Budgeting in Cost Management

Date: May 30, 2010 Author: latestadmin

BUDGET

  • INTRODUCTION

Financial budget is that which embraces the impacts of the financial decisions of the firm. It is a plan including a Budgeted Balance Sheet, which shows the effects of planned operations and capital investments on assets, liabilities, and equities. It also includes a Cash Budget, which forecasts the flow of cash and other funds in the business. Cash budgeting (cash planning) is a critical part of budgeting because it is essential to have the right sums of cash available at the right times.

While planning a budget can occur at any time, for many businesses, planning a budget is an annual task, where the past year’s budget is reviewed and budget projections are made for the next three or even five years.

  • DEFINITION

A Budget is a plan that outlines an organization’s financial and operational goals. So a budget may be thought of as an action plan; planning a budget helps a business allocate resources, evaluate performance, and formulate plans.

PERIODIC BUDGET

Periodic budgeting is budgeting that is done through the year when the goals of a company are modified. A budget is a financial statement that estimates revenues and expenses for an organization over a specific period of time.

MANUFACTURING COMPANY

By the definition manufacturing company refers to those firms that convert raw materials and component parts into consumer and industrial goods.

OBJECTIVES OF PERIODIC BUDGETING

  • Setting up the fiscal targets and the level of expenditures compatible with
  • These targets. This is the objective of preparing the macro-economic framework.
  • Formulating expenditure policies.
  • Allocating resources in conformity with both policies and fiscal targets.
  • Addressing operational efficiency and performance issues.


BUDGET COMMITTEE

Periodic budgets are plane and prepare by the budget committee which is composed of sales manager, production manager, the chief engineer, the treasurer and the controller. Their principle functions are:

  • Deciding general policies
  • Request and review individual budget estimates
  • Suggest revisions in individual budget estimates
  • Approve budgeting
  • Analyze the budget reports
  • Recommend actions to improve efficiency.