3.
Two major features of a budgetary program are (1) the accounting
techniques which developed it and (2) the human factors which
administer it.
The human factors are far more important.
The success of
a budgetary system depends upon its acceptance by the company
members who are affected by the budget.
Without a thoroughly educated
and cooperative management group at all levels of responsibility, budgets
are a drain on the funds of the business and are a hindrance instead of
help 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.
The
predetermined rate is computed by dividing a factor that can be identified
with both the products and the overhead into the overhead budgeted at
the normal operating capacity.
Budgets may also be used in costing
products in a standard cost accounting system.
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Chapter 18
Application of Quantitative Techniques in Planning, Control and Decision Making - II
5.
The production division operates to produce the products that are sold.
Production and sales must be coordinated.
Products must be
manufactured so that they will be available to meet sales delivery dates.
Activity of the production division will depend upon the sales that can be
made.
Also, the sales division is limited by the capabilities of the
production department in manufacturing products.
Successful operations
depend upon a coordination of sales and production.
6.
Labor hour required for production can be translated into labor pesos by
multiplying the number of hours budgeted by the appropriate labor rates.
The rates to be used will depend upon the rates established for job
classifications and the policy with respect to premium pay for overtime
or shift differences.
7.
A long-range plan for the acquisition of plant assets is broken down and
entered in the current budget as the plan unfolds.
The portion of the plan
which is to be executed in the next year is included in the budget for that
year.
8.
A budget period is not limited to any particular unit of time.
At a
minimum, a budget should cover at least one operating cycle.
For
example, a budget should not cover a period when purchasing activity is
high and omit the period when sales volume and cash collection are
relatively high.
The budget period should encompass the entire cycle
extending from the purchasing operation to the subsequent sale of the
products and the realization of the sales in cash.
Ordinarily, a budget of
operations is prepared for a year which in turn is divided into quarters
and months.
Long-term budgets, such as budgets for projects or capital
investments, may extend five to ten years or more into the future.
9.
A rolling budget or a progressive budget or sometimes called continuous
budget, is a budget which is prepared throughout the year.
As one month
elapses, a budget is prepared for one more month in the future.
At any
one time for example, the company will have a budget for one year into
