CORPORATE BUDGETING TASKS SUMMARY

OF MEETING MATERIALS 1-7

By :

A.Putri Maharani Ramadhania

A021191119

FACULTY OF ECONOMICS AND BUSINESS HASANUDDIN

UNIVERSITY
2021
Summary week 1 :

Budgeting Overview

➢ Definition of Budgeting

Budgeting is the process of designing, executing, and operating a budget. It is the managerial
process of budget planning and preparation, budget control and related procedures. Budgeting is
the highest level of accounting in terms of forecasts for consideration to take definite action and
not just reporting. In short, budgeting or budgeting is an operating and financial plan that lays out
the targets that management seems to achieve based on the estimates made.

➢ Functions and Objectives of Budgeting

The overall goal of budgeting is to plan the different phases of business operations, coordinate
the activities of the various departments of the company and to ensure effective control over it. To
achieve this goal, budgeting aims to achieve the following objectives:

1. To forecast the company's future sales, production costs and other costs to obtain the desired
amount of revenue and minimize possible business losses.

2. To anticipate the future financial condition of the company and the need for funds to be used
in business in the future with the aim of keeping the company solvent.

3. Determine the composition of capital to ensure the availability of funds at a reasonable cost.

4. To coordinate the efforts of different departments of the company towards a common goal.

5. To accelerate the efficiency of operations of various departments, divisions and cost centers of
the company.

6. To fix the responsibilities of different department heads.

7. To ensure effective control over the company's cash, inventory and sales, and
8. To facilitate centralized control over the company through the budget system.
➢ Budgeting Process

Budgeting is the process of making a work plan for a period of one year, which is expressed in
monetary units and other quantitative units. In the process of preparing the budget, the
responsibility center manager participates in preparing budget proposals as well as negotiating
with the manager above who assigns a role to him. The budgeting process can be done in three
ways, namely the top down and bottom up methods. Top-Down Budgeting, which is a way of
preparing a budget determined by the highest leadership of the company with little or no
consultation with lower-level managers. Bottom-Up Budgeting, which is how to prepare a budget
prepared by the party who will carry out the budget.
 Summary week 2 :

Cash Budget

A. Definition of Cash Budgeting

Cash budgeting (Cash Budgeting) or also called cash budget is a budget for estimating the
company's cash flow based on revenue/sales targets set by the company. The cash budget is
made up of two parts, namely the estimated cash inflows and the estimated cash outflows. Then
the company will use the difference as an investment if it is excessive or make a loan if the cash
is not sufficient for the company's estimated expenses.

B. Objectives and Characteristics of Cash

Budgeting

A cash budget is useful for:

1. Indicates cash requirements for current operating activities.

2. Helping focus on the priority use of cash that is needed at this time, between expenses that
cannot be avoided and those that can be postponed or which can be eliminated.

3. Indicates the cash impact of seasonal needs, large inventories, unusual receipts, and lags in
collecting receivables.

4. Indicates cash availability to take advantage of discounts.

 5. Indicates cash requirements for plant or equipment expansion programs.

6. Assist in planning bond withdrawals, income tax payments, and contributions to pension
funds.

7. Indicates the availability of excess funds for short-term or long-term investments.

8. Indicates the need to borrow or sell securities.

9. To serve as the basis for evaluating actual cash management, using measurement criteria
such as the difference between the target average cash balance and the average actual cash balance
in each cash account.

C. Cash Budget Method

After knowing how the stages in the preparation of the budget, then the next is to know the
method of cash budgeting. The following is an explanation of the types or forms of cash budgets.

