For effective control on variations bussiness activity planning needs various information for decision making and execution of various activities. Every business needs resources which are always limited. Thus, out of limited resources, maximum use is recommended. For, these budgets are needed. The preparation and use of budget different business activities are controlled.
Budgets are financial statements prepared for definite future period on the basis of planned forecast figures. The budgets are prepared to make sure the availability of resources at a future date. The budgeted activities are compared with the actual results and variations are put for correction.
These are formal programmes, for the future and are expected results. Budgets are forward thinking and planning. In this chapter, an effort våll be made to explain the practical utility of various budgets.
What is Budget? – Definition In business, a budget may be defined as a formal expression of the expected income and expenditure for a definite future period. According to J. Fred Meston: “A budget is the expression of a firm’s plan in financial form for a period of time in the future.” According to J.L. …
The following are three methods of preparing cash budget: (i) Receipt and Payment Method (ii) Adjusted Project and Loss Method (iii) Balance Sheet Method Receipt and Payment Method Here cash is received from cash sales, receipt from debtors, sale of fixed assets and investments, issue of shares and debentures. Both capital and revenue receipts are …
Answer Modern business is full of instability and uncertainties. On one hand, keen competition, Govt. policies, different laws, Govt. regulations and different New techniques of production and above all the changing consumer behavior, in such situation that businessman will get success, who can face these challenges. The impact of these has been that all businessmen …
Answer Limitations of Budgetary Control While the advantages of a budgetary technique are unquestionably impressive and for reading, certain limitations and pitfalls of budgeting need to be mentioned. 1. Budgeting control based on estimates Budgeting is not an exact science; a certain amount of estimate is present in all budgetary plans. A revision or modification …
What are the main requirements of a good budgetary system or what are the steps for budget installation? Answer The following are the chief factors needed for budgetary control: 1. Objectives The first important requirement for the budget is the clear cut objective of the budget which needs well defined organizational system through which the …
The budget satisfies different purposes. Thus different types of budgets are commonly used. The budget can be grouped as: 1. Time budget. Short period or long period budget. 2. Functional budget. Functional budgets Functional Budget is that budget which is associated with the functions of an organization. For examples: Sales budget, Production budget, Labor budget, …
Problem 1 From the following information, prepare cash budget for the month of January to April: Expected Sales Expected Purchase $ $ Jan. 60,000 Jan. 48,000 Feb. 40,000 Feb. 80,000 Mar. 45,000 Mar. 81,000 Apr. 40,000 Apr. 90,000 Wages to be paid to workers Rs. 5,000 each month. Balance at the bank on 1st Jan. …
Problem 1 Prepare a flexible budget for the production of 80% and 100% activity on the basis of the following information. Production at 50% Capacity 5,000 Units Raw Material $80 per unit Direct Labor $50 per unit Direct Expenses $15 per unit Factory Expenses $50,000 (50) (Fixed) Administration Expenses $60,000 (Variable) Solution Flexible Budget at …
Problem 1 The following information has been made available from the accounting records of payment of Precision Tools Ltd. for the last six months of 2019 ( and of only sales for January 2020. In respect of Fishplates X produced by it. (i) The units to be sold in different months are: July: 2,200 August: …