220slide10 - Budget Preparation What is a budget for? It is...

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Budget Preparation What is a budget for? It is a forecasted financial plan To estimate future needs- flexible, adjustable according to needs Basis for control Written annually; usually reviewed monthly
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The Purpose of Budgeting Budget  An estimate of the income and  expenditures during a given period of time  based on the mission, goals, and  objectives of an organization. 
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The Purpose of Budgeting Budget helps to set the parameters for  activities to be done during the budget period Acts as a control device for regulating  spending in the organization Provides an objective set of criteria against  which a manager’s performance can be  measured
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Budget Objectives 1. Forecast the future 3. Control 4. Promote cooperation between departments 5. Use as TOOL
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Budget Components Indirect/fixed costs : Direct/variable costs : Semivariable costs : Sunk costs : Differential :
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Types of Budgets 1. Master : 2. Operating : 3. Capital : 4. Cash :
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The Purpose of Budgeting Master Budget  Consists of an operating budget, a capital  budget, a cash budget, and a budgeted balance  sheet. Cash Budget  
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Phases of Budget Development 1. Evaluation : 2. Preparation/Planning : 3. Justification : 4. Implementation : 5. Control :
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Preparing the Budget Typical procedure
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Operating Budgets Time period for operating budget Fiscal Year  – Calendar Year  -
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Budgeting Methods Incremental : Fixed : Flexible : Zero-based :
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Budgets
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Incremental Budgets Advantages: Disadvantages:
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Zero-Base Budgets Goal is for manager to: Situations where zero-base budgets work well: Disadvantages:
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Operating Budgets Variable Budgets  Drawbacks:
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Preparing the Operating Budget
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Preparing the Budget Cost Center  Any unit within an organization that has expenses.  Some  cost centers, like foodservices and  pharmacy, also generate revenues.  Others, like payroll, human resources, and  materials management, are not expected to  generate a profit or to break even.
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Preparing the Budget Revenue Center  Profit Center 
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Preparing the Budget Expenses Expense Budget  - Component of the  operating budget that deals with all  anticipated costs, which can be further  divided into a number of sub-budgets.
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Preparing the Operating Budget -  Expenses Labor Labor Budget  –  Direct Labor Costs  -
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Preparing the Operating Budget -  Expenses Labor Indirect Labor Costs  - Material Direct Material Budget  -   Other
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220slide10 - Budget Preparation What is a budget for? It is...

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