The main budget of the organization consists of operating and financial budgets .
In operating budgetthe economic activity of the organization is reflected through a system of special technical and economic indicators characterizing certain aspects and stages of production economic activity.
The ultimate goal of an operating budget is to produce a consolidated profit and loss plan. The following budgets are used in its formation:
production;
Procurement and use of inventories;
labor costs;
overhead costs;
Administrative and management expenses;
Business expenses.
The development of an operating budget usually begins with the preparation of a sales plan. This is due to the fact that all other economic indicators organizations: production volume, cost, profit, etc.
Sales budget- This is a plan for the product range and sales volume of each nomenclature item, which is the starting point for the development of all subsequent operating budgets.
This budget is the basis for all other budgets. So, on its basis, a budget is drawn up Money, since it directly depends on cash receipts for products sold. The cost estimate of the organization also depends on the income received and production volumes. Therefore, the sales budget must be carefully thought out and prepared, since in the event of its inaccurate compilation, all other estimates and financial results of the organization's activities will obviously contain incorrect and unreliable information.
For the preparation of this budget, various ways estimates of demand for the products manufactured by the organization, for example, expert assessments of sales specialists, static forecasts based on demand for past comparable periods; econometric models and methods, on the basis of which methods of forecasting sales volumes are determined. An organization's potential sales volume may be based on orders received for the next budget period or on the basis of marketing sales forecasts.
So the sales budget formed both "top-down" on the basis of strategic planning (for example, based on market capacity, market share), and "bottom-up", taking into account individual customers or products. In many cases, sales volume is limited by the available production capacity.
After establishing the planned sales volume, a production budget, on the basis of which budgets are made for the purchase and use of materials, labor and overhead costs.
Planning of production volumes includes the definition of commodity output and gross output.
The volume of production and the volume of gross output are determined by the following formulas:
Q \u003d Q pr + O gp K - O gp N
where Q is the volume of production; Q pr - sales volume; About GP K – balances at the end of the period; About gp N - balances at the beginning of the period.
BB \u003d TV + WIP K - WIP N,
where ВВ - gross output; TV - commercial release; WIP K - work in progress at the end of the period; WIP N - work in progress at the beginning of the period.
Based on the planned value of gross output, the need for basic materials and labor costs is calculated. Such a calculation is made on the basis of the norms of the cost of basic materials and labor for the production of a unit of product.
For compiling procurement budget it is necessary to additionally calculate the organization's need for auxiliary materials. The calculation is carried out on the basis of an analysis of internal production statistics of previous periods in order to determine the accrual rate that characterizes the ratio of the consumption of auxiliary material to the indicator of the volume of activity or a separate item of direct costs in physical terms.
The need for auxiliary materials for storage, shipment and marketing of products can be calculated on the basis of the calculation of accrual rates. The indicators of the physical volume of sales are used as the accrual base.
Then, the organization’s total need for materials is calculated by summing up the planned values of material consumption for the main and auxiliary purposes, and a draft procurement budget is drawn up, taking into account the initial balance of stocks of materials in the warehouse and the target final balance of stocks of materials:
To obtain the purchase budget in value terms, you need to multiply the amount of purchased materials by the planned purchase prices.
The next step is to determine the cost of writing off materials to business activities and budgeting direct material costs and the budget of direct costs.
The calculation of the planned cost is carried out on the basis of the methods adopted in the organization for writing off materials to production: at the weighted average cost; FIFO, at the cost of a unit of materials.
Based on the obtained value of the cost of writing off to production and the need for basic materials, the budget of direct material costs is calculated .
Direct Cost Budget is compiled by combining the budgets of direct material costs and direct labor costs.
This budget presents the labor costs in hours required to produce the planned volume of output, and the planned estimated costs for the payment of production labor.
In addition to budgeting direct costs, it is necessary to draw up operating expenses budget. The main methods of planning overhead costs are:
♦ calculation based on the calculation of the planned accrual rate (auxiliary materials);
♦ technological regulation (costs for heating and lighting industrial premises, calculated based on the norms of illumination and the area of industrial premises);
♦ budget planning (for example, wage fund for general production workers);
♦ calculation methods (for example, depreciation of industrial premises).
Budgets for direct costs and overhead costs form production cost budget.
Drafting variable business expenses budget is made on the basis of determining the planned accrual rate for individual indicators of sales volume. As accrual bases, the indicators of those parties of marketing activity that determine the occurrence of this article of commercial expenses are usually chosen.
Then compiled fixed cost budget the basis for the compilation of which is budget planning in the context of the organization's divisions that control the corresponding costs.
Based on the planned costs, the cost of selling products is determined, which, together with the calculated cost of production, makes it possible to determine the final financial results and draw up a draft income statement.
Operating budget (plan) profit and loss in the most general view includes the following indicators:
1. Sales revenue.
2. Cost of sales.
3. Gross profit (p. 1 - p. 2).
4. Selling expenses.
5. Management expenses.
6. Profit (loss) from sales (p. 2 - p. 4 - p. 5).
important integral part the main (consolidated) budget of the organization is financial budget(plan). In its most general form, it represents the balance of income and expenses of the organization. In it, quantitative estimates of income and expenses given in the operating budget are transformed into monetary ones. Its main purpose is to reflect the expected sources of funds and directions for their use.
