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,
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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
Promotion: Promotional budget will be around 20-32% of the budget, changes will be according to product life cycle and trade off statistics. Allowances will be mostly steady around 15% with a maximum increase up to 20% when products reach maturity or sales start to decline. Promotional allocation could change among those channels that don’t show growth regardless sales force support investments.
Direct and Limited reimbursement plans are tactics associated with handling expenses associated with sales. These expenses could include meals, travel, hotel, and other expenses associated with entertaining clients. Direct reimbursements involve unlimited reimbursement of all allowable and reasonable expenses. The advantage of direct reimbursements is that direct reimbursement plans give the sales manager some control over both the total magnitude of sales expenses, and the kinds of activities salespeople will be motivated to do. Limited reimbursement plans limit the total amount of reimbursement expense either by setting limits for each expense or by providing each salesperson a predetermined lump-sum payment to cover total expenses. Reimbursement
This overall decision was based on our prices keeping up with inflation and costs of suppliers and operational cost as well as keeping our customers in mind, while in maintaining long-run relationships with predictable prices. To further boost sales, we have modernized our marketing efforts in the international markets which caused a slight increase in our fixed advertising dollars rate spent from $0.0305 to $0.0457. With a proven positive relationship between the amount of advertising dollars spent and revenues earned, we believe this was a solid based decision. In further reducing cost and improving efficiency in our supply chain, we have lowered our financial expenditures ranging from categories to telephone costs, to postage and delivery and office supplies. By using efficient strategies and harnessing technology improvements, we have improved on maintenance and repairs for example our employers improving on their learning curves and being efficient on production, which improved direct labor hours and eliminated waste on material costs. Costs have gained slightly in our SG&A for example in personnel, which went from ($92,308,951) in Budgeted Year One to ($104,496,328 in Budgeted Year Three) due to the increase in salary rates as a result of an improving economy. Another area where prices rose were the COGS rate where the price of materials increase from ($113,196,181 in forecasted budgeted year one to $134,138,652 in year three) and a more detailed breakdown can be found in the production
Budgets are the financial requirements and consequences of plans. Budgets are made with specific goals in mind. Budgets can be used to lower living expenses, increase savings, or to save for a purpose such as: education or retirement. Budgeting is a process that involves these actions: defining goals, gathering information, forming expectations, reconciling goals and data, monitoring goals and variances, adjusting budgets, and redefining goals.
Budgets Budgeting must be tied to the mission of the organization. The leadership can look at past trends through accounting and see trends of where revenue comes from and from what sources. Leadership can then approve a budget that can be justified by the past and that will take the organization to the destination that the mission promises. Tweaks along the way will help keep things on course. Just as a ship moves toward a destination, storms and errors can move it off course.
(Cronkhite, 2013) All organization requires specific planning and a clear understanding of the organization object. (McHatton, Bradshaw, Gallagher, & Reeves, 2011) With the budgeting which ensures that the funds necessary to carry out the organizational activities and once the budget is approve operational activities are conducted within the approved plan. (Cronkhite, 2013) The Capital budget contains large items since as location or a new building. (Cronkhite, 2013) This type of budgeting is done until the organization or project is complete. (Cronkhite, 2013) Line item budget is those items that are needed yearly in order to the organization to operate. (Cronkhite, 2013) This includes employee salaries all the way down to office basic stationery. (Cronkhite, 2013) The budgeting process is not something that is done once a year; it is a continual process of regular review and in some case possible for revision. (Cronkhite, 2013) In some case a zero based budgeting comes into play. This type of budgeting is also known as the “died of its own weight”. (Cronkhite, 2013) This is only done if there is a reduction in the organization by at 5%, 10% or 20% on how the essential programs would continue to function. (Cronkhite,
The budget process, according to Marshall, is to "develop and communicate" how an organization' economic, industry, and organizational strategies will be effected within the budgeted time frame. (p.497) People within the organization from planners, economists, and managers contribute facets of the strategic budget process in order to meet organizational needs. Upper management then typically approves those budgets. The operating budget is the forecast of activity that encompasses the results of the budget ...
In addition, this will also help answer many questions, such as the need for a system/process to decrease the number of commutes, the need for a budget on mileage and/or the need for salaries to be increased to compensate for those miles, the need for an allowance for rental cars for clients to use to eliminate the mileage employees are putting on their cars and the amount of money that is being paid out for that mileage, and etc. In Managerial Accounting, it is very important that the company receives the correct information. In chapter 23 of Horngren’s Accounting it states, “flexible budget summarizes revenue and expenses for various levels of sales volume within a
Participative budgeting has the advantage of transferring information from the subordinate to their superior This knowledge is likely to be more reliable and accurate as the subordinate has direct contact with the activity and therefore is in the best position to make budget estimates. Participative Budgeting also gives subordinates the opportunity to discuss organisational issues with superiors, in which an exchange of information and ideas can help to solve problems and agree future actions (Nouri & Parker 1998). This transferral of information is important particularly when dealing with a matter of high task difficulty as, the more difficult a task, the greater the need for consultation with subordinates. Participative budgeting has a higher performance rate when dealing with more difficult and more volatile tasks than non consultative budgeting (Lau & Tan 1998)
During the year, budget performance was monitored closely. Each week’s and monthly, sales revenue performance figures were sent to Herb Stolzer by Roy Black. Roy Black also sent a monthly management report to Stolzer that included income statement highlights and a summary of key balance sheet figures and ratios. All information was provided with reference to (1) position last month (2) position this month (3) budgeted position.
Consumer goods – Provides a wide spectrum of products and solutions in the areas of power tools and household appliances
Capital budgeting is one of the primary activities of a company. Most of the company uses capital budgeting for decision making process of selecting and evaluating long-term investment. The company have to make a right decision with respect to investment in fixed asset such as purchasing of new equipment and delivery vehicles, constructing additions to buildings and many more. The decision must be right because of the project involve huge amount of cash outflow and it is committed for many years.
The overall purpose of cost accounting is to advise top administration and the management team on the most suitable and cost effective methods and actions to employ based on cost, capability and efficiencies of a given product or service. It can be defined as the method where all the expenditures used during execution of business activities are gathered, categorized, examined and noted down (Horngren & Srikant, 2000). Once these numbers are gathered and recorded the information is used to determine a selling price and/or to identify possible investment opportunities. Although the principal aim or function of cost accounting is to help the business administration with their decision making and business planning process, the cost accounting data
Performance budgeting encompasses the causal relationship among program funding and the probable results of that program and uses this information as a means to develop an actual budget. A major focal point of performance budgeting is accountability; this type of budgeting is often utilized by administrators to obtain cost efficiency and establish useful budget forecasting.
It requires an adequate and sound organizational structure, that is, there must be a definite assignment of responsibility for each function of the enterprise. Budgeting compels all the members of management, from the top to bottom to participate in the establishment of goals and plans. Budgeting compels departmental managers to make plans in harmony with the other departments and of the entire enterprise. Budgeting helps the management to put down in figures what is necessary for a satisfactory performance. Budgeting helps the management to plan for the most economical use of labor, material and capital. Budgeting tends to remove the cloud of uncertainty that exists in many organizations, especially among lower levels of management, relative to basic policies and objectives. Budgeting promotes an understanding among members of management of their co-workers' problems. Budgeting force management to give adequate attention to the effects of general business conditions. Budgeting aids in obtaining bank credit as banks commonly require a projection of future operations and cash flows to support