1. Receipt and Payment Method. With this method, the cash budget is arranged by column.
There are two parts. The first part is the receipt and the second part is the payment. Total
receipts are added to the beginning cash balance and subtracted from payments to get the
ending cash balance. If receipts are more than payments, there is a cash surplus at the end
of the month and vice versa.
2. Adjusted Profit and Loss Method. This method is also called a cash flow statement. This
type of budget is prepared for the long term. It provides more details of income and
expenses with respect to long term planning.
3. Balance Method. This method is very similar to the adjusted profit and loss method. With
this method, all balance sheet items are recorded on their respective sides except cash.
 Summary week 3 :

CASH BUDGET (SURPLUS AND DEFICIT) AND LABOR BUDGET

Surplus is a term used when the amount of income is greater than the expenditure. Meanwhile, the term deficit
is used when expenditure is greater than income. Cash surplus and deficit are often terms used by the government
to describe a country's economy.
The notion of surplus and deficit of cash is not a common thing in society. Moreover, the term deficit is a scourge
for capital owners. If the cash deficit continues, it will cause the company to go bankrupt, let alone a country. In
the financial statements, the surplus and deficit can be seen clearly in the cash flow statement.
➢ Impact of Surplus and Cash Deficit
The impact of the cash surplus and deficit will be enormous on the company's activities, including the following:
1. If you experience a cash deficit, all expenses that need to be paid during that period may be hampered. No
cash can afford
This causes the company to be unable to provide salaries, pay debts or buy raw materials in cash
2. The cash surplus gives the company many options to invest the money it has. The company is able to pay its
bills on time and even easy to invest
3. Become a benchmark for investors in assessing the performance of company management in managing their
capital. Investor confidence is higher when the company's financial statements always show a cash surplus.
4. Cash surpluses and deficits are taken into consideration in preparing a cash budget to be used in the next
period
5. The company carries out reforms, restructuring or other company policies related to the flow of funds based
on cash surplus and deficit
6. Summarizing the description of the current condition of cash and easy to memorize

In simple bookkeeping, how to calculate surplus and deficit is very easy, only focusing on cash income
and expenditure. All transactions related to cash will be presented in the cash flow statement which must be
made as a component of the company's financial statements.
Both direct and indirect method cash flow statements are required to record all incoming and outgoing income.
The company's income can be divided into 3 types, namely work income, portfolio and passive income.
Work income is income earned from doing work, for example cash sales for products produced by the
company.Portfolio income is income obtained from the stock exchange, for example dividend distribution.
While passive income is income that continues to generate even though you do not do a job such as income from
renting a building.

Cash disbursements are divided into two types, namely those that are fixed and variable. Fixed expenses
are expenses that have the same value every month
For example, the cost of car insurance. Variable expenses have a value that changes every month for example
the cost of electricity and water.
Direct labor costs are the composition of the budget associated with the manufacturing process of the product.
Furthermore, direct labor is also understood as someone who is involved in the work of making the production
process.

In other terms, labor costs are usually called direct labor costs. Generally, these costs also include
elements that are included in the budget management by the company and are given strict supervision. Thus,
you can also understand that these costs are directly related to the processing of production materials into finished
goods.
For example, it can include machine operator salaries, overtime pay, bonuses, and so on. For each
production expense in the business, the amount paid to employees will exceed the total wages.
 Summary week 4 :
BUDGET OVERHEAD COST
Factory overhead costs are costs that cannot be directly related to the production of a product or service.
Overhead costs are a type of expense that are common in all types of companies. These costs have a very
important role in the survival of businesses and companies.
Overhead costs can also be interpreted as costs that exist in the company's Income Statement that are outside the
company's production activities. In simple terms, the purchase of inventory does not include overhead costs.
This is because these costs are directly related to the company's production activities.
Overhead Calculating Function

After discussing the definition of overhead costs, this time we will discuss how important the role of
overhead costs is for companies. More about the function to calculate overhead costs are as follows:
a. Controlling Non-Production Expenses
b. Basis of Budget Estimation for Each Division
c. Reducing Overhead Costs Not Necessary
d. As a Basis for Formulating Company Strategy

➢ Types of Factory Overhead Costs

Broadly speaking, overhead costs can be categorized into 3, namely fixed, variable, and mixed/semi-variable
overhead costs. A complete description of the three types of overhead costs is as follows:
a. Fixed Overhead Cost

Fixed overhead costs or fixed overhead costs are overheads whose amount does not change each time a payment
is made. Examples of fixed overhead costs are taxes, salaries of non-production employees, rental costs of non-
production assets, and so on.
b. Variable Overhead Cost

The second type of overhead cost is variable overhead cost, which is the amount of overhead that varies
according to the intensity of the company's activities. Main features
variable overhead cost is the company can adjust its expenses to the current strategy. Examples of variable
overhead costs include advertising costs, bonuses/commissions, payment for agency services, office stationery,
photocopying ink, and so on.
c. Mixed/Semi Variable Variable Costs

The last type of overhead is semi variable, which is a combination of fixed and variable overhead. The main
characteristic of mixed variable costs is the nominal which varies according to the company's activities.
However, when the activity reaches point 0, the company is still obliged to make the minimum payment for the
overhead costs.

