project budjet

7/30/2019 Project Budjet

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PREPARED BY:VIDHUR BANSAL

ROLL NO: 8130

SUBMITTED TO :Mrs. MEERU


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An estimate of costs, revenues,and resources over a specified period,reflecting a reading of futurefinancial

conditions and goals .One of the mostimportant administrativetools, a budgetserves also as a (1) plan of action for achievingquantified objectives, (2) standard for

measuring performance, and (3) device forcoping with foreseeable adverse situations.
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According to CIMA A financial andquantitative prepared and approved prior to adefined period of time of the policy to pursued

during that period for the purpose of attaininga given objective. It may include income,expenditure and employment of capital.


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PLANNING: A set target is often necessary toguide and focus individual and group actions.

DIRECTING: once the budget plans are place

they can be used to direct and coordinateoperations in order to achieve the statedtargets.

CONTROLLING: In this actual performance iscompared with planned target and takingmeasures to correct this in future.


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BUDGET

COVERAGE

FUNCTIONALBUDGET

MASTERBUDGET

CAPACITYCONDITIO

N

PERIODFIXEDBUDGET

FLEXIBLEBUDGET

LONGTERM

SHORTTERM

BASIC

BUDGET

CURRENTBUDGET


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SALES BUDGET: In this we make budget for salesand while making this budget the following thingsare to be considered:

1. Past sale figures and trends

2. Salesmans estimate

3. Plant capacity

4. Available of raw material and other supplies

5. Orders in hand6. Financial aspect

7. Adequate return on capital employed

8. Competition


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It shows the production for the budgetperiod based upon :

1. Sales budget2. Production capacity of the factory

3. Planned increase or decrease in finishedstocks4. Production should be carefully coordinated

with sales budget5. Planning the level of production involves the

answer of four question: What is to be produced? When is to be produced? How is to be produced? Where is to be produced?

PRODUCTION BUDGET


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Month Sales (units) +closingstock(units)

-openingstock(units)

Production(units)

January

FebruaryMarch

60000

4800072000

24000

3600040000

30000

2400036000

54000

60000760001,90,000


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In drawing up the production budget one of thefirst requirement to be considered is material. Aswe know material may be direct or indirect. Thusit deal with the requirement of direct material.

Indirect materials are dealt with under the workoverhead budget. The period of the budget shouldbe short duration because this has an importantbearing on cash budget. It include :

1. Estimates of diff. types of raw material needed forvarious products.

2. Purchasing raw material on time.

3. Cost of that material.


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This is mainly depend on production budget andmaterial requirements budget. This provide theinformation about the material to be acquired fromthe market during the budget period. The

following factors should be taken intoconsideration while preparing this budget:

Quantity of each type of material.

Quality of that material.

Capital items required. The present stock position.

The date on which the material is required.etc


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XYZ company

Direct material purchase budgetfor the year ending march 31,20.

Desired closing stock(units)

Units required for productionADD:Total needsLESS:Opening stock(units)Units produced

Unit price(RS.)Purchase cost(RS.)

Material X30000

156000

159000

4000155000

1.50232500

Material Y500

34000

34500

30034200

2.5085500

Total

318000


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Once sale budget and production budget arecompiled and thereafter plant utilizationbudget is settled, detailed amount of the

various machine operations involved andservices required. This will help in preparationof an estimate of different grades of labourrequired. From this standard hours required to

be worked can be prepared.


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XYZ COMPANY

Direct-labour cost budget

for the year ending march 31,20

Product A

Product B

Units to beproduced

4000

9000

Direct labourhour, per unit

7

10

Total hours

28000

90000--------------1,18,000

Total budget cost(RS.) @RS. 2 perhour

56000

180000------------------

2,36,000


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It consist of all items such as indirect material,indirect labour and indirect expenses. Indirectexpenses include fuel, fringe benefits, depreciationetc. This budget usually include the totalestimated cost for each item of this overhead. FewEXAMPLE of how the expenses are estimated:

1. Fixed expenses are policy cost and hence they r

based on policy matters.2. In regard to the estimate of consumption of

indirect material, the age and condition of theplant and machinery are taken into consideration.


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XYZ COMPANY

Factory overhead budget for the year( activity of 118000 direct labour hour)

SuppliesIndirect labour

Cost of fringe benefitsPower (variable proportion)Maintenance cost(variable)

TOTAL VARIABLE OVERHEADDepreciationProperty taxes

Property insuranceSupervisionPower(fixed proportion)Maintenance(fixed proportion)

TOTAL FIXED OVERHEADTOTAL FACTORY OVERHEAD

RS.1200030000

100002200015000

100002000

1000120008003200

RS.

89000

29000---------------------

1,18,000


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FACTORY OVERHEAD RECOVERYRATE IS :

1,18,000

1,18,000 labour hours

=Rs. 1 per direct labour hour


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Selling cost is define as the cost of seeking to createand stimulate demand and of securing orders. Thesecosts are, therefore, incurred to maintain and increasethe level of sales. All expenses connected withadvertising, sales promotion, sales office, salesmen,

credit collection, market research, after sales service,etc. are generally grouped together to form part of theresponsibility of the sales manager. This cost are alsodivided in fixed and variable. The problem faced inthe preparation of selling cost budget are:

Heavy expenditure on selling and sales promotion

may have to be incurred when the volume of sales isfalling off. Sometimes intensive sales and promotion efforts are

called for one year and the benefit of such effortsaccrue in the subsequent years.

