BUDGET

a realistic plan, expressed in quantitative terms for a certain period of time.

Roles of Budgeting
1. Budget can be used by top management to communicate its plans and goals throughout the organization;
2. Budgets force management to think about and plan for the future;
3. Through budgeting, resources are more appropriately allocated
4. Through budgeting, potential bottlenecks can be discovered before they occur
5. Budgeting promotes coordination of the activities of the entire organization;
6. The goals and objectives identified in the budgeting process can serve as benchmarks or standards for evaluating performance

Overview of the Master Budget

FORMULA
1 Budgeted Unit Sales xx
X Budgeted Sales Price xx
Sales Budget XX

2 Budgeted Unit Sales xx

Add: Desired Ending Finished Goods xx
Less: Beg Finished Goods (xx)
Production Budget XX

3 Material Budget 4 Direct Labor Budget

A Production Budget/ Units to be Produced xx A Production Budget/ Units to be Produced xx
X Qty of Material Budgeted per unit xx X DL hours needed for one unit xx
Qty of materials needed for production XX DL hours needed for production XX

B Qty of materials needed for production xx B DL hours needed for production xx

Add Desired Ending Material Inventory xx X Budgeted Rate per hour xx
Less Beg Material Inventory (xx) Budgeted Direct Labor Cost XX
Qty of Materials to be Purchased XX
5 FOH Budget
C Qty of Materials to be Purchased xx Budgeted Fixed Overhead xx
Budgeted Material Prices xx Budgete Variable OH X DL hours xx
Budgeted Cost of Material Purchases XX Budgeted FOH Cost XX

D Qty of materials needed for production xx

X Budgeted Material Prices xx
Cost of Materials Used XX

6 Ending Inventory Budget 7 Cost of Goods Sold Budget

A Desired Ending Materials xx A Cost of DM used xx
X Budgeted Prices xx Cost of DL used xx
Ending Direct Materials XX Total FOH Cost xx
Budgeted Total Mfg Cost XX
B Qty of DM reqd per unit X Budgeted Prices xx
Add: DL hours required per unit X Budgeted Ratexx B Budgeted Total Mfg Cost xx
Add: Total OH Rate X DL Hours Reqd per unit xx Add: Beg FG xx
Budgeted/ Standard Unit Cost XX Less: Ending FG (xx)
Budgeted Cost of Goods Sold XX
C Desired Ending Finished Goods xx
X Budgeted Unit Cost xx
Ending Finished Goods XX