EDELBERTO N.

ANILAO III 04-25-22

12-ABM-2 BUSINESS FINANCE

ANSWER THE FOLLOWING :

1. Define budgeting? budget?

In general, the term ‘budgeting’ is simply the concept of creating a plan with the
intention of spending money. It allows an individual to wisely allocate and utilize their financial
resource for his/her benefit. In a business scale, it allows a business to set aside money for
their expenditures, investments, and more wisely. The ‘budget’ on the other hand, is the
amount itself that will be spent towards an aspect of a business or personal expenditure.
Further elaborated, it is the mechanism that allows a business to visualize and realize ways
that will aid in the achievement of goals and objectives quantitatively.

2. Explain the three important concerns that must be considered in preparing a

budget.

a) Who are involved in the budgeting process?

It is of importance to address the concern of knowing the people who are involved in
the budgeting process due to several reasons. Firstly, having the right people from
departments that are in need of a budget is important because these people have both
the knowledge and capability of knowing what budget is suitable for them. This is done
with the supervision of the Budget Committee (finance officers) to assess whether the
budget a department requests is justifiable and feasible. Having the right people to
address, assess, and decide enables any entity to make sound judgements. .

Namely, the people involved in the budget preparation are the following:

 Budget Committee
 Marketing Division
 Finance Division
 Production Division
 Administration Division

b) What period is covered by the budget?

It is of importance to know and be aware of the period covered by the budget because
beyond the period, the budget would have been depleted. If an entity has no
knowledge regarding the period of the given budget may cause problems such as
financial shortage, over-spending, over-stocking, and more. Additionally, if one is
aware of the budget period, one has the ability to wisely allocate and ration the budget.

Namely, there are three types of budget according to the length of its period:

 Short-term Budget
 Medium-term Budget
 Long-term Budget
EDELBERTO N. ANILAO III 04-25-22
12-ABM-2 BUSINESS FINANCE

c) What type of budget is prepared?

Knowing the type of budget that has to be prepared gives an individual an early
notice on the urgency of a budget. Aside from that, it informs the individual what
expenditures are to be made from that budget.

There are four types of budget, the following are:

 Sales Budget
 Production Budget
 Operations Budget
 Cash Budget

3. Describe the following types of budget :

a. Sales budget – refers to the budget that is estimated from the forecast of past
year business performance and marketing behavior. It reflects the expected number of units
to be sold. Hence, it is used to estimate the size of the budget.

b. Operating budget – refers to the budget that covers the operational dues and fees
that is spent during the company’s production process, selling process, and more. Some
expenditures under this budget is the tax payments, rent, wages, and salaries.

c. Production budget - refers to the budget that is used in the production of a product.
Simply stated, the expenditures under this budget are raw materials, direct labor, and
overhead costs.