Excel_Budgets_part_3 - BUDGETING Part 3 of 6 Excel-Based...

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Budgeting. Sometimes the more effort we put into it, the less people appreciate our efforts! But there’s a way to make a budget that can be used and appreciated. This is the third in a series of six articles describing how to use Excel to create such a budget. Although it will take a bit of effort to put together your first Excel-based Mas- ter Budget, making this type of budget will provide you with a powerful tool that you can quickly and easily update in future years. Not only that, but we plan to show you how to use this spreadsheet tool to see how small changes in your business will make big changes to your bottom line, something all the managers and supervisors in your company should appreciate. First, though, we need to continue creating the budget. In Part 1, we started our Excel-based Master Budget with the Data Input Sheet, the foundation of the rest of the budget. We also discussed the creation of the Sales Budget and the Cash Collections Schedule. Part 2 took us through the first part of the production process: the Pro- duction Budget, the Direct Materials Budget, the Sched- ule of Cash Payments, and the Direct Labor Budget. Part 3 will take us through the rest of the production process by creating a Manufacturing Overhead Budget and an Ending Finished Goods Inventory Budget. We will then wrap up the foundation by creating the Selling and Administrative Budget. Is your computer ready? Here we go. Creating the Manufacturing Overhead Budget As in the previous budgets we’ve discussed, all the infor- mation for the Manufacturing Overhead Budget is drawn 34 STRATEGIC FINANCE I April 2010 BUDGETING Excel-Based Budgeting for Indirect Costs Expenses By Jason Porter and Teresa Stephenson, CMA Part 3 of 6
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from the Data Input Sheet or previous budgets. This process is the true magic of the spreadsheet-based budget process. Gathering all of your estimates and assumptions in one place lets you quickly and easily update and change your budget with just a few keystrokes. If you decide to switch to a Just-in-Time (JIT) inventory system, a quick adjustment to your desired ending inventory per- centage (say from 10% to 2%) will automatically change your Production Budget, Direct Materials Budget, Direct Labor Budget, and so on, all the way through your Pro Forma Financial Statements, without requiring any addi- tional work on your part. It’s awesome! Take a look at the Manufacturing Overhead Budget shown in Figure 1. The first row of numbers contains the direct labor hours for each quarter, which are the compa- ny’s chosen overhead cost drivers. Since the company has decided to use total direct labor hours as its cost driver, the numbers are carried forward from the Direct Labor Budget (Figure 9 in Part 2 of this series, March 2010), where they were calculated using assumptions from the Data Input Sheet (Figure 1 in Part 1 of this series, Febru- ary 2010). Of course, different companies will want to use
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Excel_Budgets_part_3 - BUDGETING Part 3 of 6 Excel-Based...

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