Operational Budgeting Reviewer

MS-12: OPERATIONAL BUDGETING

plan, expressed in quantitative quantitative terms, used used for both planning and control control of operations BUDGET – is a management plan, for given period of time. The budget is a plan or standard at the start of the period but it serves at the end of the  period as a control device to help management measure its performance against the plan so that future performance may be improved. The term budgeting  is  is used to denote the process of coming up with budgets. Advantages and Limitations o B!dgeting

Uses/Advantages Uses/Advantages of udgeting     

 Limitations of Budgeting 

!t compels periodic planning !t prov proviides des a mea means of alloc llocat atin ing g reso resour urce cess efficiently and effectively !t enhances cooperation, coordination, communication and motivation !t prov provid ides es netw networ or% % for for perf perfor orma manc ncee eval evalua uati tion on !t sati satisfi sfies es some some legal legal and and cont contrac ractua tuall requi requirem rement entss

"onsiderable time and costs are required udget dgetss are mere erely esti stimate matess tha that requ equire ire #udg udgment ent and might be modified or revised if necessary A successful budgetary system requires cooperation of all members of the organi$ation udg udget etss some someti time mess rest restri rict ct deci decisi sion on&m &ma% a%in ing g proc proces esss The budget budget progra program m is merely merely a guide guide,, not a !t direct directss

the activities toward the achievement of organi$ational goals

substitute for good management ability

T"E MASTER BUDGET Maste# B!dget $ is is a comprehensive budget that consolidates the overall plan of the organi$ation within a budget

 period. !t consists of all individual budgets for each of the segments of the organi$ation aggregated or consolidated into one overall budget for the entire firm. '(ther terms) pro forma budget, planning budget, forecast budget, master   profit plan*. BUDGETING-RELATED TERMINOLOGIES %I&ED BUDGET - A budget prepared for a one level of activity within a certain period. 'other term) static budget*. %LE&IBLE BUDGET – A budget prepared for different levels of activity within a certain period. 'other terms)

variable budget, sliding scale budget*. 'ONTINUOUS BUDGET $ A +&month budget that rolls forward one month as the current month is completed

'other term) perpetual budget* (ERO-BA (ERO-BASED SED BUDGET $ A method of budgeting in which managers are required to #ustify all costs as if 

 programs involved involved were being proposed proposed for the first first time. IMPOSED BUDGETING - A process wherein wherein budgets are prepared by the top management with little or no inputs

from operating personnel. PARTI PARTI'PA 'PATOR TOR) ) BUDGETING BUDGETING - A process wherein budgets are developed through #oint decisions by top

management and operating personnel. BUDGET 'OMMITTEE $ A group of %ey management persons responsible for overall policy matters relating to

the budget program and for coordinating the budget preparation. BUDGET MANUAL –This describes how a budget is prepared and includes a planning calendar and distribution

instructions for all budget schedules.

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E&ER'ISES

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-ubriderm "orporation has the following budgeted sales for the next six&month period) Mont* une uly August 1eptember (ctober  4ovember

Unit Sa+es 0,000 +0,000 +0,000 +20,000 +30,000 +0,000

There were 50,000 units of finished goods in inventory at the beginning of une. 6lans are to have an inventory of finished products that equal 07 of the unit sales for the next month. 8ive pounds of materials are required for each unit produced. 9ach pound of material costs 6 3. !nventory levels for materials are equal to 507 of the needs for the next month. :aterials inventory on une + was +2,000 pounds. Re,!i#ed: a. 6repare production budgets in units for uly, August, and 1eptember.  b. 6repare a purchases budget in pounds for uly, August, and 1eptember, and give total purchases in both  pounds and pesos for each month.

.

;erdie "ompany has the following information) Mont* :arch April :ay une uly

B!dgeted Sa+es 6 20,000 25,000 2+,000 2