Extract from Professional Publications - Budgeting 18072017.pdf

Extract from Professional Publications - Budgeting 18072017.pdf

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Unformatted text preview: \. ELEMENTS or BUDGETING , esponsibilities of titative terms setting out the r i. Budget iectives. A budget is a plan of future actions expre management in relation to the requirements 0 ssed in quan f the company-’5 overall ob repare forecasts of probable s or budgets are prepared for .h ning stage it is necessary to p Based on these forecasts, plan 5 may be achieved. nt and in the plan iness in the future. that its objective is a probable eve action for the bus f the business so .' A forecast l“ courses of the future 'operations 0 'l' Budgetary Control who incurs the expenditure so that actual expenses person can be compared with budgeted expenses giving a convenient method of control. l 1 39"” “a Yafio‘m / / , WM? / / "i / «s \ / «Rt ' \ .«ge‘efiw d / 6': \9 e “‘9' / § W‘s . \ x e I “A \ / a? \ / / 06? Act \ ual Pei-romance W / "3-4:"! Objectives of Budgetary C0"'“°| --'"Thc main objectives of budgetary control are:— tO plan the policies of the business; to coordinate the activities of the business so that each is part of an integral whole; to contr0l each function so that the best possible results may be obtained; to decentralise responsibility on to each manager involved; é). to indicate to management where action is needed to remedy a situation. ' ydfiet Committee budget principles and ‘1)?“ a c0mmittee set up to coordinate all the company’s planning and formulation of ‘ ' III-'ocedures, 195 Its functions include the following: i} decision on general policies; ii) approval of budgets and later revision; iii) analysis and review of budget reports; iv) recommendation of actions designed to improve efficiency. Its members include top-level executives such as: i) the chief accountant; v) the purchasing manager; ii) the chief engineer; vi) I the personnel manager; iii) the sales manager; vii) the executive director. iv) the production manager; Budget Manual This is a handbook which lists out the responsibilities of those executives responsible for the preparation of budgets, the forms and specific procedures to be followed and the objectives of the business. Length of Budget Period Budgets may be prepared on a short-term or long-term basis. Some companies may prepare an annual budget on a "rolling" or “continuous" basis where as each month passes, the following twelfth month is added on. This will mean that a company will always have a 12-month budget detailed in advance. The advantage of such a rolling budget is that changing economic conditions can be taken into consideration and budgeting becomes a continuous process rather than a once-a-year task. Principal Budget Factor This is a factor which limits the volume of output of a company at a particular point in time or over a period. It may be a shortage of skilled labour, working capital, demand for products, plant capacity, shortage of raw materials or government restrictions. In the preparation of budgets, this factor must always be taken into consideration. Master Budget The master budget consists of:— (a) Operating Budget — Sales Budget -— Production Budget: Materials Used and Purchases Direct Labour Production Overheads . Stock Levels — Cost of Goods Sold Budget — Selling Expenses Budget — Administration Expenses Budget (b) Financial Budget ~— Cash Budget — Budgeted Balance Sheet m Budgeted statement of sources and applications of funds Relationships of Bu'dg’e‘ts Principal Budget Factor —-l - Sales budget Finished goods I 'tal bud et api g stock budget Sales and distribution Production overheads budget budget )duction, admin- :ration, R & D it centre budget Machine Material usage .. .. utilisation Wages budget budget W Raw materials stock budget budget Materials I purchases budget Cash and working capital budgets Budgeted P & L account Budgeted balance sheet 197 ...
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  • Spring '17
  • Benildus Yeow
  • Finance

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