Budgets are important tools of profit planning

Budgets are important tools of profit planning - Management...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Management Science-II Prof. R.Madumathi Indian Institute of Technology Madras MODULE 2 Budget Budgets are important tools of profit planning, are similar to the broader system of planning in an organization. Planning involves the specification of the objectives that the organization will pursue and the fundamental policies that will enable the organization to achieve the predetermined goals. Budgeting Process The Planning/ Budgeting process involves four stages. They are: objective determination stage goal determination stages strategy formulation stage budget preparation stage Objective Determination Stage The first stage is setting the ‘Objectives’ which are defined as the ‘broad and long- range desired state or position in the future’. They are motivational or directional in nature and are expressed in Qualitative terms. Goal Determination Stage The second stage is specifying the goals.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Management Science-II Prof. R.Madumathi Indian Institute of Technology Madras The term goal represents targets, specific in quantitative terms to be achieved in a specific period of time. The timing of introducing new products, purchase of new plant and machinery and expected rate of return are examples of time and quantity oriented goals. Strategy Formulation Stage The next step involves laying down the strategies. Strategies denote specific methods or courses of action to achieve the goals, for instance, promotion of sales through price reduction or aggressive advertisement and so on.
Background image of page 2
Management Science-II Prof. R.Madumathi Indian Institute of Technology Madras Budget Responsibilities Types Of Budget Sales Budget Production Budget Purchase Budget Expenditure Budgets Cash Budget Master Budget Zero Base Budget Flexible Budget
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Management Science-II Prof. R.Madumathi Indian Institute of Technology Madras Sales Budget Sales budget is a functional budget. The product wise as well as regional break up of sales estimates are incorporated in the sales budget. The sales budget begins with the previous year actual and incorporates the likely changes Sales Budget – Example Area Product Budget (current month) Budget (Previous month) Actual (Previous month) Qty. Price AmountQty. PriceAmountQty. PriceAmount North K1 6000 30 180000 500030 150000 575030 172500 K2 3250 15 48750 300015 45000 350015 52500 Total 225500 South K1 1500 30 45000 0 0 0 0 0 0 K2 6500 15 97500 600015 90000 625015 93750 Total 93750 Production Budget The production budget is prepared based on the sales estimate incorporated in the sales budget. The adjustments with respect to the opening and closing stock positions that are policy decisions of the business are then made to prepare the production budget.
Background image of page 4
Management Science-II Prof. R.Madumathi Indian Institute of Technology Madras Production Budget – Example Particulars July August SeptemberOctoberNovemberDecember Total Sales 1100 1100 1700 1900 2500 2300 10600 Add:Closing Stock 550 850 950 1250 1150 1000 5750 1650 1950 2650 3150 3650 3300 16350 Less:Opening Stock 550 550 850 950 1250 1150 5300 Production 1100 1400 1800 2200 2400 2150 11050 Purchase Budget
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/04/2011 for the course HR 303 taught by Professor Sanghamitra during the Fall '05 term at Indian Institute of Technology, Chennai.

Page1 / 23

Budgets are important tools of profit planning - Management...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online