expenditure and revenue budgets

• Why is budgeting essential for businesses?

  It helps define goals and strategies
• What are the two main terms related to budgets?

  Budgeting and budgetary control
• What is budgeting?

  The process of preparing the budget
• What is budgetary control?

  Comparing actual performance with a budget
• What are the four different examples of budgets discussed?

  • Revenue or sales budget
  • Production budget
  • Purchases or materials budget
  • Labor budget
• What does the revenue or sales budget forecast?

  A company's income
• What key components are included in the revenue budget?

  Sales units, price per unit, total sales
• How is total sales calculated in the revenue budget?

  By multiplying sales units by price per unit
• What does the production budget determine?

  The volume of products to be produced
• What are the key components of the production budget?

  Budgeted sales, ending inventory, total required units
• How is required production calculated in the production budget?

  By subtracting opening inventory from total required units
• What does the purchases or materials budget outline?

  The raw materials needed for production
• What are the important elements of the purchases or materials budget?

  Required production, materials per unit, desired ending inventory
• How is total materials required calculated?

  By adding production materials required to desired ending inventory
• What is the quantity of material to be purchased?

  Calculated by adding total materials required to beginning inventory
• How is the cost of material to be purchased calculated?

  By multiplying material to be purchased by cost per quantity
• What does the labor budget determine?

  The labor hours required to meet production goals
• What are the key components of the labor budget?

  Required production, hours per unit, hourly labor cost
• How is total labor hours calculated?

  By multiplying required production by hours per unit
• How is total cost of labor calculated?

  By multiplying total labor hours by hourly labor cost
• What is the conclusion about budgeting in business?

  • A budget is a financial plan
  • Budgeting is the preparation process
  • Budgetary control monitors performance
  • Different budgets serve specific purposes
• What is the focus of the overheads budget?

  Expected indirect costs related to services/products
• What costs are excluded from the overheads budget?

  Direct labor and material costs
• What does the variable overheads calculation involve?

  Multiplying budgeted labor hours by variable overhead rate
• How is total manufacturing overhead calculated?

  Adding variable overheads to fixed overheads
• What is the purpose of a marketing budget?

  To outline expected costs for promoting a business
• What types of costs can be included in a marketing budget?

  PR, staffing, office expenses, campaigns
• What does a capital expenditure budget plan for?

  Big long-term investments like machinery
• What are key elements of a capital expenditure budget?

  Individual expenditure costs and overall total
• What information does a cash budget typically include?

  Opening balance, receipts, payments, closing balance
• What is the purpose of a cash budget?

  To manage cash flow in a business
• How is the receipts subtotal calculated?

  Adding opening balance to receipts
• How is the payments subtotal calculated?

  Adding all budgeted payments
• How is the closing balance calculated?

  Subtracting payment subtotal from receipt subtotal
• What is a variance in budgeting?

  Difference between actual figures and budgeted figures
• What does a favorable variance indicate?

  Spent less or earned more than expected
• What does an adverse variance mean?

  Spent more than planned or earned less
• What impact do adverse variances have on a business?

  Negatively affect profits and may require corrective measures
• What are the key components of an overheads budget?

  • Budgeted labor hours
  • Variable overhead rate
  • Variable overheads
  • Fixed overheads
  • Total manufacturing overhead
• What are the key components of a marketing budget?

  • Individual marketing costs
  • Overall total