Examining different types of budgets and their uses

Examining different types of figures and their using upsBudgeting operations atomic number 18 very important for any benignanthearted of an validation, that is involved in making profits or non. This is the case because in altogether forms of presidential terms sacrifice a number of resources, both sensible and human, which deal to be liked in browse to promote and sound realization of goals and objectives. As well, all system of ruless shall suck a number of obligations and missions that necessitate to be realized inside stated clip durations, and hence figureing acts as one of the major tools that can be greatly applic adequate to(p) towards realization of goals and objectives. This paper shall hence pause the major findings on the figureary framework, usage and benefits of the 8 types of budgets.IntroductionDefinitively, a budget refers to forecast of phoners incomes and expenses expect for a abandoned period of time. With a budget, an shaping is able t o analyze how much money they ar making and spending, and they ar able to figure the best way to channel it among various categories and de dampments. Budgeting depicts the good wait on of analyzing and cookery using a budget. Since budgets atomic number 18 vital tools for management and planning, the execute of budgeting generally affects all types of geological formations careless(predicate) of their size and com coiffure. Many organisations participate in budgeting crop with the view of find the most personify powerful and efficient strategies of making profits and intensifying its seat of government and asset base. In management, budgeting guides an organization to use its uncommon resources in a way that exploits the real business opportunities well. Good budgeting theorys integrate efficient business archetype and help the management to keep decisions regarding the overall performance of the come with. In budgeting, an organization typically develop long -term and short-term plans that assist in implementation of its policies and even though its expensive and time consuming, it increases awareness of be and coordination of activities channeled towards achievement of company goals and objectives. In any organization, an effective budget always explains the intercommunicate route a company would follow in achieving its objectives and goals, and it summarizes the forecasted result of intersection and marketing efforts, and acts as a benchmark in which the management compares its performance against the actual outcomes.The major endures of budgeting include planning and control. Planning activities convey the views and plans of a company in scientific terms and the eventual planning on its part creates the framework for control, which an organization uses to put duties and measurementizes procedures (Banham, 2000).Budgeting process is chronological in nature, and consists of many budgets that are roughly classified according to methods and techniques of an organization in generating and spending its money. Different budgets are utilise for different applications. Some of these mentioned budgets deal with income coming from dividends, gross sales and interest. Consequently, different budgets give details of sources of expenditures like undertaking, sell be, purchases, and factory prices. Some unique types of budgets are chiefly touch on with investments and forecast for company productivity and performance. These budgets are classified according to their usage and include , sales budget, Production budget, groom materials usage budget, calculate materials purchase budget, Direct intentness budget, Factory overhead budget, Selling and administration budget and Cash budget (Colin, 2005).Types of budgetsSales budgetIn any organization, its the sales department that has the overall duty of preparing the sales forecast. Sales forecast is a requirement in devising sales budget on which an organization can scroll its intersection. Sales budget refers to a spatiotemporal record that shows the measure out sales for a given period of time. The plan for this given period is usually expressed in terms of volume of tot up sales and selling prices of each class of goods or services. An accurate sales budget is an important element in budgeting as it contributes to the overall organization budgeting process. If sloppily done and formulated, the rest of the budgeting process becomes a waste (Adams, et al., 2008). The sales budget is overly referred to as revenue budget since its a antecedent step in homework of master budget. In an organization, sales budget assist the management to forge the fare of units to be obtaind thus the employment budget is formulated after the sales budget, which in beat is used to determine budgets for toil be that include discipline materials , mathematical product overhead hails and direct push budget. In essence, the sales budget is very critical in that it elicits a chain of response that often leads to growth and development of other types of budgets. The sales budget consists of sales that are expressed in terms of number of units and the amount of revenue including all expenses that support sales, advertising and the speak to of distribution of goods sold. Sales budget alike consist of forecast of distribution of expenditure for goods sold (Banham, 2000)When developing a sales budget, the following calculations are formulated the sales budget is erected by multiplying the budgeted sales in units by the selling price.Budgeted Sales = Budgeted social unit Sales Budgeted Sales PricesFor the management, sales budget is often the preliminary step in preparedness of the master budget. All other components in the master budget do depend on it in some way.Production budgetIts mostly prepared with data from sales budget. Companies that are product point usually create