Sales Budget
Discuss about the Capital Budgeting and Long-Term Financing Decision.
|
Sales Budget |
||||
|
Particulars |
July |
August |
September |
Total for the quarter |
|
Budgeted units to be sold |
40,000 |
50,000 |
54,000 |
1,44,000 |
|
Budgeted Sales Price per unit |
550 |
550 |
550 |
1,650 |
|
Total Sales |
220,00,000 |
275,00,000 |
297,00,000 |
792,00,000 |
Sales Budget is a budget will helps the organisation plan on setting an achievable goal and work towards it. Sales budget is the sets the benchmark for the organisations to achieve set goals. It creates a vision and provides a path for the company to work towards it. (Adelaja, 2015)
|
Production Budget |
||||
|
Particulars |
July |
August |
September |
Total for the quarter |
|
Sale Units for the current month |
40,000 |
50,000 |
54,000 |
1,44,000 |
|
Less: Opening units |
28,000 |
35,000 |
37,800 |
1,00,800 |
|
Add: Closing units |
35,000 |
37,800 |
42,000 |
1,14,800 |
|
Production for the current month |
47,000 |
52,800 |
58,200 |
1,58,000 |
The production budget is the type of budget which calculates the number of units that is required to be produced for a given period in order to achieve the set target. It is important his production is met as per budget or else the desired sales target won’t meet. (Bierman & Smidt, 2010)
Direct Material Purchase Budget
|
Direct Material Purchase Budget-Part AA |
||||
|
Particulars |
July |
August |
September |
Total for the quarter |
|
Production for the current month |
47,000 |
52,800 |
58,200 |
1,58,000 |
|
Direct Material Required |
1,88,000 |
2,11,200 |
2,32,800 |
6,32,000 |
|
Less: Opening Balance of RM |
1,12,800 |
1,26,720 |
1,39,680 |
3,79,200 |
|
Add: Closing Balance |
1,26,720 |
1,39,680 |
1,50,720 |
4,17,120 |
|
Direct Material Purchase for the month (units) |
2,01,920 |
2,24,160 |
2,43,840 |
6,69,920 |
|
Direct Material Purchase Budget-Part BB |
||||
|
Particulars |
July |
August |
September |
Total for the quarter |
|
Production for the current month |
47,000 |
52,800 |
58,200 |
1,58,000 |
|
Direct Material Required |
1,41,000 |
1,58,400 |
1,74,600 |
4,74,000 |
|
Less: Opening Balance of RM |
70,500 |
79,200 |
87,300 |
2,37,000 |
|
Add: Closing Balance |
79,200 |
87,300 |
94,200 |
2,60,700 |
|
Direct Material Purchase for the month (units) |
1,49,700 |
1,66,500 |
1,81,500 |
4,97,700 |
|
Direct Material Purchase Budget- total |
||||
|
Particulars |
July |
August |
September |
Total for the quarter |
|
Direct Material Purchase for the month (units) |
||||
|
– AA |
2,01,920 |
2,24,160 |
2,43,840 |
6,69,920 |
|
– BB |
1,49,700 |
1,66,500 |
1,81,500 |
4,97,700 |
|
Total amount for AA |
80,76,800 |
89,66,400 |
97,53,600 |
267,96,800 |
|
Total amount for BB |
44,91,000 |
49,95,000 |
54,45,000 |
149,31,000 |
|
Total Purchases (amount) |
125,67,800 |
139,61,400 |
151,98,600 |
417,27,800 |
Direct material budget calculate the expected level of materials that would be required by the company to keep in stock, in order to meet up with the set production limits (Dayananda, Irons, Harrison, Herbohn, & Rowland, 2008). This budget specifies both the units and amount. Unit help to maintain the level the inventory and the amount helps them set the availability of cash for payments.
