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8/13/2019 2 Operational Budgeting and Profit Planning ,Standard Costs and Performance Reports
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Operational budgeting and profit planning ,standard
costs and performance reports
Student name
Student id
Professor's name
Table of contents
1
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executive summary .3
introduction .3
an operating budget .6
benefits of a business budget.7
make time for budgeting.8
what your budget will need to
include.9
a feasibility study .10
conclusion .13
my recommendation.1
references.1!
Executive summary2
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"hen you#re running a business$ it#s easy to get bogged down in day%to%day
problems and forget the bigger picture. &owe'er$ successful businesses in'est time
to create and manage budgets$ prepare and re'iew business plans and regularly
monitor finance and performance.
(tructured planning can make all the difference to the growth of your business. )twill enable you to concentrate resources on impro'ing profits$ reducing costs and
increasing returns on in'estment.
)n fact$ e'en without a formal process$ many businesses carry out the ma*ority of
the acti'ities associated with business planning$ such as thinking about growth
areas$ competitors$ cash flow and profit.
+on'erting this into a cohesi'e process to manage your business# de'elopment
doesn#t ha'e to be difficult or time%consuming. ,he most important thing is that
plans are made$ they are dynamic and are communicated to e'eryone in'ol'ed. (eethe page in this guide on what to include in your annual plan.1
INTRODUCTION
-n operating budget is the annual budget of an acti'ity stated in terms of udget
+lassification +ode$ functional/sub functional categories and cost accounts. )t
contains estimates of the total 'alue of resources reuired for the performance of
the operation including reimbursable work or ser'ices for others. )t also includes
estimates of workload in terms of total work units identified by cost accounts.
)n the nited (tates$ businesses along with state and local go'ernments di'ide their
budgets into two types2 the operating budget and capital budget. ,he operating
budget is used to keep track of maintenance operations$ salaries$ and interest
payments.
An operating budget
1http://www.infoentrepreneurs.org/en/guides/budgeting-and-business-planning/
2http://en.wikipedia.org/wiki/perating!budget
3
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A detailed projection of all estimated income and expenses based on
forecasted sales revenue during a given period (usually one year). It
generally consists of several sub-budgets, the most important one being
the sales budget, which is prepared first. ince an operating budget is
a short-term budget, capital outlays are excluded because they are long-term costs.!
- ,45)+- ()(( 5-) +4+
1. :e'iew your current performance against last year/current year targets.
. "ork out your opportunities and threats.
3. -nalyse your successes and failures during the pre'ious year.
. ook at your key ob*ecti'es for the coming year and change or re%establish
your longer%term planning.
!. )dentify and refine the resource implications of your re'iew and build a
budget.6. ;efine the new financial year#s profit%and%loss and balance%sheet targets.
7. +onclude the plan.
8. :e'iew it regularly % for e
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)t outlines what you will spend your money on and how that spending will be
financed. &owe'er$ it is not a forecast. - forecast is a prediction of the future
whereas a budget is a planned outcomeof the future % defined by your plan that
your business wants to achie'e.
=),( >= - ()(( ;,
,here are a number of benefits of drawing up a business budget$ including being
better able to2
manage your money effecti'ely
allocate appropriate resources to pro*ects
monitor performance
meet your ob*ecti'es
impro'e decision%making
identify problems before they occur % such as the need to raise finance or
cash flow difficulties plan for the future
increase staff moti'ation
+:-,) - ;,
+reating$ monitoring and managing a budget is key to business success. )t should
help you allocate resources where they are needed$ so that your business remains
profitable and successful. )t need not be complicated. 4ou simply need to work out
what you are likely to earn and spend in the budget period.
egin by asking these uestions2
"hat are the projected salesfor the budget period? e realistic % if you
o'erestimate$ it will cause you problems in the future.
"hat are the direct costsof sales @ i.e. costs of materials$ components or
subcontractors to make the product or supply the ser'ice?
"hat are the fixed costsor o'erheads?
4ou should break down the fixed costs and oer!eadsby type$ e.g.2
cost of premises$ including rent$ municipal ta
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tra'el and subsistence e
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reduce by 10 per cent for each additional 0 per cent of sales$ how much will your
unit costs decrease if you ha'e a 33 per cent rise in sales?
Fake sure your budgets contain enough information for you to easily monitor the
key dri'ers of your business such as sales$ costs and working capital. -ccounting
software can help you manage your accounts.
