![]() OBJECTIVE 2 Understanding Operating Budgets Direct Materials Purchases Budget: based on the amount of materials needed for production and the inventories of direct materials Once expected usage is computed, purchases can be computed by: Purchases = Desired ending inventory of direct materials + Expected usage – Beginning inventory of direct materials Direct Labor Budget: shows the total direct labor hours and the total direct labor cost needs for the number of units to be produced The average wage rate should be used in the direct labor budget. Production Budget: describes the number of units that must be produced in order to meet sales needs and satisfy ending inventory requirements Basic equation: Units to be produced = Desired units in ending inventory + unit sales – units in beginning inventory OBJECTIVE 2 Understanding Operating Budgets Sales Budget: the projection that describes expected sales for each product in units and dollars. OBJECTIVE 2 The Operating Budget Components Cost of goods sold budget Marketing expense budget Research and development expense budget Administrative expense budget Budgeted Income Statement Sales budget Production budget Direct materials purchases budget Direct labor budget Overhead budget Ending finished goods inventory budget OBJECTIVE 1 The data used to create the budget come from many sources The sales forecast is the basis for the sales budget – which is the basis for all of the other operating budgets and most of the financial budgets OBJECTIVE 1 Master Budget A comprehensive financial plan for the year made up of individual department and activity budgets Operating budgets are concerned with income generating activities Financial budgets are concerned with inflows and outflows of cash and with financial position 8-4ĥ The Role of Budgeting in Planning and Control ![]() 8-3Ĥ The Role of Budgeting in Planning and Control Aids in setting benchmarks for performance evaluation. Provides information to improve decision making. OBJECTIVE 1 Purposes of Budgeting Forces managers to plan. OBJECTIVE 1 Budgets Quantitative plans for the future Can be stated in either physical or financial terms or both Control The process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates significantly from planned performance Budgets can be used to compare actual outcomes with planned outcomes and they can steer operations back on course, if necessaryģ The Role of Budgeting in Planning and Control ![]() Presentation on theme: "Budgeting for Planning and Control"- Presentation transcript:Ĩ Budgeting for Planning and Control CHAPTERĢ The Role of Budgeting in Planning and Control
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