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

Budgetary Control

The use of budgets to control operations. Compare actual results with planned objectives. B

UDGET

FINAN

CIAL

STATE

MEN

TS

Budgetary Control Reporting System

Budget - Types Master Budget The comprehensive and coordinated budget Master Budget

1. Operation budget Physical Activities

2. Financial budget expected cash receipts &

payment, financial positions etc

3. Special purpose

1. Static budget2. Flexible budget

A. Operation Budget1. Sales budget 2. Production budget3. Purchase budget4. Labour budget5. Manufacturing expense6. Administration expenses

Financial budget1. Cash Budget2. Budgeted financial statement3. Budgeted retained earning

Static Budget

A projection of budget data at one level of activity.

Budgeted Production in units 10,000Budgeted Costs Indirect materials $ 250,000 Indirect labor 260,000 Utilities 190,000 Depreciation 280,000 Property taxes 70,000 Supervision 50,000

$1,100,000

Budgeted Production in units 10,000Budgeted Costs Indirect materials $ 250,000 Indirect labor 260,000 Utilities 190,000 Depreciation 280,000 Property taxes 70,000 Supervision 50,000

$1,100,000

Tata SteelOverhead Budget (Static)

For the Year Ended December 31, 2002

Illustration 7-6

Flexible Budget

A projection of budget data for various levels of activity.

Flexible Budget

Activity level 8,000 9,000 10,000 11,000 12,000

Variable costs Indirect materials ($1.50) $12,000 $13,500 $15,000 $16,500 $18,000 Indirect labor ($2.00) 16,000 18,000 20,000 22,000 24,000 Utilities ($.50) 4,000 4,500 5,000 5,500 6,000 Total variable 32,000 36,000 40,000 44,000 48,000

Fixed costs Depreciation 15,000 15,000 15,000 15,000 15,000 Supervision 10,000 10,000 10,000 10,000 10,000 Property taxes 5,000 5,000 5,000 5,000 5,000 Total fixed 30,000 30,000 30,000 30,000 30,000

Total costs $62,000 $66,000 $70,000 $74,000 $78,000

Activity level 8,000 9,000 10,000 11,000 12,000

Variable costs Indirect materials ($1.50) $12,000 $13,500 $15,000 $16,500 $18,000 Indirect labor ($2.00) 16,000 18,000 20,000 22,000 24,000 Utilities ($.50) 4,000 4,500 5,000 5,500 6,000 Total variable 32,000 36,000 40,000 44,000 48,000

Fixed costs Depreciation 15,000 15,000 15,000 15,000 15,000 Supervision 10,000 10,000 10,000 10,000 10,000 Property taxes 5,000 5,000 5,000 5,000 5,000 Total fixed 30,000 30,000 30,000 30,000 30,000

Total costs $62,000 $66,000 $70,000 $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