A self-imposed budget or participative budget is a budget that is prepared with the full cooperation and participation of managers at all levels. It is a particularly useful approach if the budget will be used to evaluate managerial performance.
Human Factors in budgeting
1- Top managmenet must be enthusiastic
2-Top management must not use the budget to pressure employees or blame them when something goes wrong. This breeds hostility and mistrust rather than cooperative and coordinated efforts.
3-1.Highly achievable budget targets are usually preferred (rather than “stretch budget” targets) when managers are rewarded based on meeting budget targets.
The Master Budget
The sales budget shows the expected sales for the budget period expressed in dollars and units. It is usually based on a company’s sales forecast. All other parts of the master budget are dependent on the sales budget.
The production budget is prepared after the sales budget. It lists the number of units that must be produced during each budget period to meet sales needs and to provide for the desired ending inventory.
The production budget in turn directly influences the direct materials, direct labor, and manufacturing overhead budgets, which in turn enable the preparation of the ending finished goods inventory budget.
These budgets are then combined with data from the sales budget and the selling and administrative expense budget to determine the cash budget. The cash budget is a detailed plan showing how cash resources will be acquired and used over a specified time period. All of the operating budgets have an impact on the cash budget.
The last step of the process is to prepare a budgeted income statement and a budgeted balance sheet.
The Sales Budget Includes
Budgeted sales in units
selling price per unit
Total budgeted sales
Expected Cash Collections
A sub part of the Sales budget, it includes how much account recievable the company is expecting to earn in that month as well as how much will be expected in the month following
After the Sales budget with the expected cash flows is complete you move on to the Production budget.
Add: desired ending inventory
Less Beginning Inventory
Direct Materials Budget
The Production budget is followed by the Materials Budget
Materials Per Unit
Add: desired ending inventory
Less Beginning inventory
Materials to be purchased
Direct Labor budget
The Direct Labor budget is produced after the Direct Materials Budget
Units of production
direct labor per unit
labor hours required
gauranteed labor hours
labor hours paid
Total Direct Labor Costs
Manufacturing overhead budget
After the Direct Labor budget comes the Manufacturing overhead budget.
Budgeted Direct Labor hours
Variable manufacturing overhead rate
Variable manufacturing overhead costs
Fixed manufacturing overhead costs
Total Manufacturing overhead costs
Less : non cash costs
Cash dispercements for manufacturing overhead.
Selling and administrative Expense Budget
After Manufacturing overhead budget is created you can then create the Selling and administrative Expense Budget.
Variable S and A rate
Fixed S and A expenses
Total S and A expenses
Less : non cash Expenses
Cash S and A expenses
After Compeleting the Selling and administrative budget it is now time to make the Cash Budget
Begining cash balance
add: cash Collections
Total Cash Available
Less: Cash Disbursments
Selling and Administrative
Ending Cash Balance
Budgeted Income Statement
After you have completed the Cash Budget you can make the Budgeted income Statement.
Cost of Goods Sold
Selling and Administrative expenses
Budgeted Balance Sheet
After Completing the income staement you can now go and do the Budgeted Balance Sheet