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3.Two major features of a budgetary program are (1) the accountingtechniques which developed it and (2) the human factors whichadminister it. The human factors are far more important. The success ofa budgetary system depends upon its acceptance by the companymembers who are affected by the budget. Without a thoroughly educatedand cooperative management group at all levels of responsibility, budgetsare a drain on the funds of the business and are a hindrance instead ofhelp to efficient operations.4.Manufacturing overhead costs are budgeted at normal operating capacity,and the costs are applied to the products using a predetermined rate. Thepredetermined rate is computed by dividing a factor that can be identifiedwith both the products and the overhead into the overhead budgeted atthe normal operating capacity. Budgets may also be used in costingproducts in a standard cost accounting system.18-271
Chapter 18Application of Quantitative Techniques in Planning, Control and Decision Making - II5.The production division operates to produce the products that are sold.Production and sales must be coordinated. Products must bemanufactured so that they will be available to meet sales delivery dates.Activity of the production division will depend upon the sales that can bemade. Also, the sales division is limited by the capabilities of theproduction department in manufacturing products. Successful operationsdepend upon a coordination of sales and production.6.Labor hour required for production can be translated into labor pesos bymultiplying the number of hours budgeted by the appropriate labor rates.The rates to be used will depend upon the rates established for jobclassifications and the policy with respect to premium pay for overtimeor shift differences.7.A long-range plan for the acquisition of plant assets is broken down andentered in the current budget as the plan unfolds. The portion of the planwhich is to be executed in the next year is included in the budget for thatyear.8.A budget period is not limited to any particular unit of time. At aminimum, a budget should cover at least one operating cycle. Forexample, a budget should not cover a period when purchasing activity ishigh and omit the period when sales volume and cash collection arerelatively high. The budget period should encompass the entire cycleextending from the purchasing operation to the subsequent sale of theproducts and the realization of the sales in cash. Ordinarily, a budget ofoperations is prepared for a year which in turn is divided into quartersand months. Long-term budgets, such as budgets for projects or capitalinvestments, may extend five to ten years or more into the future.9.A rolling budget or a progressive budget or sometimes called continuousbudget, is a budget which is prepared throughout the year. As one monthelapses, a budget is prepared for one more month in the future. At anyone time for example, the company will have a budget for one year into