Excel_Budgets_part_1

Excel_Budgets_part_1 - C OV ER S TORY Part 1 of 6 Creating...

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COVER STORY Creating an Excel-Based Budget You’ll Really Use By Jason Porter and Teresa Stephenson, CMA Budgeting. For some, the word brings up images of days spent tracking down data and working with spreadsheets. For others, it suggests long arguments with various managers about estimates and assumptions. Others see a carefully crafted document stuck in a filing cabinet or a drawer after only a cursory review. But that isn’t what we originally learned about budgeting in our cost accounting classes. At that time we were shown budgeting as what it really can be: a formal written plan used to allocate scarce resources and to evaluate our success with performance goals. If only we could create a budget that would allow us to avoid the negative stigma often associated with budgeting, perhaps then we could see the benefits that come from our efforts. 26 STRATEGIC FINANCE I February 2010 Part 1 of 6
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One of us had the opportunity to create such a budget. At the time, budgeting wasn’t really part of Teresa’s job description, and it certainly wasn’t part of the company culture. The business was small, and the managers and supervisors who had provided information for previous budgets considered it an opportunity to manipulate senior management. They would pad their estimates to make sure they received enough resources, or they would lowball their estimates so they would get a better bonus after the year-end analysis. Either way, the resulting bud- get was relatively useless. In an attempt to simplify the budgeting process, Teresa stumbled on a powerful bud- geting method that not only sped things up but allowed managers to see how their estimates and assumptions affected the pro forma financial statements the company used to seek financing. Finally, after years of thinking that their budget manipulations “weren’t hurting anyone,” these managers and supervisors had a chance to see how rounding up unit costs by even one penny could elimi- nate the projected profit of the company. For most of them, including the accounting staff, it was a real wake- up call. The secret is to create a linked Master Budget in Excel, or other spreadsheet program, that allows each supervisor to change only his or her assumptions and estimates. Since the supervisors can’t change the equations or any other estimates, the carefully prepared pro forma financial statements will show the results of their changes. This six- part series of articles will help you create a budget that you can use in this way. The current article discusses the Data Input Sheet and the Sales Budget. Future articles will continue with how the budget flows through the produc- tion cycle; the direct materials, direct labor, and manufac- turing overhead requirements; administrative overhead; and cash flows. We’ll then walk you through the steps to create a set of pro forma financial statements: an Income Statement, Balance Sheet, and Statement of Cash Flows. You can use these statements for internal discussions and
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This note was uploaded on 09/29/2011 for the course ACCT 305 taught by Professor Franz during the Spring '07 term at S.F. State.

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Excel_Budgets_part_1 - C OV ER S TORY Part 1 of 6 Creating...

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