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INTRODUCTION
What is a budget? A
budget is an estimate
of income and expenses
during a
certain period of time. It
is an invaluable tool
used by most
organizations. Budgets
allow organization to
determine not only
where their money is
going, how much they
have, but also what
they need to do to
make more.
HYBRID BUDGET PROCESS
Driving performance
Developing buy in
Combining top-down and bottom-up processes
FLEXIBLE BUDGET
4 Steps for Developing Flexible Budgets
Identify Activity Index & Relevant Ranges
Identify Variable Costs & Budgeted Variable Cost per Unit
Identify Fixed Costs & Budgeted Amount for each Cost
Prepare Budget for Selected Increment
PURCHASE BUDGET
Merchandising organization utilizes the purchases budget.
It is used to budget
costs that has a direct impact on the organization’s
profitability. A purchases
Company A
Direct Material Purchases Budget
For the Year Ending December 30, 2014
Quarter
2
3
budget is just one facet of a company’s overall functional
budget strategy.
1
4
Year
Budgete
d
Producti
on in
Units
× DM
Required
per Unit
(lb.)
DM
Required
of
Producti
on (lb.)
+
Budgete
d Ending
DM (lb.)
−
Beginnin
g Direct
Material
(lb.)
Budgete
d DM
Purchas
es (lb.)
Cost per
Pound
Budgete
d DM
Purchas
es in $
1,334
912
1,148
1,778
5,172
4.00
4.00
4.00
4.00
4.00
5,336
3,648
4,592
7,112
20,688
547
689
1,068
961
961
−800
−547
−689
−1,068
−800
5,083
3,790
4,971
7,005
20,849
$3.10
$3.20
$3.50
$4.00
$15,757
$12,128
$17,398
$28,020
$73,304
SALES BUDGET
Benefits of a sales budget
Seeing overhead
Profit
Direct labor
Materials
Inventory
Being able to determine what is needed to make more profit
REFERENCES
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