budget
quantitative plan outlining the acquisition.use of resources over some period of time
forecast
prospective financial info prepared on the basis of assumptions as to future events which management expects to take place.
proforma
historical financial statements adjusted to exclude unusual non-recurring items.
advantages of budgeting
- planning tool (forces management to think about future)
- benchmark: provides goals to measure actual performance against
- coordinates goals of organization as a whole
components of master budget
- sales budget
- inventory purchases budget
- production budget
- S&A expense budget
- capital budget
sales budget
sales volume expressed in units and dolalrs
inventory purchases budget
amount of goods purchased from suppliers (units or dollars).
Inventory purchases = budgeted units sold + desired ending inventory - beginning inventory
production budget
- materials budget: materials needed for production
material to be purchased = materials needed to meet production schedule + desired ending ending inventory = beginning inventory of materials. - direct labour budget: Total direct labour cost = units to be producted x labour time per unit x direct labour cost per hour
- manufacturing overhead: total budgeted overhead = budgeted direct labour hours x variable overhead rate + budged fixed overhead
capital budget
planed capital asset additions/disposals
Activity based budgeting advantages
- more realistic targets
- better identification of resource needs
- linking of costs to outputs
- clearer linking of costs with staff responsibilities
- identification of budgetary slack
zero based budgeting
budgeting from the ground up where every cost needs to be justified. Time consuming but can help remove “fat” from incremental budgeting process. Perform periodically *every few years
static/fixed budget
budget set at a particular sales level. not adjusted for changes in actual output or sales volume.
flexible budget
budget set for alternative sales volumes. variable and fixed components identified.
sales volume variance
(Actual sales units - budgeted sales unit) * Budgeted selling price
sales mix variance
actual units of all products sold *(actual sales mix% - budgeted sales mix %) * budgeted selling price
composite product unit
weighted average of the budgeted sales price based on the budgeted and actual sales mix.
sales quantity variance
(actual units of prod sold - budgeted units of prod sold )*budgeted sales mix % * budgeted selling price
market size variance
(actual market size units - budgeted market size units)*budgeted market share * budgeted selling price per unit
