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Budgeting:
The process of identifying, gathering, summarizing and communicating financial and non-financial information
about an organization.
Budget:
A plan of action that forecasts future transactions, activities, and events financial and non-financial. Budgets
are prepared by all types of organizations, for profit, non-profit, etc.
Short-Term Goals:
Short-term goals are prepared after long-term goals have been developed. Short-term goal involves planning,
in detail, every part of the enterprise and is much more detailed that long-term goals.
Once management has set the short-term goals, the controller or budget director takes charge of preparing the
budget. A timetable for the preparation is established with specific deadlines for the operational plans that will
be developed together with the managers of every department.
A master budget is a set of budgets that consolidates and organization’s financial information into budgeted
financial statements for a future period of time.
Chapter 20 1 Author: Anna Rovira Beavers
Needles 2008 8/6/07
A master budget includes an operational budget and a financial budget. As an example a Manufacturing
budget will look like this:
This budget may be prepared in both unit and dollars, depending on the organization.
Sales managers use this information to plan sales and marketing –related activates and to determine
human, physical, and technical resources needs.
Sales Budget:
A projections of sales demand is prepared and may include the following factor:
External factors:
1. The state of the local and the national or international economy.
2. The state of the industry’s economy
3. The nature of the competition, their sales volume, and their selling price.
Internal Factors:
1. The number of units sold in prior periods
2. The organization’s credit policies
3. The organization’s collection policies
4. The organizations pricing policies
5. Any new product the organization plans to introduce into the market
6. The capacity of the organization’s manufacturing facilities.
In-Class: SE4
Production Budget:
A production budget is a detail schedule that identifies the production or services that must be produced or
provided to meet budget sales and inventory needs. This information is used by managers to plan the
materials and human resources needed to complete production–related activities.
In-Class: SE5
The direct materials purchases budget identifies the purchases required for budgeted production and
inventory needs as well as the cost associates with those purchases. The purchasing department uses this
information to plan purchase of direct materials. Accounting then can estimated the cost of those materials.
Formula:
In-Class: E7, E8
A labor budget identifies all labor needs for the future. Production Department uses direct labor to
schedule the number of employees and the hours that each will work, the accountant can, then, estimated
its cost.
The Manufacturing Overhead Budget, is a forecast or detail schedule of anticipated manufacturing costs,
other than direct materials and direct labor.
In-Class: E10
In-Class: E15
A cash budget is a projection of the cash an organization will receive and the cash transactions considered
in the master budget. The information that the cash budget provides managers to plan for short term loans
when the cash balance is low and for short-term investments when the cash balance is high.