Budget Objectives A budget is a financial plan to achieve specific goals.
Objectives of Budgeting Business Functions Planning : Establishing goals Directing : Executing plans and managing day-to-day operations Controlling : Monitoring, evaluating and making corrections as needed to reach the established goals.
Budgeting Budgeting and Human behavior 1)Strict budgets may discourage some employees but inspire others 2) Loose budgets may create a “spend it or lose it” mentality 3) Conflicting goals may exist among departments (e.g., sales department and production department)
Types of Budgeting Systems Continuous budgeting Zero-based budgeting Static budget Flexible budget
Types of Budgeting Systems Continuous budget A 12-month moving budget that is continuously revised by replacing the budget for the month that just ended with a budget for the same month next year. Zero-based budgeting Sales, production and other operating data estimated as if the business is just beginning operations.
Static Budgets & Flexible Budgets
Static Budgets This is also referred to a planning budget and prepared prior the beginning of the new year (or accounting period) It is budget for one activity level (e.g. 25,000 units, 15,000 clients) Planned Activity Level 2000 hours Revenues ($30/hr) $60,000 Expenses Wages ($10/hr) 20,000 Rent 5,000 Miscellaneous expense ($1,000 + $4 x hrs) 9,000 Total expense 34,000 Net operating income $26,000
Static Budget Camden Manufacturing’s Mixing Department
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- Winter '15