production budget that hunts to estimate the number of units that ought to be produced in mark to fancy the sales goals and objectives. The other function of production budget is that it estimates different types of bes involved in production or manufacturing of the said units, inclusive of material and labor costs (Colin, 2005).Any typical organization spends huge amount of money in production than in any other type of expense. For this reason, its vital to create production budget that include all production expenditures so as to estimate the future working capital and future effects on store and levels. Production budget is an all-inclusive plan that considers all manufacturing whole kit and boodle to be done within the period including the amount expenditures to be incurred on these projects. When creating production budget, it requires individuals involved to be accurate with detailed production estimates .This kind of estimates are typically prepared in combination with the prenomen budgets, which must be finished prior to contracting of other project (Horace, et al., 2007).Before production budget is prepared, the management should always review the production period of budget. The major function of production budget is that it calculates more or less different costs involved in production or manufacturing of products including the cost of materials and labor. When calculating the extreme production inescapably, an organization adds anticipated sales to ending inventory and deducts the commencement of inventory from that sum.Total production= (projected sales) + (ending inventory) (starting inventory).Direct materials usage budgetDirect material budget refers to analytical plan that shows how much materials would be required in manufacturing or production and the amount of material required to meet the production ineluctably. Its usually prepared after calculation of production needfully or requirements. Materials budgeting show the amount of raw material to be purchased in frame to accomplish production requirements and the necessary amount to provide adequate inventories. Preparation of this kind of budget constitutes the organisational overall use of material requirements planning (MRP).This organization tool help manage inventories and materials, and ensures the required materials are available in the counterbalance quality and quantity and at the required time to meet the production needs of the company. Direct materials budget regularly go along with a schedule of anticipated hard cash payouts for raw materials and this plan is required for the preparation of the overall cash budget. Expenditures for materials include the cost of purchases of purchases the present budget period. Direct material budget is mostly constructed to determine the amount and cost of any additional materials needed to fulfill the anticipated production levels. Most organizations depicts this in two postpones, where the first table shows the number of units to be purchased and the total cost for those purchases while the second table shows a plan of the projected distributions of cash to suppliers of materials. The formula for the computation of materials purchases is given by-Purchase costs = (Materials Purchase Costs Unit of Materials to Be Purchased) X (Unit Price).Most successful organizations uses the planning and control of a direct-materials budget in order to determine the level of competence in their cargo space, inventory system success and to appraise the message of dealers to supply raw materials in the estimates and qualities that are required, and plan material purchases in relation with movement of finances into the organization (Livingstone Leslie, 1994).Direct materials purchase budgetProduction budget provide necessary information for determining the projected amount of direct materials that ought to be purchased. Simply by multiplying these amounts with the anticipated costs of purchase price, gives the total costs of materials to be purchased. The major function of direct material purchases budget, is that it provides the essential framework to plan and schedule cash payments for direct materials (Peter McLaney, 1997).This budget also critically reveals the companys planned end of the fiscal year inventory .this value is very important in cost accounting techniques because it a vital component in preparation of the budgeted year ending balance sheet.For effective implementation, the direct purchases budget should be incorporated with the production budget to make sure any level of production is not interrupted during the period of production. This budget tends to estimate the quantity of materials to be purchased in order to promote the budgeted production level and keep desire inventory levels. Direct materials to be purchased are given by-Materials to be purchased = (materials required for production) + (desired ending materials inventory) (estimated line of descent materials inventory) (Horace, et al., 2007).Direct labor budgetDefinitively, direct labor budget refers to a stubborn Schedule for anticipated labor cost. The anticipated labor costs is chiefly reliant on projected volume of production or production budget. The labor needs are dependent on production volume reckon by direct labor- mos per unit. The derived product is then multiplied by direct labor cost per hour to achieve the exact budgeted direct labor costs. This budget is created from the production budget where direct labor needs are computed to make the management see whether there is sufficient labor time to fulfill the budgeted manufacturing requirements. This glide path knowledge helps the management in to develop plans to regulate labor force when adverse situations occur (Livingstone Leslie, 1994). Organizations that take place out to budget well always face the risk of having labor shortages or increases