IENG 216 Budgeting

Guidelines  Set Objectives  Bottom Up vs Top Down  Sales Forecast  Historical Data  Non-Financial Parameters  Responsibility Accounting

Setting Objectives

 Profit  Increased market share  Return on Investment  Cost Reduction  Revenue increases

Bottom Up vs Top Down  Iterative Process  You cannot ask a manager at any level to accept responsibility for living within budgets that he or she had no hand in setting.

Categories  Operating Budget  Sales  Production  Direct Materials/Labor  Factory Overhead  Pro-forma income  Financial Budget  Cash  Pro-forma balance sheet

Preparation  Prepare sales forecast  Determine aggregate production  Estimate manufacturing costs & operating exp.  Determine cash flow  Formulate project financial statements

Sales Budget Production Budget Direct Material Factory Overhead Direct Labor Cost of Good Sold Budget Selling Expense Admin Expense Budgeted Income Budgeted Balance Desired Ending Inventory Capital BudgetCash Budget

Sales Forecast

Example

Example (cont.)

Selling & Admin Expenses

Cash Budget

Budget Income

Pro-forma Balance