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3.2.3 What the Committee Reviews The Committee is thus judging continuously the business plan which has been drawn up to maximise profitability, and the ingredients of this plan can be summarised under three headings: A. Revenue Cost and Income 1. Sales Budget 2.Manufacturing Cost Budget 3. Selling and Distribution Cost Budget 4.Sales Promotion and Advertising Cost Budget 5. A Research and Development Cost Budget
- 100 -B.Capital Expenditure 1. Plant and Equipment Budget (ExpansionRequirements). 2.Plant and Equipment Budget (ReplacementRequirements). 3. Plant and Equipment Budget (Efficiency/Improvement Requirements). 4.Buildings/Premises Budget. C. Working Capital 1. Cash Flow Budget. 2.Inventory and Raw Materials Budget. 3. Debtors/Creditors Projections based upon Budgeted Sales Activity. 3:.2.4The Planning Period Plans in this sort of detail are normally drawn up for one year -the Annual Budgets. But today with heavy machinery taking upwards of a year or more to order, instal and get in running order, 3 and 5 year forecasts of sales, capital expenditure and cash flow are becoming increasingly common - especially when expansion requires further external capital and the problems of increasing permanent capital, short and long term loans are to be considered. Again, consider the difficulties of recruiting senior men. The time of advertising to installation may take anything up to six months, and that time again is required before the person is anything like effective. 3.2.5 The Organisation Structure Budgets for revenue operating expenditure are developed on a responsibility basis. Each manager develops his own spending budget using the Company's official formats. The manager budgets therefore assure that, for every item of expenditure, there is a person held responsible. It is not uncommon to find that companies have to amend their organisation structures in order to operate a logical budgetary control system. The total revenue expenditure budget is thus obtained by aggregating all the departmental budgets. Where departments are so large that responsibility can be divided between different managers, it is not unusual to see budgets prepared on a sub-departmental basis. These sub-departments are called BUDGET CENTRES and it is to these centres that actual expenditure is identified, charged and compared with budget levels.
- 101 -3.3 Operating aBudgetaryCoritrolSystem 3.3.1 The Sales Budget The key section to drawing up the overall business plan is of course the Sales Budget, which detonates all other budgets. Little or nothing can be done in formulating production plans until the anticipated activity is known. The Sales Budget is normally drawn up by product lines, but where these are too numerous then the detail is confined to main groups of products. Where it is considered necessary, quantities are shown in addition to the sterling values. Maintaining the principle that people make plans work, and depending upon the nature of the business, Sales Budgets can be drawn up to show selling