02. MASTER BUDGET.pdf

MASTER BUDGET Prepared by: Ms. Jhoanna Blanca C. Condor, CTT, CFMP BUDGETING  BUDGETING DEFINED Budgeting is a financial plan of the resources needed to carry out tasks and meet financial goals. BUDGETING DEFINED Budgeting is a quantitative expression of the...

MASTER BUDGET Prepared by: Ms. Jhoanna Blanca C. Condor, CTT, CFMP BUDGETING  BUDGETING DEFINED Budgeting is a financial plan of the resources needed to carry out tasks and meet financial goals. BUDGETING DEFINED Budgeting is a quantitative expression of the goals the organizations wishes to achieve and the cost of attaining these goals.  THE PURPOSES OF THE BUDGET THE PURPOSES OF THE BUDGET A budget is a description in quantitative - usually monetary - terms of a desired future result. THE PURPOSES OF THE BUDGET Defining broad objectives and goals and formulating strategies to achieve such objectives; Coordinating the activities of the organization by integrating the plans of the various parts thereby pulling every one in the same direction; THE PURPOSES OF THE BUDGET Allocating resources to those parts of the organization where they can be used most effectively; Communicating management’ s approved plans throughout the organization; THE PURPOSES OF THE BUDGET Uncovering and preparing for potential bottleneck in the operations before they occur; Motivating managers to achieve the desired results; THE PURPOSES OF THE BUDGET Setting a standard or benchmark for evaluating actual performance. ADVANTAGES AND LIMITATIONS OF BUDGETS ADVANTAGES OF THE BUDGET It forces planning and exposes situations in which plans of subcomponents are inadequate to attain the total organization ‘s obejctives. ADVANTAGES OF THE BUDGET It allows a reiterative process to bring the goals of the organization and the subcomponents into agreement. It provides a means of communicating organization goals down through the organization and sub-unit operational limitations up through the organization. ADVANTAGES OF THE BUDGET It provides a basis for financial planning, sub- unit coordination, resource acquisition, inventory policy, scheduling and output distribution. It provides a basis by which activity can be monitored, with actual results being compared to the planned results. LIMITATIONS OF THE BUDGET Budgets tend to oversimplify the real situation and fail to allow for variations in external factors. They do not reflect qualitative variables. It is difficult to prepare a detailed budget for an organization that has never existed or for a new division, product, or department of an existing firm. LIMITATIONS OF THE BUDGET There may be lack of higher and lower management commitment because of lack of understanding of the fundamentals of budget preparation and utilization. Budget reports usually emphasizes results, not reasons. LIMITATIONS OF THE BUDGET The budget is only a representation of future plans or a means to the goal of profitable activity and not an end in itself. It may interfere with the supervisor’ s style of leadership and can therefore stifle initiative.  TYPES OF BUDGETS  TYPES OF BUDGETS The Operating Budget MASTER The Financial Budget BUDGET The Capital Investment Budget  OPERATING BUDGET 1. Budgeted Income Statement a. Sales Budget b. Production Budget Materials cost budget Direct Labor cost budget Factory overhead budget Inventory Levels  OPERATING BUDGET 2. Cost of Sales Budget 3. Selling and Administrative expense budget 4. Financial expense budget FINANCIAL BUDGET 1. Budgeted Statement of Financial Position 2. Cash Budget 3. Budgeted Statement of Sources and Uses of Funds  STEPS IN DEVELOPING A MASTER BUDGET MAJOR STEPS IN DEVELOPING A MASTER BUDGET 1. Establish basic goals and long range plans for the company. These will serve as guidelines in the preparation of budget estimates. MAJOR STEPS IN DEVELOPING A MASTER BUDGET 2. Prepare a sales forecast for the budget period. MAJOR STEPS IN DEVELOPING A MASTER BUDGET 3. Estimate the cost of goods sold and operating expenses MAJOR STEPS IN DEVELOPING A MASTER BUDGET 4. Determine the effect of the budgeted operating results on assets, liabilities and ownership equity accounts. MAJOR STEPS IN DEVELOPING A MASTER BUDGET 5. Summarize the estimated data in the form of a projected income statement for the budget period and the projected statement of financial position as of the end of the budget period. Thank You