in unwarranted clock. This kind of unpredictable often leads to inconsistent labor policies that contribute to insecurity, low workers morale, and low productivity. Direct materials budget is used in an organization to illustrate the amount and cost of direct materials to be purchased. It also provides the foundation for preparation of direct labor cost budget (Colin, 2005).Most organizations give this budget in terms of the number of units and the total costs. Labor hours are displayed using parameters like the type of operation, workers used, and the overall cost centers involved. Total direct labor cost is given by-Total direct labor cost = (Expected production) + (direct labor hour per unit) + (direct labor cost per hour)Factory overhead budgetIn cost accounting, factory overhead budget is referred to as a to-do list of all anticipated manufacturing or production costs apart from for costs related to direct material and labor. Factory overhead include items like indirect material and labor, cost of insurance, rent and rates Factory overhead are usually variable or fixed, or a blend of the two.The major function for this schedule is that it critically analyzes all the anticipated production costs for the limited period of time. Factory overhead budget does not include miscellaneous expenses incurred in marketing and administration. These expenses are considered miscellaneous because they are not involved in the production process. As mentioned earlier, production overhead costs determine the total production factory overhead costs and also determine the manufacturing overhead cost per unit. The overall overhead costs include the costs of materials required to make the finished product, direct labor costs needed to produce one unit and the factory expenses required to create one finished unit. The summation of the three costs gives the manufacturer a rough idea of the cost required to produce one unit or finished product (Horace, et al., 2007).Selling and administration budgetSelling and administrative expense budget refers to a schedule of budgeted ex penses for other areas rather than manufacturing. In organizations this type of budget consists of multitude of many and individual budgets that are forwarded by various departments. It provides a detailed plan involving all the companys operational expenses, other than the ones involved in production. The said expenses are required in maximum in order to maintain the sales and organization overall operations for a given period of time (Peter McLaney, 1997). This comprehensive financial plan is analytically used by the management to plan and control the day-to-day course of business affairs and activities. In this budget the organization gives details of the amount of money it projects to spend in support of manufacturing or production and sales efforts to be snapn. Selling and administrative expense budget consists of employees salaries and benefits, line supplies and expenses expenses sustaining administration, taxes, and any other professional services (Livingstone Leslie, 1994).Normally, these expenses differ little for changes in the volume of production which crepuscle within the period of budget. As a result, the selling and administrative budget is always a fixed budget.Cash BudgetCash budget is definitively referred to as an evaluation of cash outflows and inflows for an organization for agiven period of time. They are mostly used to appraise the performance of an organization and check whether it has adequate cash to accomplish the overall regular operations of a company. The budget is also used to check whether currency are universe used as per laid down guidelines. The cash budget shows the companys liquidity position and shows the capability of an organization to meet it goals and objectives. Even though profits promote liquidity, they do not have a high relationship. This budget assists the management in keeping tight-laced cash balances that relates with needs and objectives of the organization. It also helps the management to plan us age of cash where by it avoids cash fro lying idle and prevents possible bills shortages. most budgets consists of four sections that include receipts section, disbursement section, cash surplus section and finally the financing section which gives details of payments and borrowings expected during the budget period (Horace, et al., 2007).A budget properly prepared shows how funds flows in and out of the organizations and indentify any loopholes that may slow organization productivity. The cash budget also determines the organization future ability to pay expenses, loans and as well as debts. Banks and other financial institutions grant loans to organizations that have effective liquidity ratio and proper systematic cash plan. Similarly, organizations that function on a day-by-day basis are able to borrow more funds at unfortunate times (Colin, 2005).Cash budgets are commonly given by-Budgeted Cash Available = (Beginning Cash Balance) + (Budgeted Cash Collections)ConclusionTherefo re, for any organization, Budgeting involves the process of lordly and planning the overall activities of a company. It analytically covers precise details of management, sales, marketing, operations, and finance, and thereby provides the management effective guidelines for future performance. Through the concept of budgeting, the management is also able to verify the most profitable use of its limited resources and also it increases the organization ability to deploy resources effectively. In conclusion, its imperative for any organization to parcel out effectively and efficiently without proper budgeting skills. Its important for individuals and organizations to build budgets to ensure proper movements of resources.ReferencesAdams, R., et al. (2008). Self-review forhighereducationinstitutions. Melbourne AustralianUniversities Quality Agency.Banham, R. Better Budgets. Journal of Accountancy, vol.2, no.1, 2000, pp.32 55.Colin, D. (2005). Management and Cost Accounting. 