BUDGET - plan in quantitative terms that outlines the sourcing and other use of financial resources in a period of time.

FINANCIAL CONTROL - deals with FEEDBACK and ADJUSTMENTS to assure plans follows change in operating environment
CASH BUDGET - is a schedule showing cash inflow and outflow (determines SURPLUSES or SHORTAGES). it is the most IMPORTANT TOOL
for short-term forecasting.
• Approve budgets and subsequent revisions
FINANCIAL PLANNING & therein.
• Receive, evaluate, and analyze BUDGET
BUDGETS REPORTS. (Budget reports: BUDGET vs
FINANCIAL PLANNING ACTUAL – can contain VARIANCES)
• Analyzing the investment and financing • Recommend necessary actions to improve
alternatives available to a firm operational efficiency and effectiveness.
• Forecasting the future consequences of the
alternatives FINANCIAL PLANNING TERMS
• Deciding which alternatives to undertake
• Measuring subsequent performance against BUDGET
established goals Three ways to construct budget:

FINANCIAL PLANNING MODEL 1. Top-down mandated approach (the top

management is responsible for the budget and
PLANNING distributes it to the lower management. FASTER)
INPUTS PROCESS OUTPUTS 2. Participative (the lower management makes the
• Current • Project financial budgeting decisions and requires approval from the
financial
statements
statements
(proforma)
top management. SLOWER)
3. Blended (combination of both)
• Assumption • Operational &
about future financial data
conditions
• Scenario
analysis No BEST WAY to construct budget it depends the
(worst/best) most suitable for each company

MASTER BUDGET
Sales, Production, Purchase, COGS,
1. Operating - IS OPEX, Income Statement
FINANCIAL PLANNING PROCESS
2. Financial – CB, BS, Capital outlay budget
• Develop a sales forecast (Before sales, requires
Strategic planning of Goals and Objectives) Capital outlay budget does NOT always exists
- Sales forecast (considers external forces) since this is for start up business only.
is DIFFERENT from sales budget
(allotment of sales)
• Develop a production schedule to calculate
production costs and costs of goods sold (Also
called as FINISHED GOODS for manu and
PURCHASE BUDGET for merch)
• Estimate other expenses and revenues
• Complete the proforma financial statements and
budgets.

BUDGET COMMITTEE
Headed by budget director/coordinator/chair
• Budget Report – budget vs actual,
performance measurement
• Formulate and decide on general policies
relating to the firm’s budgetary system. • Continuous (Rolling) Budget – a new quarter
• Request, review, and revise (if necessary) being added to the budget as current quarter is
individual budget estimates from the different completed.
segments of the organization.
• Fixed (Static) Budget – 1 level of activity
• Flexible (Variable, Dynamic) Budget
• Zero-base Budgeting (ZBB) – start from
scratch
• Life-cycle Budget
• Activity-based Budgeting – launch, growth,
• Kaizen Budgeting – continuous improvement
into budgetary estimates

OPERATING BUDGETS:
SALES BUDGET
- Can be Cash or Credit

Jan Feb March

Cash xxx xxx xxx
Credit xxx xxx xxx
TOTAL SALE xxx xxx xxx

Considers OUTSIDE ENVIRONMENT

COLLECTION BUDGET

Jan Feb March

Cash xxx xxx xxx
Credit xxx xxx xxx
TOTAL SALE xxx xxx xxx

Collection Policy:
60% for this month
30% of Last month
10% uncollectible
Jan Feb March
This Month xxx xxx xxx
Last Month xxx xxx xxx
Less: uncollectibles xxx xxx xxx
TOTAL COLLECTION xxx xxx xxx
 Jan Feb March
sold
PURCHASES BUDGET (MERCHANDISING) ending
less: beginning
Jan Feb March Production
sold xxx xxx xxx OH / units
ending 20% of feb 20% of mar 20% of apr OVERHEAD xxx xxx xxx
less: beginning end inv of last months end inv of last months end inv of last months
PURCHASES xxx xxx xxx