With the help of the financial budget (plan), you can obtain information on such indicators as:
Sales volume and total profit;
Cost of sales;
Percentage of income and expenses;
Total investment;
Use of own and borrowed funds;
Payback period of investments, etc.
The financial budget includes investment and cash budgets, as well as a forecast balance sheet (statement of financial position).
INinvestment budget (capital costs) the sources of investment resources and the direction of the proposed capital investments are determined. When drafting the investment budget, organizations proceed from plans to upgrade the equipment fleet and possible capital construction. Expenses for such investment projects are determined on the basis of estimates, taking into account the actual fulfillment of the schedule for the foundation of funds at the beginning of the budget period.
Once an investment budget has been prepared, an organization can draw up cash flow budget (cash flow forecast), which predicts the inflow and outflow of cash. A cash budget is a plan for cash receipts and payments for a future period. With its help, the final balances on the accounts of the funds necessary for the preparation of the forecast balance sheet are predicted, and periods of excess or shortage of financial resources are also identified. Drawing up this type of budget is an important step in planning. The development of a cash budget or cash consolidated estimate by an organization has one goal - to provide cash to cover all necessary expenses in this organization. For this, virtually all previously prepared estimates are used. This budget is developed for a year, quarter, month, week and can even be calculated for a day. Since there is some degree of uncertainty, especially in the cash flow for products sold, some margin of error is allowed in this budget, so the budget is subject to frequent and significant adjustments. However, the cash budget, in particular, annual or quarterly, helps to make a decision on attracting bank loans in case of a shortage of funds or on investments in case of exceeding the current needs of the organization. This takes into account the following:
♦ whether the organization trades or not;
♦ based on historical data, were there any bad debts that should be included in the budget when forecasting receipt of revenue for products sold;
♦ terms of repayment of received credits and payment of interest on them;
♦ timing of payment of wages;
♦ timing of settlements with suppliers for received inventory items.
The elements of the cash budget are:
♦ cash receipts: from the sale of products, own assets, obtaining loans;
♦ payment of funds for the purchase of materials, as wages, to pay off administrative and commercial expenses, to pay taxes and fees, interest expenses, repayment of loans.
The final step in the process of preparing the master (master) budget is the development forecast balance sheet (statement of financial position). It reflects the structure of the assets and liabilities of the organization and corresponds to the reporting form No. 1.
Calculation of the expected balance sheet as of the end of the planning period makes it possible to assess the changes that will occur with the organization's property and its source as a result of business operations of the planning period.
Drawing up a detailed consolidated budget is a serious help for the owners of the organization in ensuring control over the effectiveness of the use of funds invested in it. The consolidated budget is also important for the direct managers of the organization. It allows you to clearly define the goals and objectives facing them for the planned period and monitor the progress of the production program, the process of generating income and expenses, the status of settlements and payments.
Types of budgets
The overall approach involves the formation of a common budget - a work plan coordinated across all departments or functions for the organization as a whole. It consists of two main budgets – operating and financial budgets.
The operating budget shows planned operations for the coming year for a segment or individual function enterprises. In the process of its preparation, the projected sales and production volumes are transformed into quantitative estimates of income and expenses for each of the operating divisions of the enterprise.
The operating budget includes:
1.1. Sales budget.
The sales plan is determined by senior management based on research from the marketing department. The sales volume budget and its product structure, predetermining the level and general nature of all the activities of the enterprise, affect most other budgets, which essentially come from the information defined in the sales budget.
1.2. Business expenses budget.
This budget details all expected costs associated with the sale of products and services in the future period. The sales department may be responsible for developing and then executing a sales budget.
1.3. production budget.
After establishing the planned sales volume in in kind determines the number of units of products or services that must be produced to ensure planned sales and the required level of stocks. Based on information about the desired stock level finished products at the end of the period, the availability of products at the beginning of the budget period and the number of sales units, a production schedule is developed.
1.4. The budget for the purchase / use of materials.
This budget determines the timing of the purchase, the types and quantities of raw materials, materials and semi-finished products that must be purchased to meet production plans. The use of materials is determined by the production budget and anticipated changes in inventory levels. By multiplying the number of items of materials by the estimated purchase prices for these materials, the budget for the purchase of materials is obtained.
1.5. labor budget.
This budget determines the necessary work time in hours required to fulfill the planned volume of production, which is calculated by multiplying the number of units of products or services by the rate of labor costs in hours per unit. The same document determines the labor costs in monetary terms by multiplying the required working hours by the corresponding hourly wage rates.
1.6. General production budget.
This budget is a detailed plan of the expected production costs, other than direct materials and direct labor, that must be incurred to meet the production plan in the future period. This budget has two purposes: to integrate all budgets of overhead costs developed by production and service managers and, accumulating this information, calculate the standards for these costs for the upcoming accounting period to distribute them in the future period to certain types of products or other costing objects.
