquisition
= Financial budget — is compased of the budgeted balance sheet, cash budget, and
budget.
company.
= Budgeted balance sheet would show the pro-forma presentation of the financial condition of the
= Cash
—_—S budget
a will show the cash balance at the end of the period.
dee? ‘

Major Benefits of Buggeting

« Planning sharket
¢ Evaluating Performance ‘
. Coordinating and control
* Motivation and positive bahavidr
ent in an organization are in harmony.”
“Goal Congruence is a condition in which the major objectives of every departm

Budget Committee
re lated to budgeting process. It is responsible in making
The budget committee is responsible for the overall policy matters
budget itself.
the budget program and in coordinating with the preparation of the
are outlined.
Budget manual is the handbook where all rules, procedures, and policies

Contents of Budget Manual!

* Objectives and policies of enterprise
* Definition of line of authority and responsibility
* Functions and responsibilities of the budget committee and the budget officer
* Time schedules for budget preparation
* — Instructions and forms to be used
* Program for preparation of budgets
° Procedures for obtaining approval
* Forms, nature and responsibility for the preparation of the budget
. Procedures for budgetary control and account codes in use
 ‘some Basic Factors to Consider in Preparing the Budget
«Nature of demand for the product
. Length of trade cycle
* (Functional.area covered
° Need for control of operations
° Time interval necessary for financing production well in advance of actual results.
* The accounting period

Basic Factors to Consider in Preparing a Sales Forecast

Sales Forecast is broader than sales budget. It generally encompasses the potential sales or demand of the entire industry
Factors to be considered:
* Past experience or sales trend in terms of volume
* — Anticipated changes in prices or pricing policies
* General economic conditions
* — Industry economic conditions
* — Industry competitions
* Company’s market share
* Company’s advertising and product promotion policies
* Market researches
* Consumers’ behavioral changes
* Movements of the economic indicators such as gross national product, inflation, and such.

Some Limitations of Budgeting’ -

¢ Accuracy of estimates yp Uye6
* Adverse reactions from employees
. Amount of work used in dévVelaping good budget

Definition of Terms a
" Forecasting— is the process of making predictions about changing conditions and future events that may significantly affect
the activities of an organization. oe
" _Quantitativé’ forecasting ~ a type.of forecasting that-relies.heavily.on numerical data.and. mathematical models to predict
future conditions. oe .
* Technoiogical or qualitative forecasting— is used or aimed primarily at predicting iong-term trends in technology and other
important aspects of environment.
= Judgmental forecasting- a method which relies mainly on individual judgments or group agreements regarding future
conditions. ‘
= Long range planning ~is producing forecasted financial statements for five or ten year periods.
* — Strategic plan- sets tha. overall goals and objectives of the organization.
= Master budget (pro forma statements) — is a budget that summarizes the planned activities of all sub-units of an
organization.
«Continuous budget (rolling budget) — is a common form of master budget that adds a month in the future as the month
just ended is dropped.
" Operational goals — are targets or future end results set by lower management that address specific measurable outcomes
required from the lower level.
" Qperational plans — are devised to support implementation of tactical plans and achievements of operational goals.
" Operational control — is a control type that involves overseeing the implementation of operating plans, monitoring day-to-
day results, and taking corrective action when required.
* Operating budget — is a-major part-of master budget that focuses onthe income statement and it’s supporting schedules.
" Financial budget— is the part of a master budget the focuses on the effects that the operating budget and other plans will
have on cash.
"Fixed budget —is based on one level of activity.
" Flexible budget— is based on different levels of activity.
* — Static budget — is a budget for a particular level of activity.
" Zero based budgeting — treats all activities in the organizations to start at zero level.
 yah ge
“is
Je
paid

month ending November 30,

: n man Company|is preparing its cash budget for the
ga foHowing information pertains to lronman's past collection experience from its credit sales

Current month's sales 12%

Priormonth's sales 75%
Sales two months prior to current month 6%
Salesthree months prior to current month 4%
Cash discounts (2/30, net/90) 2%
Doubtful accounts 1%
Credit sales:
Nov ember-estimated 2,000,000 x jo = 240,000
October 1,800,000 4 437% = 1,350,000
September 1,690,060 x 6% 7 4 ,000
August 1,900,000 ¥ yz

Compute for the estimated credit toAR: as a result of collections expected in aot ber.

— _Montalbo Company's|sales budget shows the following expected sales for the following year:

Quarter Units Bey 36,08

First 120,008 +" Purhayay (22,005)
[132,005] fr 4st Fvavter
Second 160,000
Cnes “Veg otre
Third 90,000. ~ Coes 129 ,owW
Fourth 110,000
Total 480,000.
END 4g ,000 <1k0 X-3)
SS

The inventory at Decéiber 31 of the prior year was budgeted at 36,000 units
The quantity:of finished goods:inventory at the end of. eath.quarter.is.to.equal 30% of the next quarter's budgeted unit sales.
Compute for theyapi(> shayld be pregiuced duringthe first quacter.

Violin Companymanufactures asingle product. [t keeps its inventory of finished goods at twice the coming, budgeted sales and
inventory. of raw materials at 150% of the coming month's budgeted production requirements. ‘Each unit of
product 1 requires two pounds of materials. The production budgets in units consist of the following
Bey 3/Q90 <\OKZLIT?
May 1,000
June 1,200 ,
* duty (3,2001
July 1300 ys GAPS (300
August 1,600 — MGS 4,400

Compute fer the raw materials purchase in June

End = 3400 6 NOX DIS?