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    Principal of Budgeting

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    Zulkarnain Dahalan
    This document discusses the principles and components of budgeting. It explains that a budget forecasts income and expenses over a period of time based on factors like projected sales, production needs, materials required, labor costs, overhead expenses, and cash flow. There are different types of budgets for different functions and timeframes, including capital, sales, production, materials, labor, overhead, administrative, cash, and master budgets. Budgets can be fixed or flexible depending on whether activity levels are expected to change. The document also provides examples of components that may be included in a construction project budget.

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    Principal of Budgeting

    Uploaded by

    Zulkarnain Dahalan
    176 views6 pages
    This document discusses the principles and components of budgeting. It explains that a budget forecasts income and expenses over a period of time based on factors like projected sales, production needs, materials required, labor costs, overhead expenses, and cash flow. There are different types of budgets for different functions and timeframes, including capital, sales, production, materials, labor, overhead, administrative, cash, and master budgets. Budgets can be fixed or flexible depending on whether activity levels are expected to change. The document also provides examples of components that may be included in a construction project budget.

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    bUDGET

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    This document discusses the principles and components of budgeting. It explains that a budget forecasts income and expenses over a period of time based on factors like projected sales, production needs, materials required, labor costs, overhead expenses, and cash flow. There are different types of budgets for different functions and timeframes, including capital, sales, production, materials, labor, overhead, administrative, cash, and master budgets. Budgets can be fixed or flexible depending on whether activity levels are expected to change. The document also provides examples of components that may be included in a construction project budget.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    176 views6 pages

    Principal of Budgeting

    Uploaded by

    Zulkarnain Dahalan
    This document discusses the principles and components of budgeting. It explains that a budget forecasts income and expenses over a period of time based on factors like projected sales, production needs, materials required, labor costs, overhead expenses, and cash flow. There are different types of budgets for different functions and timeframes, including capital, sales, production, materials, labor, overhead, administrative, cash, and master budgets. Budgets can be fixed or flexible depending on whether activity levels are expected to change. The document also provides examples of components that may be included in a construction project budget.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 6

    Principal Of Budgeting :

    The main components for budget are:


    a) Funds
    b) Activities / Outcomes
    c) Timeframes
    A budget can be established by forecasting in advance the processes of the
    intended activities and outcomes by:

    Assessment of projected income and expenses through the life of the


    budget framework.

    Comparison with similar budget frameworks.

    Assessment of the funds available.

    Pre-analysis of requirements.

    Analysis of new options and approaches.


    On The Basis Of Types Of Budget
    Different types of budgets are prepared for different purposes on the basis of
    functionality, on the basis of flexibility and on the basis of period, for examples:
    Capital Budget
    Operational Budget
    Sales Budget
    Production Budget
    Administrative Expense Budgets
    Raw-material Budget
    Labour budget
    Manufacturing overhead budget
    Cash Budget
    Sales

    Budget:
    Sales budget is the primary budget
    Other budgets are prepared on the basis of sales budget
    Forecast the future expected sales of the firm
    Based on product, type of customers, salesman, locality
    Past sales, sales man estimates, plant capacity, raw material, order in
    hand, seasonal fluctuations, competition are taken into consideration.

    Production Budget:
    Schedule of production is prepared by breaking large production in small
    units to fullfill the target production
    A properly operated budget leads to inventory control, improved
    maintenance of production schedules and production targets
    If the estimated opening stock is 5000 units and estimated sales are
    25000 units and closing stock of the product is 3000 units the estimated
    production will be 25000 + 3000 5000 = 23000 units
    Material Budget:
    Materials are basically divided into two categories as direct and indirect
    material

    It includes the preparation of estimates of different types of the raw


    material needed for various products and purchasing raw material in
    required number at a required time
    Requirement of raw material, companys stocking policies, price trend, and
    cost of raw material are few factors to be considered

    Labour Budget:
    Labour requirement budgets are prepared on basis of production budget
    In this budget company has to budget the required number of hours and
    the expected pay scales of the employees
    This budget gives information about personnel specifications for the job
    for which workers are to be recruited, the degree of skill and experience
    required and rates of pay
    Manufacturing Overhead Budgets
    This budget gives the work overhead expenses to be incurred in a budget
    period to achieve the production target
    The cost of indirect material and indirect labour can be calculated with the
    help of this budget
    Variable expenses are estimated on the basis of the budgeted output
    because these expenses are bound to change with the change in output
    Administrative Expenses Budget
    The budget covers the expenses incurred in framing policies, directing the
    organization and controlling the business operations
    In this budget an estimate of expenses is prepared regarding central office
    and of management salaries
    Selling And Distribution Budget
    This budget is used to plan for the expected selling and distribution
    expenses of the firm
    Cost of transportation, salesman salaries
    Cash Budget
    Predict the inflow and outflow of cash during the budget period
    Cash sales, credit collection and other receipts in cash payments are
    considered
    A cash budget makes provision for a minimum cash balance which will be
    available at all times
    Master Budget
    The master budget is the aggregation of all lower-level budgets produced
    by a companys various functional areas, and also includes budgeted
    financial statements, a cash forecast, and a financing plan

    On The Basis Of Flexibility


    Fixed Budget
    This is the rigid budget and it is drawn on the assumption that there will
    be no change in the budgeted time period
    A fixed budget will be helpful only when actual level of activity is equal to
    budgeted level of activities
    Flexibile Budget
    It is also called as variable budget
    A flexible budget gives different budgeted costs for different levels of
    activities
    This budget is applicable in where activity levels vary from period to
    period
    The business is new and it is difficult to predict, industry is influenced by
    change in fashion, when there are changes in sales
    On The Basis Of Time Period
    Long Term Budget
    Long term budgets are prepared for those organizations, which deal in
    regular product line
    Here organizations are not suppose to change their proceedings in short
    time periods
    Short Term Budget
    Short term budgets are prepared for short time periods which work for
    seasonal product line
    All these sectional budgets are afterwards integrated into a master budget which
    represents an overall plan of the organisation.

    Typical Examples Of A Building Project:


    A typical of components of construction project budget may include:

    The construction cost.

    Land or property acquisition.

    Approvals fees.

    Planning cost.

    Financing costs.

    Site investigations.

    Fixtures, fittings and equipment.

    The cost of decanting and relocating, including costs associated with


    moving staff.

    Contracts outside of the main works.

    Insurance.

    Consultant fees.

    Inflation.
    Contingency.

    References

    Thomsett, Micheal C. (1988). The Little Black Book Of Budgets And Forecasts,
    USA:
    American Management Association.
    Subbrayan, Radhakrishnan (2006). Corporate Budgeting Understanding The
    Budgeting Process With Financial Forecasting And Free Cash Flow Calculation.
    Kuala Lumpur: Golden Books Centre Sdn Bhd.
    Adnan H, Nawawi AH, Ismail F, Shariff S. (2012). Holistic Construction Project
    Management-Book 1. Shah Alam, KL: Penerbit Press Universiti Teknologi MARA.

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