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Budgeting BUDGET - Is A Detailed Plan, Expressed in Quantitative Terms, About Business Operations For A

The document defines key budgeting terms and concepts including: - A budget is a quantitative financial plan for a specific time period used to plan and control expenses, cash flows, and earnings. - Master budgets consolidate overall organizational budgets and include operating and financial budgets. - Budgets have advantages like planning and communication but also limitations like time costs and inflexibility.

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Marielle Castañeda
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246 views

Budgeting BUDGET - Is A Detailed Plan, Expressed in Quantitative Terms, About Business Operations For A

The document defines key budgeting terms and concepts including: - A budget is a quantitative financial plan for a specific time period used to plan and control expenses, cash flows, and earnings. - Master budgets consolidate overall organizational budgets and include operating and financial budgets. - Budgets have advantages like planning and communication but also limitations like time costs and inflexibility.

Uploaded by

Marielle Castañeda
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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BUDGETING

BUDGET - is a detailed plan, expressed in quantitative terms, about business operations for a
specific period; a budget is a useful tool for planning and controlling company
expenses, cash flows and earnings. The term budgeting is used to denote the process
of coming up with budgets.

ADVANTAGES & LIMITATIONS OF BUDGETING


Uses / Advantages of Budgeting Limitations of Budgeting
 It forces managers to plan for the future.  Considerable time and costs are
required.
 It provides a means of communicating  Budgets are merely estimates that
management’s plans throughout the require judgment and might be modified
entity. or revised if necessary.
 It directs the activities toward the  A successful budgetary system requires
achievement of organizational goals. cooperation of all members of the
organization.
 It coordinates the activities of the entire  Budgets sometimes restrict the flexibility
entity by integrating plans of various of the decision-making process.
parts.
 It provides a means of allocating  The budget program is merely a guide,
resources to segments efficiently and not a substitute for good management
effectively. ability.
 It defines goals that serve as
benchmarks for evaluating subsequent
performance.

THE MASTER BUDGET


MASTER BUDGET - is a comprehensive budget that consolidates the overall plan of the
organization for a specified period. The master budget is mainly composed of: (1) operating budgets
and (2) financial budgets. The master budget, in some organizations, is also referred to as pro forma
budget, planning budget, forecast budget, master profit plan.

MASTER BUDGET

OPERATING BUDGET FINANCIAL BUDGET


Sales budget Cash budget
Production budget Budgeted balance sheet
Direct materials budget Budgeted cash flow statement
Direct labor budget Capital expenditure budget
Factory overhead budget Working capital budget
Budgeted cost of goods sold
Budgeted operating expenses
Budgeted net income
Budgeted income statement

TERMINLOGIES USED IN BUDGETING


FIXED BUDGET A budget prepared for a one level of activity within a certain
period. (other term: static budget)

FLEXIBLE BUDGET A budget prepared for different levels of activity within a certain
period. (other terms: variable budget, sliding scale budget)

CONTINUOUS BUDGET A 12-moth budget that rolls forward one month as the current
month is completed (other term: perpetual budget)

ZERO-BASED A method of budgeting in which managers are required to justify


all
BUDGETING costs as if the programs involved were being proposed for the first
time.
IMPOSED BUDGETING A process wherein budgets are prepared by top management with
little or no inputs from operating personnel.

PARTICIPATORY A process wherein budgets are developed through joint decisions


by
BUDGETING top management and operating personnel.

BUDGET COMMITTEE A group of key management person responsible for over-all 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.

EXERCISES

1. Lourdes Company has budgeted sales at P100,000 and expects a profit of 10% of the sales.
Expenses are estimated as follows: selling = 10% of sales; administrative = 15% of sales. Labor is
expected to be 40% of the total manufacturing costs. Factory overhead is to be applied at 75% of
direct labor costs. Inventories are to be as follows:
January 1 December 31
Materials P4,000 P1,500
Work-in-process 5,000 10,000
Finished goods 2,500 7,500

REQUIRED:
1. Cost of goods sold 3. Factory overhead
2. Total manufacturing cost 4. Materials purchases

2. Past collections experienced by Milan Company indicate that 60% of the net sales billed in a
month are collected during the month of sales, 30% are collected in the following month, and 10%
are collected in the second following month. A record of monthly net sales of previous months is as
follows:
November P450,000 March P500,000
2019
December P460,000 April P550,000
2020
January P480,000 May P600,000
2020
February P420,000 June P700,000
On January 1, 2020, the accounts receivable balance showed P229,000.

REQUIRED: Determine the following:


 Cash collections on accounts receivable during:
1. January 2020 2. March 2020 3. May 2020
 Accounts receivable balance at the end of:
4. February 2020 5. April 2020 6. June 2020

3. The sales manager of Barcelona Merchandising has budgeted the following sales for the 4 th
quarter of 2020:
October P123,500
November 156,000
December 208,000
Other budgeted estimates are:
 All merchandises are to sell at its invoice cost plus 30% mark-up.
 Beginning inventories of each month are budgeted at 40% of that particular month’s
projected cost of goods sold.

REQUIRED: Determine the following:


1. Projected merchandise purchases for the month of October.
2. Projected merchandise purchases for the month of November.

4. The following information is taken from Glory Corporation’s accounting records for the year
ended December 31, 2020. These data would be used as the basis for the next year’s cash budget.
A) Customer sales receipts for P870,000.
B) Purchased machinery and equipment for P125,000 cash.
C) Settled income taxes of P110,000.
D) Sold investment securities for P500,000.
E) Paid dividends of P600,000.
F) Received rentals of P105,000.
G) Issued 500 shares of common stock for P250,000.
H) Paid a sum of P100,000 due to suppliers and payroll to employees.
I) Purchased real estate for P550,000 cash that was borrowed from a bank.
J) Paid P450,000 for treasury shares.

REQUIRED: Determine the following:


1. Net cash provided by operating activities.
2. Net cash used in investing activities.
3. Net cash used in financing activities.
4. Net cash increase or decrease.

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