Ending inventory is 20% of next month's sales

Can be based on: OPEX BUDGET

- Balance sheet Jan Feb March

Rent 100,000.00 100,000.00 100,000.00
- Ending balance of last month
Advances 5% of sales
- Policy Salaries (Fixed) 200,000.00 200,000.00 200,000.00
Wages (Variable) 10% of sales
Depreciation 25,000.00 25,000.00 25,000.00
PURCHASES BUDGET(MANUFACTURING) OPEX xxx xxx xxx

Jan Feb March F

sold xxx xxx xxx I
N
ending 10% of feb 10% of mar 10% of apr I G
less: beginning end inv of last months end inv of last months end inv of last months S O
DISBURSEMENT BUDGET
H O
PURCHASES xxx xxx xxx E D
Ending inventory is 10% of next month's sales D S Disbursement is based on PURCHASES (has
different mod of payments and percentages) and
OPEX (100%)
PRODUCTION – DM BUDGET
Jan Feb March
Sold FINANCIAL BUDGETS:
end (FG)
less: beg (FG) CASH BUDGET
Production
Jan Feb March
x (ratio of mat needed)
Cash, beg
Used
Add: Collections
End (RM)
Cash Available 500,000.00
less: beg (RM)
Less: Disbursements
PURCHASES xxx xxx xxx
Purchases
OPEX
Interest
Dividends
PRODUCTION – DL BUDGET
Capital
Jan Feb March Total Disbursement 473,500.00
Production MCR 50,000.00
x (ratio of mat needed) Excess or (Deficit) - 23,500.00 since deficit (requires investment)
Loan (Invest) 30,000.00
Direct Labor hours
Excess or (Deficit) 6,500.00
Rate
DL Cost xxx xxx xxx
Investment requirement: increment of 10,000
Investment taken: 10,000 x 3

PRODUCTION – OH BUDGET
 BUDGETED INCOME STATEMENT Bajang Richness Corp’s budgeted sales of 18,000
units. The budgeted beginning inventory was 3,000
Jan Feb March units and the budgeted ending inventory was 5,000
Sales xxx xxx xxx taken from sales budget units. Budgeted production is
COGS xxx xxx xxx taken from COGS budget
Sold 18,000.00 units
Gross Profit xxx xxx xxx
Ending 5,000.00 units
OPEX xxx xxx xxx taken from OPEX budget
Less: Beg - 3,000.00 units
Net Income xxx xxx xxx
PRODUCTION 20,000.00 units

Hopia Company had budgeted sales of 44,000 units

BUDGETED BALANCE SHEET for January, and 60,000 for February. The budgeted
beginning inventory for January 1 was 14,000 units.
AR = Sales on Account Hopia desires and ending inventory equal to one-half
AP = Purchases on Account of the following month’s sales needs. Budgeted
production for January is _____________.
+C/SHE/PE = OI
JANUARY FEBRUARY
Sold 44,000.00 60,000.00
Ending 30,000.00
Less: Beg - 14,000.00
PRODUCTION 60,000.00

Budapet Foods Corp. manufactures a single

product. It keeps its inventory of finished goods at
75% the coming month’s budgeted sales, inventory
of raw materials at 50% of the coming month’s
budgeted production needs. Each unit of product
EXAMPLES: requires two pounds of materials. The production
budget is, in units: May, 1,000; June, 1,200; July,
Bekbek Company desires and ending inventory of 1,300; August, 1,600. Raw materials purchases in
P120,000. It expects sales of P240,000 and has a June would be
beginning inventory of P80,000. Cost of sales is 60%
May Jun Jul Aug
of sales. Budgeted purchases are Sold
end (FG)
COGS (240,000*60%) 144,000.00 less: beg (FG)
Ending 120,000.00 Production 1,000.00 1,200.00 1,300.00 1,600.00
Beginning - 80,000.00 x (1:2 pounds) 2 pounds 2 pounds 2 pounds 2 pounds
Used 2,000.00 2,400.00 2,600.00 3,200.00
Purchases 184,000.00
End (RM) 1,200.00 1,300.00 1,600.00 -
less: beg (RM) - 1,200.00 - 1,300.00 - 1,600.00
Mumshie Inc budgeted purchases of P200,000. Cost PURCHASES 2,500.00
of sales was P240,000 and the desired ending
inventory was P84,000. The gross profit rate is 40%.
The beginning inventory was