1.7. Budget for general and administrative expenses.
It is a detailed plan of current operating expenses, other than those directly related to production and distribution, and necessary to maintain the activities of the enterprise as a whole in the future period. The development of this budget is necessary to provide the information that is required for the preparation of the cash budget, as well as for the purposes of controlling these expenditures. This information is also necessary to determine the financial result of the enterprise in the planning period. Most of the elements of this budget are fixed costs.
1.8. Forecast income statement.
Based on the prepared periodic budgets, it is necessary to develop a forecast of the cost of goods sold, using data from the budgets for the use of materials, labor costs and overhead costs. Revenue information is taken from the sales budget. Using expected revenue and cost of sales data, and adding information from selling and general and administrative expense budgets, you can prepare a pro forma profit and loss statement.
It should be noted that the preparation of this particular report is the last step in the preparation of the operating budget.
The budget is a financial document created before the proposed activities are carried out. Unlike a formalized income statement or balance sheet, the budget does not have a standardized form that must be strictly followed.
The structure of the budget depends on what is the subject of the budget, the size of the organization, the degree to which the budgeting process is integrated with financial structure enterprises. The budget should present information in an accessible and clear way so that its content is understandable to the user. budget cycle includes the following steps:
- Planning the activities of the enterprise as a whole and by departments.
- Preparation of draft individual budgets.
- Preparation of the draft general budget.
- Making adjustments and coordinating budgets.
- Budget approval, feedback design and changing conditions.
Budgeting is based on the general (main) budget, which is a work plan coordinated across all departments or functions for the enterprise as a whole. It consists of operational and financial budgets.
I. Operational budget.
- Sales budget.
- production budget.
- Inventory budget.
- Procurement budget (material use or direct material costs).
- General production budget.
- Labor budget
- Business expenses budget.
- Budget for general and administrative expenses.
- Forecast income statement.
II. Financial budget.
- Capital cost budget (investment budget).
- Cash budget (cash budget).
- Forecast balance.
Operational budget.
The operating budget shows the planned operations for the coming year for a segment or individual function of the company. In the process of its preparation, the projected sales and production volumes are transformed into quantitative estimates of income and expenses for each of the operating divisions of the company.
Sales budget
- A sales forecast is a necessary preliminary step in the preparation of a sales budget.
- The sales forecast turns into a sales budget if the company's management believes that the forecasted sales volume can be achieved.
When preparing a sales budget, it is necessary to take into account the levels of sales volume for previous periods and analyze a number of macroeconomic factors, each of which can have a significant impact on sales volume and its dependence on the profitability of products.
The reliability of the sales forecast is increased by using a combination of expert and statistical methods:
Sales budgeting:
- Sales budget - important step in the preparation of the core budget; sales estimates affect all subsequent budgets.
- The sales budget reflects the monthly or quarterly sales volume in natural and value terms.
- The sales budget is compiled taking into account: the level of demand for the company's products, sales geography, customer categories, seasonal factors.
- The sales budget includes the expected cash flow from sales, which will later be included in the income side of the cash flow budget.
- To forecast cash receipts from sales, it is necessary to take into account the collection coefficients, which show what part of the shipped products will be paid for in the first month (month of shipment), in the second, etc., taking into account the adjustment for bad debts.
production budget.
- The production budget is a plan for the production of goods in natural terms.
- The production budget is based on the sales budget; it takes into account production capacity, increases or decreases in inventory (inventory budget), and external purchases.
- The required volume of output is defined as the estimated stock of finished goods at the end of the period plus the volume of sales for this period and minus the stock of finished goods at the beginning of the period.
Inventory budget.
- The inventory budget contains the information necessary to prepare a pro forma profit and loss statement - in terms of preparing data on production cost of products sold and the forecast balance sheet - in terms of preparing data on the state of normalized working capital(raw materials, materials and stocks of finished products) at the end of the planning period
- The volume of work in progress is determined based on the technological features of manufacturing products.
Purchase budget.
- The procurement budget is a plan for purchasing products from the product range by product type or by main suppliers. Shows how much and what products should be purchased by the enterprise from external (import) and internal suppliers.
- The purchase budget is compiled by the purchasing department based on the sales budget, since the volume of purchases directly depends on the volume of sales. The volume of purchases of raw materials and materials depends on the expected volume of their use, as well as on the estimated level of stocks
The formula for calculating the volume of purchases is as follows:
Volume of purchases = volume of use + stocks at the end of the period - stocks at the beginning of the period
- The procurement budget, as a rule, is drawn up taking into account the timing and procedure for repaying accounts payable for materials.
General production budget.
- The overhead budget reflects the amount of all costs associated with the production of products, excluding the cost of direct materials and direct labor costs.
- General production costs include fixed and variable parts. The permanent part is planned based on the needs of production, the variable part - as a standard, for example, from the labor costs of the main production workers
- The overhead budget usually includes a number of standard cost items: depreciation and rental of production equipment, insurance, additional payments to workers, payment of non-productive time, etc.
labor budget.
- Direct labor costs are the costs of wages main production personnel
- The budget for labor costs is prepared based on the production budget, labor productivity data and wage rates for key production personnel.
- In the salary budget of the main production personnel, it is necessary to distinguish two components:
- fixed part of wages
- piecework payroll
- If, by the time the budget is being prepared, a significant payable arrears have accumulated for the payment of wages, then it is necessary to provide for a schedule for its repayment.