|
Monthly Direct Material Usage Budget |
||||
|
Particulars |
July |
August |
September |
Total for the quarter |
|
Production for the current month |
47,000 |
52,800 |
58,200 |
1,58,000 |
|
Direct Material Used |
||||
|
– AA |
1,88,000 |
2,11,200 |
2,32,800 |
6,32,000 |
|
– BB |
1,41,000 |
1,58,400 |
1,74,600 |
4,74,000 |
Material purchase budget and material usage budget are different. Purchase budget helps in maintaining the inventory level, whereas the usage budget helps calculate the consumption of material in order to meet up with the set production levels. Purchase budget may also include a buffer for cases of emergencies. (Menifield, 2014)
|
Direct Labour Budget |
||||
|
Particulars |
July |
August |
September |
Total for the quarter |
|
Production for the current month |
47,000 |
52,800 |
58,200 |
1,58,000 |
|
Labour Time required (Hours) |
2,35,000 |
2,64,000 |
2,91,000 |
7,90,000 |
|
Total Labour charges for the month |
42,30,000 |
47,52,000 |
52,38,000 |
142,20,000 |
The direct labour budget calculates the labour hour that would be required to meet the production levels. It is important that the company keep available the labour beforehand. Lack of availability may lead the company to hire labour sources at extra rate. This will increase the cost for the company and misbalance the budget. (Peterson & Fabozzi, 2012)
|
Overheads Budget |
||||
|
Particulars |
July |
August |
September |
Total for the quarter |
|
Fixed Manufacturing Overhead |
1,50,000 |
1,50,000 |
1,50,000 |
4,50,000 |
|
Variable Manufacturing Overhead |
7,05,000 |
7,92,000 |
8,73,000 |
23,70,000 |
|
Total Manufacturing Overhead for the month |
8,55,000 |
9,42,000 |
10,23,000 |
28,20,000 |
Overheads budget is the budget which helps the company keeps a track on the overhead expenses. In order to have a controlled for the production of goods it is important that the rates of overhead be pre determined. This will help the company mange costs. (Rivenbark, Vogt, & Marlowe, 2009)
|
Selling and Administrative Budget |
||||
|
Particulars |
July |
August |
September |
Total for the quarter |
|
Fixed Manufacturing Overhead |
70,000 |
70,000 |
70,000 |
2,10,000 |
|
Variable Manufacturing Overhead |
80,000 |
1,00,000 |
1,08,000 |
2,88,000 |
|
Total Selling and Administrative exp for the month |
1,50,000 |
1,70,000 |
1,78,000 |
4,98,000 |
The selling and administrative expense makes the company aware of the expenses that will be required to make in order to sell the goods. It helps them plan a distribution budget and advertisement budget, which can be put to use to achieve targeted sale. (Seitz & Ellison, 2009)
|
Cash Budget |
|
|
Particulars |
July |
|
Opening Cash Balance |
8,50,000 |
|
Add: Cash Inflows |
|
|
– Cash Inflows form Sales- Current month |
88,00,000 |
|
– Cash Inflows form Sales- Last month |
99,00,000 |
|
Less: Cash Outflows |
|
|
– Cash Outflow for Purchases-Current month |
61,58,222 |
|
– Cash Outflow for Purchases-Last Month |
53,30,000 |
|
– Cash Paid for Labour expenses |
42,30,000 |
|
– Cash Paid for Overhead expenses |
8,55,000 |
|
– Cash Paid for Selling and distribution |
1,50,000 |
|
Closing Cash Balance |
28,26,778 |
|
Minimum Balance required |
27,50,000 |
Cash budget is one of the most important financial tools. It is important that the company have a check on its solvency in order to run a smooth function business (Shapiro, 2007). The cash budget helps the organisation see the funds position it will have when the company will be in action. It needs to keep available extra cash sources so that the smooth function of the business operations can be ensured. In the given scenario it was required that the company have a minimum cash balance of 10% of the sale revenue of the next month. As per our calculations, the company have a cash balance of $28,26,778 at the end of July, which is more than the required level of cash balance.
|
Budgeted Income Statement |
|
|
Particulars |
July |
|
Sales |
220,00,000 |
|
Less: |
|
|
Material Consumed |
|
|
– AA |
75,20,000 |
|
– BB |
42,30,000 |
|
Labour Expenses |
42,30,000 |
|
Overhead Expenses |
8,55,000 |
|
Selling and administrative expenses |
1,50,000 |
|
Profit/Loss |
50,15,000 |
The budgeted income statement of a company helps them set target. It helps them understand the level of operations which they want to achieve in order to attain a certain level of profit. The company evaluates the budgeted income stamen in order to evaluate the revenues and cost and measures which can be taken to control cost. The budgeted income statement of the company in given case shows that the company has earned a profit of $50,15,000 for the month of July.
Adelaja, T. (2015). Capital Budgeting: Investment Appraisal Techniques Under Certainty. Chicago: CreateSpace Independent Publishing Platform .
Bierman, H., & Smidt, S. (2010). The Capital Budgeting Decision. Boston: Routledge.
Dayananda, D., Irons, R., Harrison, S., Herbohn, J., & Rowland, P. (2008). Capital Budgeting: Financial Appraisal of Investment Projects. Cambridge: Cambridge University Press.
Menifield, C. E. (2014). The Basics of Public Budgeting and Financial Management: A Handbook for Academics and Practitioners. Lanham, Md.: University Press of America.
Peterson, P. P., & Fabozzi, F. J. (2012). Capital Budgeting. New York, NY: Wiley.
Rivenbark, W. C., Vogt, J., & Marlowe, J. (2009). Capital Budgeting and Finance: A Guide for Local Governments. Washington, D.C.: ICMA Press.
Seitz, N., & Ellison, M. (2009). Capital Budgeting and Long-Term Financing Decisions. New York: Thomson Learning.
Shapiro, A. C. (2007). Capital Budgeting and Investment Analysis. New Jersey: Wiley
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