2. Roti, Kapdaa Aur Makaan

3. BUDGETING

4. The Basic Framework of Budgeting A budget is a detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period. 1.The act of preparing a budget is called budgeting. 2.The use of budgets to control an organization’s activity is known as budgetary control.

5. Planning and Control Planning – involves developing objectives and preparing various budgets to achieve these objectives. Control – involves the steps taken by management that attempt to ensure the objectives are attained.

6. Advantages of Budgets Goals and Objectives Budgets

7. Compels managers to think ahead Aids managers in coordinating their efforts Provides definite expectations that are the best framework to evaluate performance Advantages of Budgets

8. Advantages of Budgeting Advantages Define goal and objectives Uncover potential bottlenecks Coordinateactivities Communicateplans Think about and plan for the future Means of allocating resources

9. Human Factors in Budgeting The success of budgeting depends upon three important factors: 1. Top management must be enthusiastic and committed to the budget process. 2. Top management must not use the budget to pressure employees or blame them when something goes wrong. 3. Highly achievable budget targets are usually preferred when managers are rewarded based on meeting budget targets. The success of budgeting depends upon three important factors: 1. Top management must be enthusiastic and committed to the budget process. 2. Top management must not use the budget to pressure employees or blame them when something goes wrong. 3. Highly achievable budget targets are usually preferred when managers are rewarded based on meeting budget targets.

10. The Master Budget: An Overview Production Budget Production Budget Selling and Administrative Budget Selling and Administrative Budget Direct Materials Budget Direct Materials Budget Manufacturing Overhead Budget Manufacturing Overhead Budget Direct Labor Budget Direct Labor Budget Cash Budget Cash Budget Sales Budget Sales Budget Budgeted Financial Statements Ending Finished Goods Budget Ending Finished Goods Budget

11. Budgeting Example  Royal Company is preparing budgets for the quarter ending June 30.  Budgeted sales for the next five months are: April 20,000 units April 20,000 units May 50,000 units May 50,000 units June 30,000 units June 30,000 units July 25,000 units July 25,000 units August 15,000 units. August 15,000 units.  The selling price is $10 per unit.  Royal Company is preparing budgets for the quarter ending June 30.  Budgeted sales for the next five months are: April 20,000 units April 20,000 units May 50,000 units May 50,000 units June 30,000 units June 30,000 units July 25,000 units July 25,000 units August 15,000 units. August 15,000 units.  The selling price is $10 per unit.

12. The Sales Budget The individual months of April, May, and June are summed to obtain the total projected sales in units and dollars for the quarter ended June 30 th

13. Production Budget Desired Sales + Closing Inventory -Opening Inventory =No. Of Units produced

14. The Production Budget ProductionBudget SalesBudget Completed Production must be adequate to meet budgeted sales and provide for sufficient ending inventory.

15. The Production Budget The management at Royal Company wants ending inventory to be equal to 20% of the following month’s budgeted sales in units. On March 31, 4,000 units were on hand. Let’s prepare the production budget. The management at Royal Company wants ending inventory to be equal to 20% of the following month’s budgeted sales in units. On March 31, 4,000 units were on hand. Let’s prepare the production budget.

16. The Production Budget

17. March 31 ending inventory March 31 ending inventory

18. Quick Check Quick Check What is the required production for May? What is the required production for May? a. 56,000 units b. 46,000 units c. 62,000 units d. 52,000 units What is the required production for May? What is the required production for May? a. 56,000 units b. 46,000 units c. 62,000 units d. 52,000 units

19. What is the required production for May? What is the required production for May? a. 56,000 units b. 46,000 units c. 62,000 units d. 52,000 units What is the required production for May? What is the required production for May? a. 56,000 units b. 46,000 units c. 62,000 units d. 52,000 units Quick Check Quick Check

20. The Production Budget

21. Assumed ending inventory.

22. Purchases Budget Budgeted purchases = Desired ending inventory +Material consumed– Beginning inventory

23. The Purchase Budget At Royal Company, five pounds of material are required per unit of product. At Royal Company, five pounds of material are required per unit of product. Management wants materials on hand at the end of each month equal to 10% of the following month’s production. Management wants materials on hand at the end of each month equal to 10% of the following month’s production. On March 31, 13,000 pounds of material are on hand. Material cost is $0.40 per pound. Let’s prepare the purchase budget. On March 31, 13,000 pounds of material are on hand. Material cost is $0.40 per pound. Let’s prepare the purchase budget. At Royal Company, five pounds of material are required per unit of product. At Royal Company, five pounds of material are required per unit of product. Management wants materials on hand at the end of each month equal to 10% of the following month’s production. Management wants materials on hand at the end of each month equal to 10% of the following month’s production. On March 31, 13,000 pounds of material are on hand. Material cost is $0.40 per pound. Let’s prepare the purchase budget. On March 31, 13,000 pounds of material are on hand. Material cost is $0.40 per pound. Let’s prepare the purchase budget.

24. The Direct Materials Budget From production budget

25. The Direct Materials Budget

26. Calculate the materials to by purchased in May. March 31 inventory 10% of following months production needs.

27. Quick Check Quick Check How much materials should be purchased in May? How much materials should be purchased in May? a. 221,500 pounds b. 240,000 pounds c. 230,000 pounds d. 211,500 pounds How much materials should be purchased in May? How much materials should be purchased in May? a. 221,500 pounds b. 240,000 pounds c. 230,000 pounds d. 211,500 pounds

28. How much materials should be purchased in May? How much materials should be purchased in May? a. 221,500 pounds b. 240,000 pounds c. 230,000 pounds d. 211,500 pounds How much materials should be purchased in May? How much materials should be purchased in May? a. 221,500 pounds b. 240,000 pounds c. 230,000 pounds d. 211,500 pounds Quick Check Quick Check

29. The Direct Materials Budget

30. Assumed ending inventory

31. Assignment – II –Individual Q. Make a 1 page summary of the key leanings from the Budgeting class Q. Complete Budget Assignment questions (See Budget Assignment word file) Note: Answers in A4 page – Hand written Answers in A4 page – Hand written Individual submission Individual submission Those who will not submit the assignment within 5 minutes of start of the next class will be marked absent Those who will not submit the assignment within 5 minutes of start of the next class will be marked absent See the Assessment Plan on the intranet for other details See the Assessment Plan on the intranet for other details Readings (PowerPoint, Word Document uploaded on intranet, Internet research, Library and Recommended Books) Readings (PowerPoint, Word Document uploaded on intranet, Internet research, Library and Recommended Books)

32. Some important points Academic Honesty Academic Honesty Individual Work Only, Allows for Group Discussion of Concepts and Problems Individual Work Only, Allows for Group Discussion of Concepts and Problems Do Not Copy Work Do Not Copy Work Reference Any Source Reference Any Source When Confused Ask Instructor When Confused Ask Instructor Contact me: Rahul Jain (9811228852, rahulkjain16@yahoo.co.in, Yahooid:rahulkjain16) rahulkjain16@yahoo.co.in