Business expenses budget.
- The budget of selling expenses takes into account all costs associated with the sale, promotion and storage of goods.
- The selling budget is formed taking into account the budget of variable general production costs, advertising budget and other fixed selling expenses.
- Variable selling expenses (commissions, packaging costs, warehousing, transportation of goods to customers) depend on the volume of sales and purchases and are transferred from the variable general expenses budget.
- Commercial expenses are grouped according to criteria, the main of which are: types of products, categories of buyers.
- When compiling the budget for commercial expenses, fixed costs are allocated to a separate group: advertising and marketing costs and the costs of storing goods in a warehouse. The amount of these expenses is planned on the basis of statistical data (expenses of the previous period, seasonally adjusted) and management decisions. For example, a decision may be made to change the location of a warehouse or the area of leased premises, to revise the amount of insurance coverage for inventory, and more.
Budget for general and administrative expenses.
- The budget shows all expenses not related to commercial activities enterprises, namely: office expenses, personnel expenses, lighting and heating of non-industrial buildings, business trips, communication services, taxes and interest on loans related to the cost price, etc.
- General and administrative expenses are fixed.
- The budget for general and administrative expenses is prepared on the basis of the budgets prepared by the responsibility centres.
Forecast income statement.
- The pro forma profit and loss statement is the first of the main budget documents, showing how much income the company earned during the reporting period and what expenses were incurred.
- Revenue information comes from the sales budget. Data on the costs required to ensure the planned sales volume are determined when calculating the cost goods sold. Information about the costs associated with the current activities of the enterprise comes from the budget for selling expenses and the budget for general and administrative expenses.
- Preparing a pro forma profit and loss statement is the last step in preparing an operating budget.
Financial budget.
The financial budget is a plan that reflects the expected sources of funds and directions for their use in the future period. The financial budget includes a capital expenditure budget, a company cash budget, and a budgetary balance sheet.
Capital expenditure budget.
- The capital budget is a plan for capital expenditures, indicating sources of funding.
- The capital budget includes both plans for the acquisition of fixed assets and intangible assets, as well as long-term investment projects. In the latter case, separate calculations are made investment projects in order to determine the return on investment. Projects that meet the cost-benefit criteria are included in the capital cost budget.
Cash budget.
- Making a cash flow forecast is one of the most important and difficult steps in budgeting; the basis for its compilation is the sales forecast.
- This is a plan for cash receipts and payments and payments for a future period of time.
- In general, this budget shows the expected ending balance in the cash account at the end of the budget period.
- Revenues from core activities are calculated taking into account changes in receivables, expenses - taking into account changes in accounts payable.
Forecast balance.
- Shows what means of financing the company has and how these funds are used.
- Characterizes the financial condition of the company on a specific date
- To forecast the balance, the value of normalized current assets and the value of receivables are used.
- The passive part of the balance sheet is formed based on the estimated turnover of accounts payable, other current liabilities and other sources of financing.
- The discrepancy in the forecasts of the active and passive parts balance sheet gives an idea of the shortage (excess) of funding. The decision on the method of financing is made on the basis of additional analysis.
- A change in the structure of the balance sheet affects the cash flow.
Comprehensive regulatory method of accounting as information base budget process.
The normative method is used mainly in enterprises engaged in mass production, but can also be applied in medium-scale production. The actual cost here is calculated from the standard cost by taking into account changes in the norms and deviations from these norms. Accounting for deviations from the norms is organized depending on technical features raw materials and materials, regulation of their consumption and technology of the production process. The deviations from the current norms themselves are determined by comparing the actual consumption of materials for the production of products by batches with the standard consumption.
STATE COST ACCOUNTING
| Standard costs per unit of product produced | Components | Definition | Influencing factors |
| 1 | 2 | 3 | 4 |
| Normative direct material costs | Standard unit price of materials | Estimated cost of a certain type of material for the next accounting period | Possible price increases, quantitative changes in the materials market, new sources of supply, etc. |
| Normative amount of materials | An estimate of the expected quantity of materials that will be used to produce a unit of product | Engineering specifications of products, quality of materials, technical condition equipment, qualifications and experience of workers | |
| Standard direct labor costs | Standard time (labor costs) per unit of output | An estimate of the time required for each department, machine, or process to produce one unit or one batch of products | Replacement of machinery and equipment, change in the qualifications of the workforce |
| Standard wage rate | Hourly labor costs expected in the next accounting period for each operation or type of work | Industry-wide regulations, management directives, contract changes | |
| Regulatory overhead costs | Normative coefficient of variable overhead costs | The ratio of the total amount of planned variable overhead costs to the standard value of the indicator taken as the basis for calculations (most often this is an indicator of direct wage costs, i.e. standard hours of labor costs) | Changing the settlement base |
| Normative coefficient of fixed overhead costs | The ratio of the total amount of planned fixed overhead costs to normal capacity in standard labor hours | Changing the settlement base |
Deviation management.
