1. IENG 216
Budgeting

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

3. Setting Objectives

4. Setting Objectives Profit Increased market share Return on Investment
Cost Reduction
Revenue increases

5. 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.

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

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

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

9. Sales Forecast

10. Sales Forecast

11. Sales Forecast

12. Sales Forecast

13. Sales Forecast

14. Example

15. Example (cont.)

16. Example (cont.)

17. Example (cont.)

18. Example (cont.)

19. Example (cont.)

20. Example (cont.)

21. Selling & Admin Expenses

22. Cash Budget

23. Budget Income

24. Pro-forma Balance