COGS 240,000.00
Ending Inventory 84,000.00
Less: Purchases - 200,000.00
BEGINNING INV 124,000.00
 Dec prev Jan Feb March April May June
On March 31 Rihana Enterprises, a merchandising Sold 21,000.00 36,000.00 61,000.00 41,000.00 31,000.00 25,000.00
firm, had an inventory of 38,000 units, and ending end (FG) - 20% 7,200.00 12,200.00 8,200.00 6,200.00 5,000.00
less: beg (FG) 4,000.00 7,200.00 12,200.00 8,200.00 6,200.00 5,000.00
accounts receivable totaling P85,000. Sales, in Production 24,200.00 41,000.00 57,000.00 39,000.00
units, have been budgeted as follows for the next x (ratio of mat needed) 3 electrical switches 3 electrical switches 3 electrical switches 3 electrical switches 3 electrical switches3 electrical switches

four months Used 72,600.00 123,000.00 171,000.00 117,000.00 - -

End (RM) - 30% 21,780.00 36,900.00 51,300.00 35,100.00
April 60,000 less: beg (RM) 21,780.00 36,900.00 51,300.00
PURCHASES 87,720.00 137,400.00 154,800.00
May 75,000
TOTAL 379,920.00
June 90,000

July 81,000
JD Corporation is working on its direct labor budget
Rihana’s boars of directors has established a for the next three months. Each unit of output
policy to commence in April that the inventory at
requires 0.3 direct labor-hours. The direct labor rate
the end of each month should contain 40% of the
units required for the following month’s budgeted
is P70 per direct labor-hour. The production budget
sales. The selling price is P2 per unit. One-third of calls for producing 8,000 units in April, 9,000 units in
sales are paid for by customer in the month of sale, May and 10,000 units in June. The company
the balance is collected in the following month. guarantees its direct labor workers a 40-hour paid
work week. With the number of workers currently
1. Prepare a merchandise purchases budget
employed, that means that the company is
showing how many units should be
purchased for each of the months of April, committed to paying its direct labor work force for at
May and June. least 2,840 hours in total each month even if there is
2. Prepare a schedule of expected cash not enough work to keep them busy.
collections for each of the months April,
May and June. Required: Direct labor budget for the next three
months
Apr May Jun
Production 8,000.00 9,000.00 10,000.00
x (ratio of mat needed) 0.3 DL/H 0.3 DL/H 0.3 DL/H GUARANTEED FIXED COST
1. PURCHASE BUDGET Direct Labor hours 2,400.00 2,700.00 3,000.00 2840 hours
March April May June July Rate 70.00 70.00 70.00 70 per dl/h
Sold 60,000.00 75,000.00 90,000.00 81,000.00 DL Cost 168,000.00 189,000.00 210,000.00 198,800.00
Ending (40% of next month sale) - 38,000.00 30,000.00 36,000.00 32,400.00
Beg - 38,000.00 - 30,000.00 - 36,000.00
PURCHASES 52,000.00 81,000.00 86,400.00 DIRECT LABOR BUDGET 198,800.00 198,800.00 210,000.00

2. CASH COLLECTIONS
April May June July
Sales 120,000.00 150,000.00 180,000.00 162,000.00
This month (1/3) 40,000.00 50,000.00 60,000.00 54,000.00
Last Month (2/3) 85,000.00 80,000.00 100,000.00 120,000.00
COLLECTION (TM +LM) 125,000.00 130,000.00 160,000.00 174,000.00

AR bal for JUNE 30 = 120,000 (180,000 x 2/3)

MARCH Sales = 127,500 = (85,000 / (2/3))
1. BUDGETED AR ON SEPT 30
COLLECTION OF CREDIT SALE
20% for this month
70% for next month
10% 2nd month
NO Bad debts

SEPTEMBER
UNCOLLECTED
100%-20% collected 144,000.00
10% of the previous month 22,000.00
166,000.00

2. COLLECTION FOR OCTOBER

Cash Sales 60,000.00
20% this month 40,000.00
70% of sept 126,000.00
10% of august 22,000.00
248,000.00