4th ed. Ne w York Thomson BusinessPress.Horace, R, Charles, E., P., Billie, M, (2007). Accounting Principles and Applications. fifth ed. New York McGraw-Hill.Livingstone, Leslie, J. (1994). The Portable MBA in Finance and Accounting. New York Wiley.Peter, A., McLaney, E. (1997). Accounting and Finance for Non-Specialists. New York Prentice Hall. interrogatory TwoBudgeting and its functionsIntroductionBudgeting refers to the process of predicting or forecasting the organization incomes and expenses for a given period of time. Budgeting depicts the blameless process of analyzing and planning using a budget. Since budgets are vital tools for management and planning, the process of budgeting generally affects all types of organizations regardless of their size and composition. Many organizations participate in budgeting process with the view of determining the most cost effective and efficient strategies of making profits and intensifying its capital and asset base. I budgeting is vital in an organization in that it provide vizorments that help the organization management in planning and setting of goals and objectives. potent budgeting assists an organization to forecast future performances and productivity. They make available a feasibility analysis that help an organization create an effective business model identify required resource and capital requirements.Budgeting at times also helps in finding funding. Budgeting guides an organization to use its scarce resources in a way that exploits the existing business opportunities well. Good budgeting concepts integrate efficient business judgment and help the management to make decisions regarding the overall performance of the company. In budgeting, an organization typically develop long-term and short-term plans that assist in implementation of its policies and even though its expensive and time consuming, it increases awareness of costs and coordination of activities channeled towards achievement of company goals and meet its objective, and to measure up to standards set (Iain, 2003).Functions of budgetingFor any individual or organization with the yearning for financial freedom, the most of import thing they can do is to appreciate the fundamental functions of budgeting. Generally without figuring what one owns and spends it would be infeasible to make changes in ones spending habits. With the use of adequate budgeting schedule, it acts as a tool that assist individuals and organizations treat areas where changes can be done to improve monetary situation. Budgets serve a number of useful utilizations that includes planning, coordinating, communicating, motivating, controlling and evaluating (Rubin Irene, 1997).PlanningGenerally, a budget is a plan for the operations of a company for a given period of time. As a planning tool, budgets are vested with the sole function of determining an organizational programs and objectives .They tend to evaluate available alternatives as a way of achievin g its goals and objectives. Planning also involves prioritizing where the most beneficial projects are put forward first and the less beneficial ones follow suit. In all financing activities, budgeting is the bone marrow function. Proper budget makes planning easier because it allows people to know which direction the company is following and what business activities it plans to occupy in, in the future. Budget planning involves discovering and looking for sources of revenue and expenses, with the intention of meeting personal or organizational goals and objectives (Downes Goodman, 2006). Planning as the primary function of budgeting, it makes sure there is savings after the funds have been allocated for spending. Organizations that plan and use effective budgeting strategies, they are ensured of successful management of their expenses and savings hence they are able to secure better investments in the future. The major advantages of budget planning are that they put checks and b alances at particular(prenominal) points to prevent overspending I future at various levels, also they assist the management of an organization to take account of any unexpected need or requirements for funds. Though beneficial, planning as a function of budgeting has few shortcomings that include, it affects the quality of life and productivity of people and organizations especially in situations where there is excessive emphasis on savings. Also when the budget is planned to rigid, devotion to it tends to become a problem and fulfillment of organizational goals and objectives becomes a problem (Brookson, 2000).CoordinatingIn order an organization to properly grow and develop, the management needs to know what is happening within the company and have an unambiguous idea of what they expect in the future. Coordination as a component of budgeting has fundamental objectives that are important to the management. The act of Coordination makes budgets from various specific departments to work together with sole function of meeting the organization goals and objectives. The way budget are constructed is very vital including the figures it carries. The sinless process of putting budget together involves correction of data regarding the business and the present and future needs of the company (Iain, 2003). Coordination of activities makes different individuals to participate in the making of budget where each of them contributes his or her knowledge to the areas of their expertise. In the process, employees learn from each other and this promotes the concept of teamwork and working together. Diverse units found in the company should set up different works they do.CommunicatingBudgets act as colloquy tools in that they allow