➢ How to Calculate Factory Overhead Biaya

How to calculate factory overhead costs to be applied in the company, among others:
1. Separate Overhead Costs for Each Division
The first way to calculate factory overhead costs is to separate the budget per division. To apply this method, we
only need to collect the projected costs of each division and analyze their proposed overhead costs one by one.
2. Estimating Overall Overhead Costs
The next way to calculate factory overhead costs is to collect all the company's overhead costs and do a budget
analysis in one read. In this case, the authority to determine overhead costs is absolute in the hands of the owner
or the finance division.
3. By Percentage
The last way to calculate factory overhead costs is to analyze the percentage of the required overhead cost for
each division and divide it according to its size. Compared to the previous two methods, this method is most
often used by companies today.
Summary week 5 :

Marketing and Administration Budget

A. Marketing Budget

Marketing budget is all expenditure plans related to all sales and distribution activities of the
company's products. Marketing costs begin when production is complete and goods are ready for
sale. This fee includes:

1. Selling costs, namely all activities related to efforts to find and obtain sales of company
products. These costs include advertising costs, product samples, sales commissions, demo fees,
and so on.
2. Order Fulfillment Costs, which are all costs incurred related to efforts to fulfill orders according
to consumer wishes, which include warehousing, packing and shipping costs, crediting and
billing as well as marketing administration.

B. Administration Cost Budget

General and Administrative Budgets are all cost plans related to office operational activities to
regulate and control the organization in general. Administrative and general activities cover all
production and marketing activities. The scope of administrative and general activities is very
broad, including administrative staff salaries, Manager and director salaries, Office rental fees,
vehicles, etc., Legal fees, Correspondence fees, Administrative office telephone costs,
Administrative office electricity costs, Administrative office electricity costs, Interest costs credit,
administrative office stationery and printing costs, administrative office building depreciation
costs, depreciation costs for public vehicles and directors, as well as various other general and
administrative costs.

An administrative budget is essentially all planned selling, general and administrative (SGA)
expenses for a period of time. In an administrative budget, only non-production costs are accounted
for, including supervisor payroll, depreciation, amortization, consulting, sales, dues and fees, legal
fees and marketing, rent, and insurance. An administrative budget enables management to exercise
control of the day-to-day activities of the business. An administrative budget deals with the
administrative side of running a business. Non-production payroll may
include sales staff, accounting personnel, managers, clerical staff, and other support staff members
not involved in the production. An administrative budget is a formal breakdown of all planned
expenses, allowing managers to make estimations and measure progress.
Weeks 6 :
BUDGET OF COST OF GOOD SOLD OR COGS

Cost of Goods Sold or COGS is the amount of expenses and expenses incurred directly or indirectly to
produce products or services.
Examples included in the COGS are labor, material, and overhead costs.

The company must be able to determine the Cost of Goods Sold for each item sold to calculate profit.
This #HPP is regulated in such a way as to match the target market intended by the seller and can be accepted
by the community.
Although you could say this is a simple thing that if the determination is wrong, the company can suffer losses.
Any costs that are included in the cost of goods sold or COGS are costs that are directly related to certain products
sold by the company.
For example, production costs, imports, assembly, etc. associated with these goods.
Costs that are not directly related to the product cannot be included in the cost of goods sold.
Therefore, the cost of goods sold is made so that the company knows the details of the cost of the product.
The importance of calculating the cost of goods sold (HPP) is as follows

Usually the HPP value is also used as a determinant and benchmark of how much profit the company
wants.After the company processes the product, of course the company needs funds to pay employees who work
on the process and several other things related to company operations.
That is the reason why calculating the cost of goods sold or COGS is very important.
HPP will tell the company how much profit can be obtained which will then be used by the company for
operational costs.