Total direct material cost variance
= Direct material cost variance - Direct material cost variance
= (actual price - standard price) actual quantity - (actual quantity - standard quantity) standard price
= actual quantity actual price - standard quantity standard price
Total direct labor variance
= Deviation in wage rate of direct labor - Deviation in productivity of direct labor
= (actual rate - standard rate) actual hours - (actual hours - standard hours) - standard wage rate
= actual hours actual pay rate - standard hours standard wage rate
Management on deviations (deviations of general production expenses).
Account Rules:
Example (variance analysis). The company uses a standard cost accounting system. The main product is produced in a single workshop. The standard variable costs per unit of the finished product are as follows:
- Direct materials (3 sqm $12.50/sqm) $37.50
Direct labor (1.2 hours $9.00/hour) 10.80
Variable ODA (1.2 hours $5.00/hour) 6.00
Standard variable costs per unit $54.30
The normal capacity is 15,000 hours of direct labor, and the planned continuous ODA for the year is $54,000. During the year, the company produced and sold 12,000 units of finished products.
The following information is known:
1. Standard hours for actual release= 12,200 units 1.2 hour/unit = 14.640 hours.
2. Normative coefficient of constant ODA= $54,000: 15,000 hour = $3.60 for one hour of direct labor.
3. Price deviation of direct materials= ($12.40 - $12.50) 37,500 sq. m = $3,750 (B)
4. Deviation on the use of direct materials= (37,500 sqm - 12,200 units 3 sqm) $12.50/sqm m = $11,250 (N)
5. Direct labor rate variance= ($9.20 - $9.00) 15,250 hours = $3,050 (N)
6. Deviation in productivity of direct labor= (15,250 hours - 12,200 units 1.2 hours/unit) $9.00/hour = $5,490 (N)
Creation and approval of the operating budget is the main stage of financial planning at the end of the reporting period (month, quarter, year). Employees financial department analyze the volume of upcoming transactions in the company, take into account the estimated costs and revenues, fixed costs, inflation, exchange rate differences (if the company works with foreign exchange transactions).
Stages of building an operating budget in a company
Budgeting in a company is a multi-stage process; building an operational plan also consists of several stages.
- Forecasting sales volume for the next reporting period. variable costs companies depend on the volume of manufactured and sold products, so financiers build a forecast taking into account the profits of previous periods and current situation On the market. The financial model for the operating budget should include a maximum of external factors(inflation rate, refinancing rate, current exchange rate) to set the required amount of expenses.
- Create budgets to cover administrative and related costs. Depending on the volume of sales, formed variable costs(quantity of purchased raw materials and materials, payroll for employee bonuses, payment for overtime and additional shifts). Administrative expenses (rent, salaries of employees) remain unchanged.
- Create budgets to cover basic production costs. Funds are allocated for the purchase of raw materials and materials, maintenance and repair of production facilities, and the introduction of new technologies. Production costs are a central part of the operating budget in manufacturing, innovative and knowledge-intensive companies. Trading houses, service companies and intermediaries do not plan the production budget, replacing it with operating expenses.
- Forecasting the balance of the enterprise for the future period. Employees of the production and financial department build models for the development of the situation, draw up a preliminary balance sheet (sometimes a profit and loss statement). These data allow us to calculate indicators financial stability companies, predict business performance, lay funds to cover expected additional costs.
The construction of the operating budget is based on the statistics of previous periods and economic modeling. Depending on the economic sector, the document is fixed for the next financial period or is regularly reviewed. For example, venture capital firms producing innovative products review their operating budget every month. Trading houses accept a single document for the entire coming year.
Methods for building an operating budget in a company
Small items of the operating budget are planned based on data from previous periods, operating expenses are calculated using one of the methods.
- CVP analysis - comparison of current costs, planned output and profit. The method is used on small manufacturing enterprises or new companies. These CVP models allow you to calculate the break-even point, estimate the volume of production and plan the sales structure.
- EOQ analysis - calculation of operating costs based on the optimal batch for delivery. The method is used in large companies who work with dealer networks. The cost of selling one batch of goods is multiplied by the volume of supplies.
- EPR analysis - calculation of costs based on the cost of a consignment with minimal costs (modification of EOQ analysis). The method is used in companies that are forced to store large consignments on warehouses owned. The cost of issuing and storing one batch is multiplied by the estimated volume of supplies.
Operating budgets
Operating budgets include the following.
Sales budget
shows monthly and quarterly sales volumes by types of products and for the company as a whole in natural and value terms during the budget period.
Production budget
reflects the monthly and quarterly volumes of production (output) by types of products and for the company as a whole in natural terms, taking into account the stocks of finished products at the beginning and at the end of the budget period.
Finished Goods Inventory Budget
contains information on stocks by types of products, for the company as a whole and for individual businesses in physical and cost terms.
The budget of stocks of goods, raw materials and materials
(main materials and stocks of inventories - inventory) includes information on stocks by types of inventory for the company as a whole and for individual businesses in physical and cost terms.
Budget of direct material costs
(main materials and stocks of inventory items) contains information on the costs of raw materials and materials, purchased products and components per unit of finished products by type of product and for the company as a whole in natural and cost indicators, as well as information on stocks of basic materials in value terms at the beginning of the budget period.
