Sample Operating Budget
| Sample Company Operating Budget For Quarter Ended March 31, 2019 |
||||
|---|---|---|---|---|
| Jan | Feb | March | Total 1st Quarter | |
| Net Revenues | $5,000 | $7,500 | $6,000 | $18,500 |
| Cost of Goods Sold | ($2,250) | ($3,375) | ($2,700) | ($8,325) |
| Gross Profit | $2,750 | $4,125 | $3,300 | $10,175 |
| Sales and Administrative Expenses | ($925) | ($925) | ($925) | ($2,775) |
| Operating Profit | $1,825 | $3,200 | $2,375 | $7,400 |
| Interest Income/(Expense) | ($20) | ($12) | ($15) | ($47) |
| Pre-Tax Income | $1,805 | $3,188 | $2,360 | $7,353 |
| Income Taxes | ($738) | ($1,275) | ($944) | ($2,957) |
| Net Income | $1,067 | $1,913 | $1,416 | $4,396 |
Operating budgets allow companies to track revenues, profits, costs, taxes, and the overall net income for their business operations.
The financial budget shows the movement of cash to and from the company and other factors of the company's financial situation. The subbudgets within the financial budget are the cash budget, the budgeted income statement, the budgeted balance sheet, and the budgeted statement of cash flows. The following are the steps necessary to create a master budget:
1. Create a sales budget.
2. Create a selling and administrative expense budget.
3. Create a production budget.
4. Create a cost of goods manufactured (COGM) budget (create a separate budget for direct materials, direct labor, and manufacturing overhead).
5. Create a cost of goods sold (COGS) budget, which is composed of the direct materials, direct labor, and manufacturing overhead budgets.
6. Create a cash budget.
7. Create a budgeted income statement.
8. Create a budgeted balance sheet.
9. Create a budgeted statement of cash flows.
Steps 1 through 5 create the company's operating budget. Those budgets are then used to create the financial budget, which is represented in Steps 6 through 9. Following these steps, in order, is critical to creating an accurate master budget because the budgets build off one another.