Cost of Goods Sold also helps realize production costs for manufacturing companies.
Manufacturing companies can estimate the nominal amount needed to improve the quality of production in the
next period.

Or even help manufacturing companies do research for new products.

The Components of Cost of Goods Sold (HPP) are as follows In the Cost of Goods Sold, there are several
important components. Here's an explanation of each:

Beginning merchandise inventory

What is meant by beginning inventory of merchandise is inventory available at the beginning of the company's
accounting period.
The beginning inventory balance of this item can be checked in the current period trial balance or the company's
initial trial balance in the previous year.
Merchandise ending inventory

Ending merchandise inventory is the inventory of goods available at the end of the company's accounting period
or the end of the current financial year.
The value of this balance can be found in the company's adjustment data at the end of the accounting period.
Net purchase

Net purchases in COGS are all purchases of merchandise made by the company for cash or credit purchases.
In addition, it is added with the purchase transportation costs minus the purchase discounts and current purchase
returns.
Cost of goods sold has a formula to calculate its value. The formula is:
The formula COGS = Net purchases + Beginning inventory – Ending inventory.

How to calculate the cost of goods sold or COGS with the HPP formula is as follows
Here's how to calculate Cost of Goods Sold or COGS: calculate net sales
Net sales is one element of the company's income. Some of the elements that exist in net sales such as:
Purchase return
Gross purchase Price reduction
Shipping costs are not included because they include general costs.

Net sales value is obtained from sales value minus the value of sales returns which have been added up with
sales discounts.
The formula for calculating net sales is:

Net sales = sales – (sales returns + sales discounts) Calculating net purchases
The elements included in net purchases include: Gross purchases
Price reduction Purchase returns Purchase discounts
The net purchase value is obtained by adding up the purchases with the purchase freight and then subtracting
from the amount of purchase returns with purchase discounts.
The formula for calculating net purchases is:

Net purchases = (Purchases + purchase freight) – (purchase returns + purchase discounts)

Counting inventory
Inventory value is obtained by adding up the beginning inventory with net purchases.
The formula for calculating inventory is: Inventory = beginning inventory + net purchases
How to calculate Cost of Goods Sold or COGS is to use the following formula
The numerical value of the cost of goods sold or COGS can be obtained by adding up the net purchases and the
beginning inventory and then subtracting the ending inventory in a certain period.

The formula for calculating HPP is:

Calculation formula Cost of goods sold (HPP) = inventory - ending inventory.

Things to consider in calculating the cost of goods sold are as follows:
To calculate this HPP you must be careful and precise because it relates to the price of goods to be sold to the
market.
Cost of goods sold or COGS is a benchmark in determining the selling price of a product.
If the price drops too much, the company can suffer losses. Therefore the calculation must be done precisely and
accurately.
But the price also can't be too expensive because it can not match the target market and the company will fail to
market the product.
Therefore, HPP calculations must be very detailed and thorough.

How to calculate COGS for a Manufacturing Company is as follows

For manufacturing companies, the calculation is slightly different from that for trading companies.
Manufacturing companies have a slightly complicated HPP calculation and go through several stages so that the
results are accurate and precise.
The following are the stages of calculating the cost of goods sold for a manufacturing company: Calculating the
raw materials used
The calculated raw materials are raw materials for the production process or the manufacture of certain products.
The value of the raw materials used is obtained from adding up the initial raw material inventory with the
purchase of raw materials.
Then it is reduced by the final raw material inventory. The formula for calculating the raw materials used is:
Raw Materials Used = Beginning Raw Material Inventory + Raw Material Purchase – Ending Raw Material
Inventory
Calculating production costs

The total cost of production can be obtained by adding up the raw materials used with direct labor costs and
production overhead costs.
The formula for calculating production costs is:

Total cost of production = Raw materials used + direct labor costs

+ production overhead Calculating the cost of production
The cost of production is obtained by adding up the total cost of production with the inventory of goods in the
initial production process minus the inventory of goods in the final production process.
The formula for calculating the cost of goods manufactured or HPP is:

The formula for Cost of Goods Produced = Total production costs + inventories of goods in the initial production
process – inventories of goods in the final production process
Calculating cost of goods sold

The value of this HPP can be obtained from the cost of goods manufactured added to the initial inventory and
then reduced by the ending inventory.
The formula used to calculate the HPP of a manufacturing company is:
The HPP formula = Cost of goods manufactured + Beginning inventory - ending inventory.
Weeks 7 :

Receivable Budget

1. Definition of Accounts Receivable

Accounts Receivable Budget is a budget that plans in detail the amount of the company's
receivables due to sales on credit accompanied by changes (additional accounts receivable,
collectible receivables, remaining receivables) from time to time during the period to come. Sales
made by the company on credit have the aim of increasing sales volume, due to the increasing
level of competition, considering that competitors are increasingly daring to provide credit with
the aim of increasing sales or increasing the number of markets.

2. Receivable Management

In the company, receivables must be managed properly. The management of receivables

includes the following activities:

1. Planning the amount and collection of accounts receivable

The plan for the amount of receivables in the future is prepared based on the sales budget by
taking into account the payment terms offered by the company and customer habits in paying
interest.
2. Accounts Receivable Control

In giving out receivables, it must be done strictly (selectively), both in screening subscriptions,
determining risk, determining receivables discounts, determining administrative expenses and
stipulating other provisions related to creditors.
3. Use of ratio

Companies can compare accounts receivable turnover rates from certain companies with other
companies, this helps managers in determining receivables policies in their own companies.

3. Accounts Receivable Turnover

Receivables as an element of working capital, then the situation will always rotate in the sense
that receivables will arise when there is a credit sale and will be collected at a certain time and there
will be more credit sales and so on. So the longer the payback period, the longer the working capital
will rotate in one period. Therefore, the faster the receivables turnover, the better the
company's financial condition.

It is important for the company to compare the average day of collection of receivables with the
payment terms set by the company. If the average day of collection of receivables is greater
than the specified payment deadline, it is considered less efficient. This means that many
customers do not meet the payment terms set by the company.

4. Benefits of Accounts Receivable

The benefits of the accounts receivable budget can be seen from two sides, namely in general
and in particular. In general, the accounts receivable budget has 3 main uses, namely:
1. As a work guide

As the basis for preparing the receivables budget for the coming year, it is known that the
amount of receipt of the settlement of accounts receivable in the previous months is known.
2. As a work coordination tool

As a tool to control the amount of receivables within the billing period so that there is no
delay in payment of sales credit.
3. As a work supervisor

To assess the company's performance in managing receivables turnover which will later
result in the amount of cash in the company. While specifically the purpose of the Accounts
Receivable Budget is as a basis for preparing the Cash Budget, because receivables collected
will result in additional cash.

5. Factors Affecting the Preparation of the Accounts Receivable Budget

In order for a budget to function properly, the estimates contained in it must be quite accurate, so
that the results are not much different from the realization. To make an accurate estimate, it is
necessary to have complete information and experience that has occurred in previous years which
are used as factors for determining receivables. The factors that must be considered in
preparing the accounts receivable budget are as follows:
1. The greater the number of sales, the greater the credit sales transactions that will
be carried out, so that the company's receivables will also increase.
2. The state of competition in the market. The higher the level of competition in the
market, the volume of sales on credit also increases.
3. Company policy in collection of receivables The more intense the company collects
receivables, the number of company receivables decreases, but on the contrary if
the company is not active, the number of receivables will also accumulate.
4. The company's plan to make sales on credit. The bigger the credit sales plan, the
greater the amount of receivables, and vice versa if the credit sales plan is deducted,
the receivables are also getting smaller.

6. Budgeting for Receivables

The steps for compiling an accounts receivable budget are as follows.

1. Determine the amount of cash sales and credit sales generated by the company within
a month or quarter.
2. Determining the amount of credit sales terms, this will affect the amount of
receivables that will be received by the company and stimulate customers to
immediately pay off their receivables.
3. Determine the amount of reserve for bad debts which is usually determined by
percentage and in accordance with the experience of the previous period.
4. Determine the term of credit, namely the period of repayment of receivables.