Direct labor budget
reflects the cost of wages for the main production personnel during the budget period per unit of finished products by type of product and for the company as a whole in physical and cost terms, i.e. taking into account the cost of working time in man-hours and tariff rates.
Budget of direct production (operating) costs can be compiled when more accurate accounting of production (operational - for trading firms and service enterprises) costs is required, which can be classified as direct (variable) costs.
Budget for general production (general workshop) overhead costs shows the cost of wages for administrative, managerial, engineering and support personnel directly employed in this business (workshop, structural unit), rental payments, utility and travel expenses, current repair costs, the cost of low-value and wearing tools and other costs ( mainly general shop expenses) associated with the operation this business throughout the budget period.
Management budget
contains information on the cost of salaries of administrative, managerial, engineering and support personnel in the management apparatus of an enterprise or firm, rent payments, utility and travel expenses, maintenance costs, the cost of low-value and wear-resistant tools and other (mainly corporate) expenses throughout the budget period.
Business expenses budget
The overhead budget contains
information about other business expenses, such as depreciation, loan interest, and other plant-wide expenses during the budget period.
The difference between the budget of general production overheads and the budgets of administrative and commercial expenses in terms of structure and set of items is insignificant, and their formats may coincide. The main difference is that in the first case, all costs can be calculated directly for separate species business (product, workshop, structural unit), and in the second - the same costs can be determined only for the company as a whole.
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What is an Operating Budget | operating budget
Operating budget — English operating budget, are carefully detailed budgets that are prepared for the purpose of managing current expenses.
They differ from other types of budgeting strategies, which may include items that take into account future operations or additional costs that will be incurred outside the core budget. The operating budget should not only guarantee the availability of funds that are necessary for the continuous functioning of the business, but also distribute them in the most efficient way.
Almost every organization designs and executes an operating budget. Regardless of the size of the company, this type of budgeting helps determine how much revenue you need to generate in order to continue operating at the same level.
Non-profit organizations also prepare an annual budget that reflects the expected amount of donations and other sources of income that will be used to cover expenses. An operating budget can even be prepared by households, as it makes it easier to determine the types and amounts of monthly expenses.
The operating budget for a business will mainly include items of expenditure that arise from month to month for permanent basis. For example, they will include the salaries of employees, as well as related costs for a social package, such as health insurance. The budget will also carefully plan operating costs to keep the company running at a level that allows it to make a profit. In many cases, the operating budget accounts for and schedules debt payments, including interest payments on loans.
The foundation of an operating budget is an estimate of the workload required to support the operations of the business. This is usually presented as full units of work, identified by cost items that are associated with operations. Structuring the budget based on reliable information makes it easier to create an operating budget Often this information is important in order to solve the problem of optimal distribution of funds between the various departments of the company so that they can carry out their activities efficiently.
As with any other type of budget, the operating budget may be amended or adjusted from time to time. This can be caused by factors such as changes in revenue, the launch of a new product line, the opening of new or closing of old divisions, changes in consumer demand, etc. Therefore, a certain degree of flexibility is usually included in the operating budget, which allows managers to make decisions to increase or decrease certain items of expenditure as necessary.
The types of budgets used in financial planning can be divided into four main groups:
main budgets (also called financial);
operating budgets;
supporting budgets;
special budgets.
All these budgets are needed to compile a consolidated production or main budget (master budget). In this case, the master budget can be developed both for the organization as a whole and for an individual business.
Basic budgets:
1. Essence and purpose of budgeting
1.1. Budgeting as a management technology
Budgeting in management accounting refers to the planning process. Planning is a special type of decision-making process that does not concern one event, but covers the activities of the entire enterprise. The planning process is inextricably linked with the control process. Without control, planning becomes meaningless. Planning, along with control, is one of the functions of management and is the process of determining actions to be performed in the future.
Any enterprise that has reached a medium size and, as a result, has such organizational structure, in which the services of the enterprise have a certain level of independence, needs planning and control.
Planning and control are based on the analysis of past financial and
non-financial information. Financial information necessary for planning is collected and processed in the system accounting.
The estimate (or budget) is a financial document created before the proposed activities are carried out. This is a forecast of future financial transactions. The budget, being an integral part of management control, creates an objective basis for evaluating the performance of the organization as a whole and its divisions. In the absence of a budget, when comparing the current period with the previous one, one can come to erroneous conclusions, namely: the indicators of past periods may include the results of productive work. The improvement of these indicators means that the enterprise began to work better, but it has not exhausted its capabilities. When using indicators from previous periods, opportunities that have arisen that did not exist in the past are not taken into account. The budget, as a means of coordinating the work of various departments of the organization, encourages the managers of individual links to build their activities taking into account the interests of the organization as a whole.
One of the main functions of budgeting is forecasting ( financial condition, resources, revenues and costs). This is what budgeting is valuable for adoption. management decisions. The role of the management accounting and budgeting system is to present all financial information, to show the movement of cash, financial resources, accounts and assets of the enterprise in the most convenient form for any manager, even not very knowledgeable in the intricacies of accounting, to present the relevant indicators of economic activity in the most appropriate form for making effective management decisions. The supply of goods or the provision of services to a consumer who wants to buy them is not necessarily accompanied by payment for them, and the shipped products are converted into sales proceeds.
