Cheatography
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Budgeting Basics and the Master Budget
This is a draft cheat sheet. It is a work in progress and is not finished yet.
Budgeting Basics
Budget |
Advantages |
Not a substitute for management |
Formal written statement of management's plan |
Requires to plan ahead |
Need for defined authority and responsibility |
Way to communicate objectives to all the company |
Creates early warning for issues |
Research and Analysis help create realistic goals |
Tools to promote efficiency and discourage waste |
Facilitates coordination |
Must be accepted by all |
Basis for performance evaluation |
Motivates employees |
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Budgeting Process
Sales Forecast
- Include potential sales for industry
- Consider economy, technology, market, advertising
- Assigned to budget committee
- Can aspire additional effort
- Each level of management should participate |
Participative Budgeting
- Bottom-up approach
- To produce a fair and achievable budget
- Process seen as more fair
- Can be costly and time consuming |
Master Budget
Set of interrelated budgets that constitute a plan of action |
Contains 2 categories:
Operating Budgets
Individual budgets that prepare income statement |
Financial Budgets
- Budgets that focus on cash needs
- Uses information from operating budgets
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Operating/Financial Budget
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Operating Budget
Sequence of Budget Preparation
1. Sales Budget
2. Production Budget
3. DM - DL - MOH budgets |
4. S&A Expense Budget
5. Budgeted Income Statement
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Sales Budget
Expected Unit Sales Volume x Anticipated Unit Selling Price |
Drives all other Operating Budgets |
Production Budget
Required Prod. = Expected Sales Units + Desired End. FG - Beg. FG |
Only includes units |
DM Budget
Units of DM to meet production and inventory
- Units to produce x DM Unit |
DM to be purchased
- DM Unit required + Desired End. DM - Beg. DM |
Cost of DM to be purchased
- DM Unit to purchase x Cost per DM Unit |
DL Budget
Total DL Cost = Units to be produced x DL Hours per Unit x DL cost per hour |
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