individuals and management of organizations to pass information regarding the goals and objectives of the company. The management is able to promote goal congruence that allows the companys limited resources to be coordinated and channeled to mention areas. Budgeting process gives organization opportunities communicate and this allows them to accomplish their goals, and hence gives them chances scrutinize those achievements as well (Rubin Irene, 1997). Communication being a core purpose of budgeting provides information that is significant in the entire business strategic planning. The communication between the management and employees helps establish a mutual understanding that is geared towards achieving the companys goals and objectives. Also different units in the company must communicate with each other during budget making process in order to effectively and efficiently coordinate their plans and efforts.MotivatingEffective Budgeting and budgets allow an organization to motivate its workers by involving them in the budget making process. This concept of giving them a chance to make organizational decisions makes them feel wanted and appreciated, and they respond by working harder with the sole aim of meeting th e goals and objectives they set in the budget. Even if top-down budgeting technique does not realize this objective effectively, participative budgeting can be very encouraging and motivating. Budgeting can be an effective tool in promoting teamwork in places of work though many people and businesses dont realize it. Since the employees know the companys performance and productivity, they tend to channel all their effort in adhering to budgetary policies and work extra harder to make sure the companys goals are met (Sullivan, Arthur Steven, 2003).ControllingBudgetary control involves deliberate actions that are performed analytically with the guidance of a budget plan. Budget control involves the use of budget plan to control expenses with the aim of maximizing accountability. This purpose is mostly connected with line-item budgets. Technically once the budget is created it acts as a planning tool for the organization operations. Management has power to use up funds within the set budget and to generate revenues within the specified margin of the budget. These Budgets are scrutinized regularly to countercheck variations and to establish whether the company is moving on the right target. If the company performance and productivity does not meet the requirements of the budget, immediate action is always taken to localise its activities. The general aspect of budgeting allows an organization to control costs and avoid things not budgeted to be done. Proper budgets also give organizations a benchmark from which they evaluate the companys performance. Control involves monitoring, and involves comparison of different informations to a given standard from where it is used to make corrective actions (Brookson, 2000).EvaluatingThe aspects of budgetary control are much valued and appreciated in an organization since they help an organization to evaluate and monitor team and organizational performance and provides the management of the organization with a clear idea of the company financial position and makes information and data available on which they base their action. Budgets at times are used as a tool of management, which reward and revenge managers and their employees and also they are used as a basis for modifying future plans and budgets (Iain, 2003). One way to evaluate the management and employees performance is by comparing the company budget and the overall actual performance. Though an important concept of business, budgeting can cause massive problems in parts of workers especially in situations where they are not involved, and also where their jobs are dependent on meeting certain organizational goals and objectives established by the budgets. This happens in organizations that concentrate so much on evaluation purposes of budgeting and those organizations that conduct top-down budget process, rather than the supply -up or participative one. Effective evaluation and monitoring of employees and the management as a whole, improves the efficiency and effectiveness of the company products and services and makes them competitive in the global scene (Rubin Irene, 1997)ConclusionBudgeting always form an integral part in our society. Its ideal concepts require individuals and companies to look ahead and sanctify future goals. Budgeting involves the process of controlling and planning the overall activities of a company. It analytically covers precise details of management, sales, marketing, operations, and finance, and thereby provides the management effective guidelines for future performance. Budgeting depicts the entire process of analyzing and planning using a budget. Since budgets are vital tools for management and planning, the process of budgeting generally affects all types of organizations regardless of their size and composition. Many organizations participate in budgeting process with the view of determining the most cost effective and efficient strategies of making profits and intensifying its capital and asset base. Budgeting is vital in an organization in that it provide measurements that help the organization management in planning and setting of goals and objectives. Through the concept of budgeting, the management is also able to verify the most profitable use of its limited resources and also it increases the organization ability to deploy resources effectively. In conclusion, its imperative for any organization to trade effectively and efficiently without proper budgeting skills (Budgeting is vital in an organization in that it provide measurements, 2009). Its important for individuals and organizations to build budgets to ensure proper movements of resources.