Get Instant Help From 5000+ Experts For
Get Instant Help From 5000+ Experts For
  

Finance Budgeting

By HWA | Publish On: September 5, 2011 | Posted In:

Finance Budgeting

A budget represents a company’s annual financial plan. A comprehensive budget is a formal statement of management’s expectation for sales, expenses, volume and other financial transactions for the coming period. It consists basically of a pro forma income statement, pro forma balance sheet and cash budget.

A budget is a tool for both planning and control. At the beginning of the period, the budget is a plan or standard. At the end of the period it serves as a control device by which management can measure its success in achieving the goals outlined in the budget and plan to improve future performance.

With the aid of computer technology, budgeting can be used to evaluate a variety of “what-if” scenarios. Such analyses make it easier for management to find the best course of action among various alternatives. If management does not like what it sees on the budgeted financial statements, it can alter its contemplated planning decisions.

Finance Budgeting

The budget is classified into two broad categories.

  • Operating Budget
  • Financial Budget

Operating Budget consists of

  • Sales Budget
  • Production Budget
  • Direct material budget
  • Direct labor budget
  • Factory overhead budget
  • Selling and administrative expense budget
  • Pro forma income statement

The Financial Budget consists of

  • Cash budget
  • Pro forma balance sheet
  • Preparing the budget

The major steps in preparing the budget are:

  • Prepare a sales forecast
  • Determine expected production volume
  • Estimate manufacturing costs and operating expenses
  • Determine cash flow and other financial effects
  • Formulate projected financial statements

The sales forecast gives the expected level of sales for the company’s goods or services throughout some future period and is instrumental in the company’s planning and budgeting functions. It is the key to other forecasts and plans. There is a wide range of techniques of sales forecasting that the economy may choose from, however, there are basically two approaches to forecasting: Qualitative and Quantitative.

The Qualitative Approach, which includes forecasts based on judgment and opinions, includes such methods as executive opinions, the Delphi Technique, sales force polling and consumer surveys.

The Quantitative Approach includes

  • Forecasts based on historical data
  • Naïve methods
  • Moving averages
  • Exponential smoothing
  • Trend analysis
  • Associative forecasts
  • Simple Regression
  • Multiple Regression
  • Econometric Modeling

The Sales Budget

The Sales Budget is the starting point in preparing the master budget, since estimated sales volume influences nearly all other items in the master budget. The sales budget ordinarily indicates the quantity in units of each product the company expects to sell. That number is multiplied by the expected unit selling price to construct the sales budget. The sales budget also includes a computation of expected cash collections from credit sales, which will be used for cash budgeting.

The Production Budget

After sales are budgeted, the production budget is developed by determining the number of units expected to be manufactured in order to meet budgeted sales and inventory requirements. The expected volume of production is determined by subtracting the estimated inventory at the beginning of the period from the sum of the units expected to be sold and the desired inventory at the end of the period.

Expected Production Volume = Planned Sales + Desired Ending Inventory – Beginning Inventory.

For more details you can visit our website at https://www.helpwithassignment.com/finance-assignment-help and http://www.helpwiththesis.com

Book Your Assignment

Drop files here or click to upload.
Or click here to upload

Recent Posts

How To Prepare An Excellent Thesis Defense?

Read More

How to Restate A Thesis? – A Detailed Guide

Read More

Explanatory Thesis: Examples and Guide for Clear Writing

Read More

How To Write 3 Types Of Thesis Statements?

Read More

How to Effectively Prepare for Your Thesis Defense?

Read More

Get assignment help from subject matter experts!

4.7/5 rating | 10,000+ happy students | Great tutors 24/7