Budgeting

Budget

 A sum of money allocated for a particular purpose

 A summary of intended expenditures along with proposals

for how to meet them

 A comprehensive plan in financial terms for operations

and resources of an organization for a specific period time
in future
Budgetary Control
 One of the three main functions of management is to
control.
 Budgets are useful in controlling operations
The use of budgets to control
operations.
Compare actual results with
planned objectives.

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Budgetary Control Reporting System
 Budget - Types
 Master Budget
 The comprehensive and coordinated budget
Master Budget
1. Operation budget 1. Static budget
Physical Activities 2. Flexible budget

2. Financial budget
expected cash receipts & payment,
financial positions etc

3. Special purpose
 A. Operation Budget
1. Sales budget
2. Production budget
3. Purchase budget
4. Labour budget
5. Manufacturing expense
6. Administration expenses
 Financial budget
1. Cash Budget
2. Budgeted financial statement
3. Budgeted retained earning
 Illustration 7-6

Static Budget
A projection of budget data at one level of activity.

Tata Steel
Overhead Budget (Static)
For the Year Ended December 31, 2002

Budgeted
BudgetedProduction
Productionin
inunits
units 10,000
10,000
Budgeted Costs
Budgeted Costs
Indirect
Indirectmaterials
materials $$250,000
250,000
Indirect labor
Indirect labor 260,000
260,000
Utilities
Utilities 190,000
190,000
Depreciation
Depreciation 280,000
280,000
Property
Propertytaxes
taxes 70,000
70,000
Supervision
Supervision 50,000
50,000
$1,100,000
$1,100,000
Flexible Budget

A projection of budget data for

various levels of activity.
Flexible Budget


 Activity
Activitylevel
level
8,0009,000
8,0009,00010,00011,00012,000
10,00011,00012,000

 Variable
Variablecosts
costs
Indirect
Indirectmaterials
materials($1.50)
($1.50)$12,000$13,500$15,000
$12,000$13,500$15,000 $16,500$18,000
$16,500$18,000
Indirect labor ($2.00)
Indirect labor ($2.00) 16,00018,00020,000
16,00018,00020,000 22,00024,000
22,00024,000
Utilities ($.50)
Utilities ($.50) 4,000 4,500 5,000
4,000 4,500 5,000 5,500
5,500 6,000
6,000
Total variable
Total variable 32,000 36,000 40,000
32,000 36,000 40,000 44,00048,000
44,00048,000

 Fixed
Fixedcosts
costs
Depreciation
Depreciation 15,00015,00015,000
15,00015,00015,000 15,00015,000
15,00015,000
Supervision
Supervision 10,00010,00010,000
10,00010,00010,000 10,00010,000
10,00010,000
Property
Propertytaxes
taxes 5,000
5,000 5,000
5,000 5,000
5,000 5,000
5,000 5,000
5,000
Total fixed
Total fixed 30,000 30,000 30,000
30,000 30,000 30,000 30,000 30,000
30,000 30,000

 Total
Totalcosts
costs $62,000$66,000$70,000
$62,000$66,000$70,000 $74,000$78,000
$74,000$78,000
Cash Budget
         
Receipts        
Opening balance        
         
         
         
         
         
         
         
Total        
Payments        
         
         
         
         
         
         
         
Total        
Closing balance        
Flexible Budget
Activity Level          
Variable Cost          
           
           
           
           
           
           
           
           
Total          
Fixed Cost          
           
           
           
           
           
           
           
Total Cost