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Excel_Budgets_part_2 - BUDGETING Part 2 of 6 Excel-Based...

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March 2010 I STRATEGIC FINANCE 3 3 BUDGETING Excel-Based Budgeting for Production Creating Linked Production and Direct Costs Budgets By Teresa Stephenson, CMA, and Jason Porter Budgeting. The word reminds many accountants of hours of work for little reward. No matter how much time and effort they put into it, it seems that their budget is never comprehensive enough, the numbers never “right” enough, and the picture never clear enough. What begins as a potentially useful tool never truly realizes its full potential. To combat this, we’re offering a six-part series of articles describing an Excel-based Master Budget that we use to reduce the pitfalls of traditional paper-based budgets and that can become the allocation and planning tool that all accountants hope their budgets will be . Part 2 of 6
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In Part 1 we discussed the basic mechanics of an Excel- based budget. More specifically, we walked through the most important element of this type of budget: the Data Input Sheet. By gathering all of our data and assumptions on one spreadsheet, we create a dynamic budget that can easily be modified to evaluate new assumptions, changing business conditions, or new options. In addition, depart- ment managers can easily update the entire budget each year by changing their assumptions on just that one page. Since the rest of the budget is linked to the information in the Data Input Sheet, the whole budget updates auto- matically every time information is added. Once you’ve created the spreadsheet-based budget template, updating the budget each year is a snap! In addition to creating the Data Input Sheet, the first article discussed the creation of the Sales Budget and Cash Collections Schedule. This article continues the budgeting process by detailing the steps to create the Pro- duction Budget, the Direct Materials Budget, the Sched- ule of Cash Payments, and the Direct Labor Budget. When completed, these budgets will provide estimates of production throughout the period, the quantities and costs of materials that must be purchased, the timing of the payments for direct materials, and the total hours and costs of our direct labor employees. The information about direct input quantities will help the production, purchasing, and human resources departments as they plan for the coming period. The information about total costs will be essential for the accounting and finance departments as they calculate financing needs for the upcoming period. Let’s get started. Creating the Production Budget As in the Sales Budget and Cash Collections Schedule described in Part 1, all of the information used in the Production Budget is drawn from the Data Input Sheet. For Bob’s Bicycles, our example company, the informa- tion needed for the Production Budget is in cells J9:J10 of Figure 1, highlighted in blue. The inventory and produc- tion departments estimated that 807 basic and 98 deluxe bicycles would be on hand at the end of 2009 and that the company will need to have 20% of its basic and 5% of
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