Download Sales budget

Meaning and scope of
Management Control System
Budgeting
1. Introduction
2. Process of budge preparation
3. Classification of budget
4. Sales budget
5. Sales overhead budget
6. Cash budget
7. Factory overhead budget
8. Flexible budget
9. Zero base budgeting
10. Behavioral Aspects of budgeting
Budget:According to ICMA, England, a budget is “ a financial and /or quantitative
statement prepared and approved prior to a defined period of time , of the
policy to be pursued during the period for the purpose of attaining a given
objective.”
In other words:- “ a detailed plan of action of the business for a definite period of
time.
Thus the essential of budget are:1. It is prepared in advance and is based on future plan of action
2. It relates to a future period and is based on objective to be attained.
3. It is a statement expressed in monetary and/ or physical units prepared for the
implementation of policy formulated by the management.
Budgetary control:-Methodical control of an organization's operations through
establishment of standards and targets regarding income and expenditure, and
a continuous monitoring and adjustment of performance against them.
The Chartered Institute of Management Accountants, London, defines
budgetary control as “the establishment of budgets relating to the
responsibilities of executives to the requirements of a policy , and t he
continuous comparison of actual with budgeted results, either to secure by
individual action the objective of that policy or to provide a basis for its
revision.
Thus the budgetary control involves:1. Establishment of budgets
2. Continuous comparison of actual with budget for achievement of targets and
placing the responsibility for failure to achieve the budget figures.
3. Revision of budges in the light of changed circumstances.
The difference between budget, budgeting and budgetary control:•
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Budgets are the individual objectives of a department etc.
Whereas budgeting may be said to be the act of building budgets.
Budgetary control embraces all this and in addition includes the science of
planning the budgets themselves and the utilization of such budgets to effect
an overall management tool for the business planning and control.
Steps for budget Formulation and Administration:The budget formulation consist of a series of activities. These activities are :1. Creating a budget department or appoint a budget controller
2. Developing guidelines for budget preparation
3. Developing budget proposal at the department / business unit level
4. Developing the budget for the entire organization
5. Determining the budget period and key budget factors
6. Benchmarking the budget
7. Reviewing and approving the budget
8. Monitoring and revising the budget
Steps for budget Formulation and Administration:Creating a budget department or appoint a budget controller
Developing guidelines for budget preparation
Developing budget proposal at the department / business unit level
Developing the budget for the entire organization
Determining the budget period and key budget factors
Benchmarking the budget
Reviewing and approving the budget
Monitoring and revising the budget
1.
Creating a budget department or appoint a budget controller :- it is a
very specialized process. Large organizations generally have a budget
department while small ones may have just an individual budget controller.
The budget department / controller is responsible for issuing the guidelines
for budget preparation and for making sure that this information is properly
communicated throughout the organization. When the proposal from the
departments/business units reaches the budget department / controller it is
their responsibility to analyze the projected budget and suggest changes
wherever necessary. They are also responsible for the proper coordination of
budget related work with the departments/business unit and for periodical
revisions of the budget.
2.
Developing guidelines for budget preparation:- the guidelines for budget
preparation are formulated by the budget department/controller and approved
by the top management are also consulted while formulating these guidelines
. Once the guidelines are approved , the budget department or the controller
sets a timeframe for the budget preparation process for the entire
organization.
3.
Developing budget proposal at the department / business unit level:-the
heads of different departments/business units propose their budget taking into
consideration the existing facilities, employees , objectives etc. generally the
revenue center first prepare the budget as other business units are dependent
on the revenue generated in these business units for their resource
requirement.
4.
Developing the budget for the entire organization :- after the individual
heads set the budgets for their respective department/business units, these
departmental budgets are combined to generate a budget for the entire
organization . The budget should be complete with a pro forma income
statement , budget for projected cash, capital investments etc. in addition to
the functional budget like the human resource budget. The combined budget
should conform to the organization’s strategic plan. The budget department or
controller has to communicate the final approved budget to the respective
departments/ business units. They should also let the business units know the
way in which the performance will be measured for the current year.
5.
Determining the budget period and key budget factors:-the budget period
is the time for which a budget is set. Budgets are generally annual. The period
of budget varies based on the type of industry , the production cycle of the
organization etc. for example the organization operating in dynamic, fast
changing markets will have shorter budget periods than those operating in
slow growth or saturated markets.
the factors like material , working capital, labor, plant capacity and the top
management approach play a crucial role in the success of the budgets. These
are considered as key budget factors that should be assessed in order to
ensure that the budget achieve their targets. If these key factors are not taken
into consideration when the budget is prepared it becomes difficult to achieve
the targeted budget figures.
6. Benchmarking the budget:-an organization may use different types of
budget. A benchmarking exercise helps it to know the standard budgeting
practices followed by other organization in the industry. This exercise also
helps the organization to identify the weakness that need to be addressed or
the strength which can be enhanced in its budgeting approach. Even if the
type of budget differ among organizations , certain things are common across
industries.