Importance Of Operating Budget

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SALE BUDGET
The operating budget is one of the two parts of the master budget. The purpose of the operating budget is to describe the income-generating activities of the firm such as sales, production, and finished goods inventory. The ultimate conclusion of the operating budget is the pro forma income statement and the operating profit margin. The operating profit margin is not the same as net profit, which you cannot calculate until you prepare the financial budget. The operating budget is prepared before the financial budget since many of the financing activities aren 't known until the operating budget is prepared.
The products
The products covered in this business case are washing machines, clothes dryers, dishwashers, electric stoves, …show more content…

To prepare a tentative budget of revenue and expenses, depending on the organisational structure of the sales department, each departmental head is asked to predict their sales volume and expenses for the coming period and their contribution of overhead For example, in a leading tyre company each District sales manager prepares his/her district budget and submits to the Regional or Divisional office, where they are added together and included with divisional / regional budget. In turn these divisional budgets are submitted to the sales manager for the particular product or market groups. At the end of this chain of subordinates ' budgets, the top executives in the sales department scan and prepare a final sales budget for the company. Now the marketing budget is combined with the budgets of the sales department and the staff marketing departments, to give a total of sales revenues and of selling and other marketing expenses for the company. Some of the common items in each sales budget include the …show more content…

Flexible budgets make use of standard costs (based on past records or managerial judgment) for different revenue forecasts. It allows the sales manager to continuously monitor financial performance in terms of standard cost ratios. For example, the standard cost for promotion materials (brochure, display samples etc. might be Rs.5 for every Rs.100 sales or a ratio of 0.05. After nine months Rs. 400 has been spent on promotional materials while Rs. 2400 worth of revenue has been generated. The sales manager observed that the ratio has risen to 0.166. In this case expenditure on promotional materials need to cut back reasonably. In the past use of flexible budgeting was limited to large sized companies, but now small companies also are adopting flexible budgeting

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