The budget system performs a control function, defining the scope of responsibility of managers at various levels and correlating it with indicators of budgets and estimates. Financial control and performance evaluation are in this case the nature of direct and feedback. Comparison of budgetary and actually achieved indicators is carried out by control with feedback, and feed-forward control is based on the comparison of budgetary indicators with the goals set by the organization. Through control mechanisms with direct and feedback, a system of remuneration of managers (bonuses, benefits, etc.) is built. It should be noted, however, that for the effective operation of budget control mechanisms, it is necessary that the budgeting system assumes a certain freedom of action for managerial personnel without immediate accusations and sanctions in case short-term deviations from budget indicators. With the help of budgeting, indicators (tasks) are developed for specific groups of employees, which increases their responsibility for the results of work. In addition, the participation of employees of the organization in the preparation of budgets and estimates increases the motivational effect. However, the budget-oriented style of evaluating the work of managers is unacceptable in the face of uncertainty.
The budgeting system forms the financial awareness of the employees of the organization. They must know and clearly understand the consequences of their actions, they must think about the fact that some other, alternative solutions could be more effective from a financial point of view.
Many decisions that affect the performance of the budget year are made in advance as part of the perspective plan, which should be the starting point for the preparation of the annual budget. Persons responsible for the preparation of budgets and estimates should receive information from senior management about this. In addition, they should be aware of possible changes in operating conditions, adjustments that change prices, inflation rates, industry demand and output. In the process of presenting information to the heads of the main activities responsible for the preparation of individual sections of budgets and estimates, it is necessary to give instructions on the nature of the response to possible changes in the economic situation. The communication function of budgeting is enhanced when its process is carried out in the form of a combination of information flows moving in opposite directions.
When implementing the communication function of the budgeting process, it should be borne in mind that it is quite laborious and expensive, and if the costs for it are higher than its merits, it will turn into a bureaucratic brake.
The budget period (duration of the time interval covered by the budget) for strategic budgeting is from 3 to 10 years, for operational budgeting - 1 year.
The goals and objectives of budgeting depend on the mission of the organization, its main and private goals. This should:
● clearly formulate the main financial and non-financial goals;
● select indicators that can be used to monitor the achievement of these goals;
● define the tasks (ensuring the achievement of the main goals) that can be solved with the help of budgeting.
● The main objectives of budgeting are formed as follows:
● performing the functions of a planning tool;
● control with direct and feedback;
● providing a motivating influence on the activities of employees;
● formation of a communication environment;
● ensuring the coordination of the organization's activities.
1.2. Types of budgets
The components of intra-company budgeting are:
a) technology (management);
b) organization of the budgeting system;
c) automation.
When setting up intra-company budgeting, it is necessary to follow its basic principles:
● use of budgeting methodology based on Western principles financial management adapted to Russian conditions;
● creation of corporate databases based on the collection and processing of primary documentation, including all information financial statements(and besides it) in a more operational mode than the reporting deadlines;
● strict adherence to the principles of confidentiality.
The tool of the budgeting process are budgets (plans, estimates). They can be divided into four main groups:
● basic budgets (income and expenditure budget, cash flow budget, balance sheet);
● operating budgets (sales budget, production budget, budget of direct material costs, direct labor costs, etc.);
● support budgets (capital investment plan, credit plan, tax budgets);
● additional (special) budgets (profit distribution budget, plans for individual projects and programs).
All these types of budgets are necessary for making a forecast of the financial condition of the enterprise and for conducting a plan-fact analysis .
Budgeting, as a rule, begins with the development of operating budgets, among which it is usually customary to highlight the following:
1. Sales budget.
The sales budget shows the monthly and quarterly sales volume by type of product and by the organization as a whole in physical and cost terms. It provides a forecast of total income against which cash receipts from consumers will be measured. Sales volume is the basis of other budgets (estimates).
2. Production budget ( manufacturing program);
The production budget is formed monthly and quarterly only in quantitative terms and is the responsibility of the production manager. Its task is to ensure the volume of production sufficient to meet customer demand and create an economically viable level of stocks.
3. Budget for stocks of finished products.
The budget for stocks of finished products contains information on stocks by type of product, for the organization as a whole and for individual businesses within it in physical and cost terms. It can be combined with the production budget, be part of it.
The budget for stocks of finished goods is calculated at the beginning and at the end of the budget period. At the beginning of the period, the amount of reserves is set based on the expected balances at the end of the current (reporting) year and includes:
- actual or expected balances of finished products in the warehouse;
- products shipped, for which the payment deadline has not come;
– products not paid for by the buyers on time;
- products that are in the custody of buyers.
4. The budget of direct material costs.
The budget of direct material costs generates information on the costs for the procurement and acquisition of inventory items necessary for the manufacture of products, per unit of production and in general for the organization in physical and cost terms.
It also contains information on stocks of basic materials in value terms at the beginning and end of the budget period.
Operating budget and its composition.
Operating budget- this is a system of budgets that characterize the costs of production, sales of products, enterprise management, as well as the costs of individual stages of production and enterprise management functions.
