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The Laboratory Budget
The Laboratory Budget
Definition of Terms
Budget
• the estimated income and expenditure for a set period of
time
Budgeting
• the process of preparing a budget
• Planning, forecasting, controlling, and monitoring financial
resources
Asset
• A property of the company that is regarded to have value
Expense
• The cost of acquiring something (property/service)
Definition of Terms
Owners’ Equity
• total company assets minus total liabilities (a.k.a. Net
Assets, Net Worth)
Definition of Terms
For-Profit Organizations / Profit Organizations
• an organization whose primary goal is making a profit;
taxable
• Overhead Cost
• Expenses associated with operating a business that
cannot be directly linked to the production of a product
or service
• Indirect costs of operating a business
Definition of Terms
• Uncontrollable Costs/Expenses
• Costs that are not under the control or influence of
daily operations
• Predetermined by top management or external entities
• Controllable Costs/Expenses
• Costs that can be adjusted or influenced by the
normal/daily operations of the organization
Definition of Terms
• Fixed Cost
• Cost that remain constant regardless of volume
• Variable Cost
• Cost that vary proportionally with volume of testing
• Cost-per-test
• (fixed cost + variable cost)/number of tests
Types of Budgeting
• Zero-based Budgeting
• Annual budgets are always prepared from “zero” as the
base
• Not based on previous allocations or the previous
year’s budget
• Every projected expense is evaluated based on
priorities, benefits, and fund availability
• Seeks to eliminate wasteful expenses
Operational Budgeting
• Traditional Budgeting
• Annual budgets are prepared based on the previous
year’s budget
• Incremental changes are made from the previous
budget to meet the needs of the current period
• Adjustments are usually based only on the increase in
costs
• Wasteful expenses are easily ignored
Operational Budgeting
• Program Budget
• Created for a specific program which is not part of the
regular/basic operations
• Appropriation Budget
• Depends on an outside source of funds
• Usually found in government organizations
Operational Budgeting
• Rolling Budget
• Continuous budget that is updated periodically (e.g.
monthly)
• Adds the budget for one more month at the end of a
multi-period budget as each month goes by
Operational Budgeting
• Preparing an Operational Budget
• Time frame setting
• Most budgets are prepared annually
• Frequently, the annual budget is broken down into
smaller units such as monthly or quarterly budgets
• Forecasting
• Predicting future revenues and expenditures
• Takes into account historical data
Operational Budgeting
• Synthesis
• Putting everything together in an organized manner
The Budget Report
• Narrative
• Justification – rationale for the request; benefit
• Prioritization – rationale for the timing
• Opportunity costs – what is given up if not pursued
Capital Budgeting
• Quantitative
• Payback period – the length of time to recover the cost
payback period = purchase price/annual net income
• Quantitative
• Net Present Value
• Internal Rate of Return
• Required Rate of Return
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