Budgeting and Profit Planning-Anuj Nijhon

8/4/2019 Budgeting and Profit Planning-Anuj Nijhon

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BUDGETING AND PROFIT

PLANNING

CHAPTER 17

MADE BY: ANUJ NIJHON


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Learning Objectives

Understand budgeting

objectives

Understand things you need

to know & do before starting

a budget

Prepare a master budget


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Planning and Control

Planning Where do we want to go and how do we get

there? or involves developing objectives and

preparing various budgets to achieve these

objectives.

How much to invest

Where to set up plant

How much inventory to keep

How to compete with others What pricing strategy to follow

How to make my product augmented


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Planning and Control

Control Are we keeping to our plan? Or

involves the steps taken by management that

attempt to ensure the objectives are attained.

Are your managers staying within budget?

Do you care?


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Advantages of Budgeting

Advantages

Define goaland objectives

Uncover potentialbottlenecks

Coordinateactivities

Communicatingplans

Think about andplan for the future

Means of allocatingresources


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A budget is defined as a comprehensive and coordinated plan,

expressed in financial terms, for the operations and resources

of an enterprise for some specified period in future.

The essential elements of a budget are:

Plan

Operations and resources

Financial terms

Specified future period

Comprehensiveness

Coordination

What is a Budget?


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Objectives of budgeting

Explicit statement of expectations

Communication

Coordination

Expectations as a framework for

judging performance


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Types of budgets

1- Operating budget- it relate to physical activitiesof a firm such as sales, production, purchasing,debtors collection and creditors paymentschedules. It has following components.

Sales budget

Production budget

Purchase budget

Direct labor budget Manufacturing expenses budget

Administrative and selling expenses budget


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2- Financial Budgets- are concerned with

expected cash receipts, financial position and

results of operations. It has followingcomponents:

Budget income statement

Budgeted statement of retained earnings

Cash budget

Budgeted balance sheet

3- Cash Budget- the principal aim of cashbudget, as a tool of planning, is to ascertain

whether, at any time, there is likely to be anexcess or storage of cash.


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The Master Budget

ProductionBudget

Selling and

AdministrativeBudget

DirectMaterialsBudget

ManufacturingOverhead

Budget

DirectLabor

Budget

CashBudget

SalesBudget

Budgeted Financial Statements


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The master budget is a summary of company's plans

that sets specific targets for sales, production,

distribution and financing activities. It generally

culminates in a cash budget, a budgeted incomestatement, and a budgeted balance sheet. In short, this

budget represents a comprehensive expression of

management's plans for future and how these plans are

to be accomplished.

It usually consists of a number of separate but

interdependent budgets. One budget may be necessary

before the other can be initiated. More one budget

estimate effects other budget estimates because the

figures of one budget is usually used in the preparationof other budget. This is the reason why these budgets

are called interdependent budgets.
http://www.accountingformanagement.com/master_budget_definition.htmhttp://www.accountingformanagement.com/cash_budget_definition.htmhttp://www.accountingformanagement.com/budgeted_income_statement.htmhttp://www.accountingformanagement.com/budgeted_income_statement.htmhttp://www.accountingformanagement.com/budgeted_balance_sheet.htmhttp://www.accountingformanagement.com/budgeted_balance_sheet.htmhttp://www.accountingformanagement.com/budgeted_income_statement.htmhttp://www.accountingformanagement.com/budgeted_income_statement.htmhttp://www.accountingformanagement.com/cash_budget_definition.htmhttp://www.accountingformanagement.com/master_budget_definition.htm


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Things YOU need to know:

What are the companys goals?

What are its assumptions?

Profitability expectations

New product development

Annual raises

New stores, offices

What is your companys culture?


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THANK YOU

MADE BY:

ANUJ NIJHONMBA 2011

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Budgeting and Profit Planning-Anuj Nijhon