It includes:
1) sales budget;
2) production budget;
3) the budget of direct costs of raw materials and materials;
4) the budget of direct labor costs;
5) variable overhead budget;
6) the budget of stocks of raw materials, finished products;
7) budget for administrative and commercial expenses;
8) the budget for the cost of goods sold.
Operating budgets are necessary for the formation of natural and cost targets used to draw up the main budgets.
The purpose of operating budgets is to plan current activities. Distinguish the following types operating budgets.
1. Sales budget. Depending on the production capacity, the goals set for the future, the sales markets, the planned sales volume is calculated based on the forecasted production quantity and planned prices. Calculations are made by types of products. Drawing up this type of budget is mandatory for all enterprises. Its forms at different enterprises may differ from each other depending on the specifics.
2. Production budget. The planned production volume is calculated. The basis is the sales budget and the balance of finished products. The calculation of this type of budget is necessary for the formation of the production program.
3. The budget of direct costs of materials and raw materials. It is calculated on the basis of material consumption rates per unit of output, forecast data for the budget for the production of raw materials and materials leftovers in warehouses, and market prices. In this budget, the volume of purchases of material and technical resources is formed. Data is generated both in monetary and in-kind terms. This type of budget is typical for manufacturing and construction enterprises.
4. The budget of direct labor costs. Calculate the total cost of attracting labor resources. Initial data: production budget.
The system of labor rationing is used.
5. Variable overhead budget. The calculation is based on overheads broken down by items: depreciation, electricity, insurance costs, etc.
6. The budget of stocks of raw materials, finished products. It is calculated on the basis of data on the balance of raw materials and materials in natural units, stocks of finished products, prices and cost. In organizations with a long production cycle, a work in progress budget may be prepared along with or instead of an inventory budget. IN construction organizations by analogy, a construction-in-progress budget can also be drawn up.
7. Budget for management and commercial expenses. Here the predictive estimate of fixed costs is calculated. The composition of the articles depends on many factors, including the specifics of the enterprise.
8. The budget of the cost of goods sold. It is calculated on the basis of previous operating budgets based on the costing methodology approved by the enterprise.
Financial budget and its composition.
The financial budget is a plan that reflects the expected sources of funds and directions for their use in the future period.
Financial budget (financial budget) is used to analyze the financial conditions of the unit by analyzing the ratio of assets and liabilities, cash flow, working capital, profitability.
An important component of the main (consolidated) budget of the organization is financial budget(plan). In its most general form, it represents the balance of income and expenses of the organization. In it, quantitative estimates of income and expenses given in the operating budget are transformed into monetary ones. Its main purpose is to reflect the expected sources of funds and directions for their use.
With the help of the financial budget (plan), you can obtain information on such indicators as:
Sales volume and total profit;
Cost of sales;
Percentage of income and expenses;
Total investment;
Use of own and borrowed funds;
Payback period of investments, etc.
The financial budget includes investment and cash budgets, as well as a forecast balance sheet (statement of financial position).
Ticket number 14
Relationships between operating and financial budgets from the perspective of reflecting business processes. 2. Interrelationships between the operating and financial budgets from the standpoint of the completeness of the information necessary for calculating budgets.
The budgeting system of any enterprise is a set of interrelated operating, investment and financial budgets. The operating budget consists of the budgets of sales, production, purchases, etc., the investment budget - from the budgets of capital investments, the sale of non-current assets, and investment receipts. The financial budget usually includes a cash flow budget, a profit and loss budget (budget of income and expenses) and a forecast balance. The master budget, which includes the financial, operating and investment budgets, is often referred to as the master budget.
When developing a budgeting system, one should take into account not only the types of budgets drawn up, but also the relationship between them, as well as the sequence of their formation. The totality of all budgets and the procedure for their preparation is usually called the budget model.
Typically, the budgeting process begins with a sales budget. Based on this budget, the production program of the enterprise is determined, as well as the need for production facilities, personnel, raw materials, and the costs of maintaining service units are calculated. At the next stage, the budget for the cost of production, the procurement budget and other budgets that are part of the operating budget are formed. Based on the operating budget data, a financial budget is created.
Ticket number 15
Core budget models.
The main budget (master budget) summarizes the goals of all departments of the organization responsible for sales, production, R&D, marketing, customer service, finance.
Budgeting is based on the general (main) budget, which is a work plan coordinated across all departments or functions for the enterprise as a whole. It consists of operational and financial budgets.
The master budget is the financial, quantified expression of the marketing and production plans needed to achieve goals.
The core budget consists of three mandatory financial documents:
· Profit and loss statement forecast
・Forecast cash flow statement
· Forecast balance sheet
The budgeting process can be conditionally divided into two parts:
The operating budget consists of:
Implementation budget
production budget
Inventory budget
Budget for direct material costs
The budget for overhead costs
Budget for direct labor costs
・Business budget
· General expenses budget
Profit and loss budget
The financial budget is a plan that reflects the expected sources of funds and directions for their use.
The financial budget consists of:
· Investment budget
・Cash flow plan
Forecast balance
The planning process should begin with a sales plan.
The remaining plans should be built on the basis of this plan and taking into account the achievement of the planned strategic indicators.
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