Budget: A predetermined quantitative and/or financial statement, prepared and approved, Detore heated obelie, containing
Purpose: To plan for the company future
Budget Preparation Process
In normal circumstances, the PBF is sales
demand ,as such the first budget being
prepared is the sale budget
Functional Budgets Preparation
A functional / departmental budget is a budget prepared for each function or department. It shows the procedures each department needs to follow and the targets to be achieved by the department. The departmental manager normally held the responsibility to execute the budget and achieve the targets set.
Cash Budget
A statement showing expected cash receivable and cash payable for the budget period, divided into monthly sub-periods
INCREMENTAL BUDGETING
Definition
Budget prepared on assumption that previous period level of costs and revenues will continue to operate as before, only increments in costs and revenues are focused in the budget setting.
Incremental budgeting is reasonable procedure if current operations are as effective, efficient and economical as they can be. It is also appropriate for budgeting for costs such as staff salaries, which may be estimated on the basis of current salaries plus an increment for inflation.
Advantage: Administratively fairly easy to prepare, thus, cost and time savings.
Disadvantage
It encourages slack and wasteful spending to creep into budgets. Past inefficiency in costs will be incorporated into future budget periods.
ZERO BASED BUDGETING
Definition:
A method of budgeting whereby all activities are re-evaluated each time a budget is set.
Discrete levels of each activity are valued and a combination chosen to match funds available.
ZBB steps:
1. Identify and define the goals and objectives of each division
2. Each division develops decision packages which will contribute towards achieving the goals and objectives set. Decision packages (likely to be more than one for each dept) are developed by managers for their particular areas of responsibility.
Decision packages will contain information such as:
the function of the department
a performance measure for the department;
costs and benefits of operating a department at a range of different levels of funding consequences of not operating at those levels.
Ranking of the decision packages, using cost benefit analysis.
The resources available to the organisation for the forthcoming budget period are thus allocated to the decision packages based on the ranking identified. This will ensure budget funds are allocated to the best packages available.