Keisha Melle Corporation is preparing its cash

budget for July. The budgeted beginning cash
balance P25,000. Budgeted cash receipts total 1. CASH COLLECTIONS
Nov Dec Jan
P141,000 and budgeted cash disbursements total Sales 290,000.00 310,000.00 210,000.00
P139,000. The desired ending cash balance is This month (65%)
Last months (33%)
188,500.00
77,000.00
201,500.00
95,700.00
136,500.00
102,300.00
P30,000. 265,500.00 297,200.00 238,800.00
AR (given)

1. The excess (deficiency) of cash available Question: why are uncollectibles NOT deducted?

over disbursements for July is: Because the amount is already NET so no need to
2. To attain its desire ending cash balance for deduct the given allowances.
July, the company should borrow: 2. PURCHASES and DISBURSEMENT
Nov Dec Jan
Sold 232,000.00 248,000.00 168,000.00
this month (70%) 173,600.00 117,600.00
last month (30%) 69,600.00 74,400.00
1. EXCESS OR DEFICIENCY FOR JULY 243,200.00 192,000.00
Cash, beg 25,000.00 disbursement purchases
Collection 141,000.00
Cash available 166,000.00
Deductions
Disbursements - 139,000.00 4. EXCESS AND DEFICIENCY OF CASH AVAIL OVER DISBURSEMENT
Nov Dec Jan
MCR - 30,000.00 Cash Beg 25,000.00 30,400.00 63,300.00
Excess (deficiency) - 3,000.00 deficiency Collection 265,500.00 297,200.00
Cash Avail 290,500.00 327,600.00
DISBURSEMENTS:
2. TO ATTAIN BALANCE Purchases 239,000.00 243,200.00
3,000.00 OPEX 21,100.00 21,100.00
Total Req 260,100.00 264,300.00
Excess (deficiency) 30,400.00 63,300.00
question: bakit hindi kasama sa deductables yung depreciation

Depreciation is a noncash expense so IGNORE and

stated IGNORE taxes.
Since NO cash requirement stated, the excess
balance for November is forwarded in December 6. CASH BALANCE AT DECEMBER (same sa 4)
balance.
Nov Dec Jan
Cash Beg 25,000.00 30,400.00 63,300.00
Collection 265,500.00 297,200.00 -
Cash Avail 290,500.00 327,600.00
5. NET INCOME FOR DECEMBER DISBURSEMENTS:
Nov Dec Jan Purchases 239,000.00 243,200.00
Sales 290,000.00 310,000.00 210,000.00 OPEX 21,100.00 21,100.00
COGS - 232,000.00 - 248,000.00 Total Req 260,100.00 264,300.00
Gross Profit 58,000.00 62,000.00 Excess (deficiency) 30,400.00 63,300.00
OPEX
monthly expenses 21,100.00 21,100.00
depreciation 21,000.00 21,000.00
bad debts (2%) 5,800.00 6,200.00
Total expenses - 47,900.00 - 48,300.00
Net Income 10,100.00 13,700.00

7. AR BALANCE net of uncollectibles

Nov Dec Jan
Sales 290,000.00 310,000.00 210,000.00
This month (65%) 188,500.00 201,500.00 136,500.00 collection AR
Last months (33%) 77,000.00 95,700.00 102,300.00 Beginning AR AR collected from prev month Ending AR
265,500.00 297,200.00 238,800.00 TOTAL COLLECTIONS
receivable from prev month collected this month
TABLE FOR COLLECTIONS

8. AP at the end of Dec

Nov Dec Jan
Sold 232,000.00 248,000.00 168,000.00
this month (70%) 173,600.00 117,600.00 purchases for next month
last month (30%) 69,600.00 74,400.00 purchases for this month
243,200.00 192,000.00 disbursement for dec TOTAL PURCHASES
disbursement purchases your purchases for dec is disb for Jan

TABLE FOR PURCHASES/AP and DISBURSEMENT

9. RETAINED EARNINGS
Retained earnings for October 311,400.00
Income 11/30 10,100.00
Income 12/31 13,700.00 23,800.00
Retained Earnings 12/31 335,200.00

LIMITATIONS ON BUDGETING

• The plan itself, as well as the figures therein, are merely estimates
• A budgetary system requires cooperation and participation of all members of the organization
• Budget restricts their investments and limits their decision-making power
• Time-consuming and too costly for some organizations