)n'ol'e the right people
)t#s best to ask staff with financial responsibilities to pro'ide you with estimates of
figures for your budget % for e: ;, ") ; ,> )+;
"rojected cas! flo#%your cash budget pro*ects your future cash position on a
month%by%month basis. udgeting in this way is 'ital for small businesses as it can
pinpoint any difficulties you might be ha'ing. )t should be re'iewed at leastmonthly.
Costs% typically$ your business will ha'e three kinds of costs2
fi
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( 4>: ;, ,> F-(: 5:=>:F-+
)f you base your budget on your business plan$ you will be creating a financial
action plan. ,his can ser'e se'eral useful functions$ particularly if you re'iew your
budgets regularly as part of your annual planning cycle.
4our budget can ser'e as2
an indicator of the costs and re'enues linked to each of your acti'ities
a way of pro'iding information and supporting management decisions
throughout the year
a means of monitoring and controlling your business$ particularly if you
analyse the differences between your actual and budgeted income
enchmarking performance
+omparing your budget year on year can be an e
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sing up to date budgets enables you to be fle
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4ou should always follow the links to more detailed information from the
rele'ant go'ernment department or agency.
-ny reliance you place on our information or linked to on other websites will
be at your own risk. 4ou should consider seeking the ad'ice of independent
ad'isors$ and should always check your decisions against your normal business
methods and best practice in your field of business.
,he websites operators$ their agents and employees$ are not liable for any
losses or damages arising from your use of our websites$ other than in respect of
death or personal in*ury caused by their negligence or in respect of fraud.
A feasibilit% stud%
- feasibilit% stud%is an e'aluation and analysis of the potential of the proposed
pro*ect which is based on e
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"ash #udget
MANUFACTURE CO has the following
collection pattern2
)n the month of sale2 !0K
)n the month following sale2 7K
)n the second month following sale2 0K
ncollectible2 3K
"ash #udget
MANUFACTURE CO
.udgeted charge sales are as follows2
L- 00$000
=. !0$000
F-:+& 6$000
-5:) 60$000
11
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"ash #udget
.udgeted +ash :eceipts
for the Fonth nding F-:+& 31$ 013
-ugust sales2 ;& 6$000 & !0K ;&13$000
Luly sales2 ;& !0$000 & 7K 67$!00
Lune sales2 ;& 00$000 & 0K 0$000
,otal ;& 39$!00
"ash #udget
+ash .udget
for the Fonth nding F-:+& 31$ 013
.udgeted receipts ;& 39$!00
.udgeted disbursements 68$380
et increase in cash ;& 171$10
12
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#udgeted $tatement of %ncome
MANUFACTURE CO .udgeted )ncome
(tatement
for the Fonth ending -ugust 31$ 01(ales ;& 19!$000
ess cost of sales 7!0$00
Gross margin DH 119!$000
>ther e
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,he key benefit of business planning is that it allows you to create a focus for the
direction of your business and pro'ides targets that will help your business grow. )t
will also gi'e you the opportunity to stand back and re'iew your performance and
the factors affecting your business. usiness planning can gi'e you2
a greater ability to make continuous impro'ements and anticipate problems
sound financial information on which to base decisions
impro'ed clarity and focus
a greater confidence in your decision%making
for e
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References
'(!ttp)**###+infoentrepreneurs+org*en*guides*budgeting(and(business(
planning*
(!ttp)**en+#i-ipedia+org*#i-i*Operating.budget
3%http2//www.businessdictionary.com/definition/operating%budget.html
%http2//www.cliffsnotes.com/more%sub*ects/accounting/accounting%principles%
ii/budgets/operating%budgets
!%http2//classes.bus.oregonstate.edu/spring%07/ba/FanagementK0-ccounting
K0+hapterK00.htm
15
http://www.infoentrepreneurs.org/en/guides/budgeting-and-business-planning/http://www.infoentrepreneurs.org/en/guides/budgeting-and-business-planning/http://en.wikipedia.org/wiki/Operating_budgethttp://www.businessdictionary.com/definition/operating-budget.htmlhttp://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/budgets/operating-budgetshttp://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/budgets/operating-budgetshttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%2020.htmhttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%2020.htmhttp://www.infoentrepreneurs.org/en/guides/budgeting-and-business-planning/http://www.infoentrepreneurs.org/en/guides/budgeting-and-business-planning/http://en.wikipedia.org/wiki/Operating_budgethttp://www.businessdictionary.com/definition/operating-budget.htmlhttp://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/budgets/operating-budgetshttp://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/budgets/operating-budgetshttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%2020.htmhttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%2020.htm