Budget Forecasting
1. Forecasting
1. A forecast is an assessment of probable future events while a budget is an operating and financial plan of a business enterprise.
2. A forecast is merely a statement does not convey any sense of control while a budget is a tool of control and represents actions that can achieve objectives of the firm.
3. A forecast is a preliminary step for budgeting but a budget starts when forecasts are over.
4. Forecasts have wider scope and are prepared for any type of data, but a budget can be prepared if it can be expressed in quantitative terms
2. organizational chart
An organization chart, defining functional representatives of executives, responsible for accomplishment of organizational objectives, needs to be prepared first
3. Budget chart
Is a structual showing the flow of authority and power
4. Budget Centre
1. A Budget Centre is defined by the terminology as “a section of the organization of an undertaking defined for the purpose of budgetary control.”
2. For effective budgetary control budget centre or departments should be established for each of which budget will be set with the help of the head of the department concerned
3. Sections of the organization of the undertaking have to be defined for the purpose of budget control. Budgets are to be set for each budget center with the assistance of its departmental head.
Budget Committee
Budget committee is one which prepares the budget and is fully responsible for the implementation of budgets.
The group of managers that discusses a mutually agreed program to meet their targets under budgetary control is termed Budget Committee
1. Receive, review estimates from members and make recommendations.
2. When there is a conflict between departments review & recommend decisions.
3. Recommend changes and approval of revisions to budgets.
4. Receive, study and analyze periodic reports and budget variations.
5. If conditions warrant, recommend budget revisions.
6. Recommend revision to budget policies and procedures.
7. Recommend changes to the Budget manual
5. Budget Manual
Budget manual is a small booklet that contains the details relating to budgeting organization and procedure
Contents of Budget Manua
1. Introduction and brief explanation of the objects, benefits and principles of budgetary control system.
2. Clear-cut definition of lines of authority and responsibility
3. Organization charts with titles of line managers.
5. The method of preparation of department budget and master budget.
6. Time schedules for budget preparation.
7. Time lag between two budget reports i.e. performance report.
8. Instructions for preparing, submission and approval of budgets.
9. The procedure to be followed for obtaining approval for budgets.
10. Number and names of budget centers are clearly stated.
11. Account codes to be used in budgets.
12. The purpose, specimen form and number of copies to be used for each report and statement.
13. Length of budget periods and control periods are clearly stated.
14. Brief explanation of follow-up procedures.
15. Explanation about main budgets and their accounting relationship with each other.
16. Explanation of key budget
6. Budget Period
The budget period is the period for which a budget is prepared and used which may be sub divided into control periods.
Factors to be considered in deciding the period :
1. Long enough to complete production of all products.
2. Should cover one entire seasonal cycle; in case of business with seasonal nature.
3. Long enough to allow financing of production in time.
4. Major operations like plant re-layout must be planned well in advance.
5. Should coincide with financial period so that actual results correspond with budget numbers
7. Key Factor
Key Factor is also called as “Limiting Factor” or Governing Factor. is factor which will limit the activities of the undertaking and which is taken into account in preparing budgets It usually is the demand for product or service.
But could be anyone from :
1. customer demand,
2. plant capacity,
3. availability of raw materials, skilled labour or capital,
4. accommodation for plant, raw & finished materials
8. Budget report
Performance evaluation and reporting of variance is an integral part of all control systems.
Hence effective budget reports need to
1. be simple and intelligible should bear a heading & indicate period covered.
2. be issued regularly and promptly.
3. should contain essential data.
4. be expressed indirect figures.
5. correlated to money value.
6. free from any personal bias.
7. dated and signed by persons who prepare & check.
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