dimensions ofbuget

Dimensions of budget
Sonali
BBA/13/913
Tuesday, December 29, 2015

What is budget and budgeting
Why is budgeting so important?
Functions and benefits of budget
Components of budget
Contents
Tuesday, December 29, 2015 2

What is budget?
 Estimate of
 Costs ,
 Revenues,
 Resources,
 Over a specified time period, reflecting a reading of future financial
conditions and goals.

Budget also
serves …
 Plan of action for achieving quantified objectives.
 Standard for measuring performance.

What is
budgeting?
 Budgeting is the process of creating a plan to spend money.

Balancing your
expenses with
the income.

Why is
budgeting so
important?
 “ It ensures that you will always have enough money for
the things you need and things that are important to
you.”

Functions of
budget
 Corrective measures
 Give managers “pre approval” for execution of spending
plans
 Allows managers to provide forward looking guidance to
 Investors
 Creditors

Benefits of
budget
 Avoid failure
 Translate general plan into specific action oriented goals and
objectives.
 Provides a detailed script to coordinate of the individual parts
to work.
 Established coordination
 It act as a safety signal

Components of
budget

Sales budget
 Reflects forecasted sale volume and is influenced by previous
sales pattern, current and economic budget is complemented
by an analysis of the resulting cash collections.

Production
budget
 A purchases budget contains the amount of inventory that a
company must purchase during each budget period. The
amount stated in the budget is the amount needed to ensure
that there is sufficient inventory on hand to meet customer
orders for products.
 Number of unit sold + closing stock

Direct material
purchase budget
 The basic calculation used by the direct materials budget is:
+ Raw materials required for production
+ Planned ending inventory balance
= Total raw materials required
- Beginning raw materials inventory
= Raw materials to be purchased

Labor budget
 The direct labor budget is used to calculate the number of
labor hours that will be needed to produce the units itemized
in the production budget. A more complex direct labor budget
will calculate not only the total number of hours needed, but
will also break down this information by labor category.

Factory
overhead budget
 Factory overhead is the costs incurred during the
manufacturing process, not including the costs of direct labor
and materials.

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