Sometime relation b/w selling cost and volume ofsales has to be establish


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XYZ COMPANY selling and distribution cost

budget for the year ending march 31,20.DIRECT SELLING EXPENSES

salesmans salariessalesmans commissiontravelling expenses

DISTRIBUTION EXPENSESwarehouse wageswarehouse rent, rates, electricitylorry expenses

SALES OFFICE EXPENSESsalaries

rent, rates, electricitydepreciation

ADVERTISINGpressradio and television

AMOUNT14000700019000

6000400011000

16000

120002000

500020000

---------------------

1,16,000


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This cost are mostly policy costs and are,therefore, fixed in nature. The mostpractical method to follow in preparingestimate of these is to follow the past

experience with due regard to anticipatedchanges either in general policy or in thevolume of business. To control this cost isnecessary to review them regularly.

EXAMPLE:audit fees, depreciation ofoffice equipment, insurance, postage,telephone, etc.


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ABC COMPANY administrative expenses

budget for the year ending march31,20.

RS.Salaries of clerical staff 28000

Executive salaries 8000Audit fee 600Depreciation on office equipment 800Insurance 250Stationary 1250Postage and telegrams 950

Telephone 850Miscellaneous 5300

----------------Total administrative expenses 46,000


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Research is required in order to develop orimprove product and methods. When researchis definite benefit to the company,

development function begins. Afterdevelopment, formal production cancommence on commercial scale and thenproduction function starts. Since the area of

research cannot be defined, the cost incurredunder the both function are clubbed together asr and d cost.


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IT represents the planned outlay on fixed assetslike land, building, plant and machineryduring the budget period. This budget is

subject to strict magt. Control because itrequired large amount. The preparation of thisis based on:

1. Future development plans to increase output

by expansion of plant facilities.2. Replacement request from the concerned

department. etc..


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Cash budget represents the cash requirement ofthe business during the budget period. It is theplan of receipts and payments of cash for the

budget period, analyzed to show the monthlyflow of cash drawn up in such a way that thebalance can be forecasted at regular intervals. Itis one of the most important elements of the

budgeted balance sheet. Information fromvarious budget effect the cash budget.


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When all the necessary functional budgets havebeen prepared, the budget officer will preparethe master budget which may consist of

budgeted profit and loss account and budgetedbalance sheet. This are in fact the budgetsummaries. When this budget is approved byboard of directors, it represents a standard for

the achievement of which all the departmentswill work.


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ABC COMPANY budgeted income

statement for the year ending march31,20..

RS. Amount (RS.)

SalesLess: cost of good soldGross MarginLess: selling and distribution expensesLess: administrative expensesProfit before interest and taxes

Interest expenses(assumed)Profit before taxIncome tax (50% assumed)

Net profit

13650046000

1175000775000400000

182500217500

5000016750083750

-----------------83750


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RS. RS. RS.

Share capitalRetained earningREPRESENTED BY:Plant and machineryLess :provision for dep.Raw materialFinished goodsDebtors

CashLESS: creditors

350000129000

34000060000575077500110000

37750 23100032000

479000

280000

199000-----------------

4,79,000


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According to CIMA of England, A fixedbudget, is a budget designed to remainunchanged irrespective of the level of activityactually attained. Afixed budget shows theexpected results of a responsibility center foronly one activity level. Once the budget hasbeen determined, it is not changed, even if theactivity changes. This is used by many

companies for purchasing, engineering, andaccounting. It is used as an effective tool of costcontrol. It is also known as static budget.


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Unlike static budget,flexible budget shows theexpected results of a responsibility center forseveral activity level. You can think of a flexiblebudget as a series of static budgets for differentlevels of activity. Such budget are especiallyuseful in estimating and controlling factory costsand operating expenses. It is more realistic andpracticable because it gives due consideration tocost behavior at different levels of activity. While

preparing this budget it is classified into 3 :1. Fixed

2. Variable

3. Semi variable


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The budgets which are prepared for periodlonger than a year are called long termbudgets. Such budgets are helpful in business

forecasting and forward planning. Capitalexpenditure budget and research anddevelopment budget are examples of long termbudgets.


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Budgets which are prepared for period lessthan a year re known as short term budgets.Cash budget is an example of short term

budget. Such types of budgets are prepared incases where a specific action action has to beimmediately taken to bring any variation undercontrol, as in cash budgets.


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IT is defined as a budget which is prepared for useunaltered over a long period of time. This does nottake into consideration current conditions and

can be attainable under standard conditions.


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It is define as a budget which is related to thecurrent conditions and is prepared for the use over ashort period of time. This budget is more helpful

then the basic budget as it gives correctinformation about current conditions.


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This budget is the preparation of budget starting

from zero or from clean state. As a new techniqueit was proposed by PETER PYHER of Texasinstruments inc., U.S.A. this technique wasintroduced in the budgeting in the state of Georgia

by Mr.JIMMY CARTER who was the governor ofthat state. When Mr. CARTER later on becomepresident of the U.S.A., ZBB was tried in federalbudgeting as a means of controlling stateexpenditure. This become popular tool since theearly 1970s. Now this is accepted in businessworld because it is proving its utility.


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A planning and budgeting process whichrequires each manager to justify his entirebudget request in detail from scratch(hence

zero base) and shifts the burden of proof toeach manager to justify why he should spendant money at all. The approach requires that allactivity be analyzed in decision packages

which are evaluated by systematic analysis andranked in order of importance.


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It help the management in the followingquestion supposing we are to start ourbusiness from scratch, on what activities would

be spend our money and to what activitieswould give the highest priority? Thus ZBBtries to overcome the weakness of conventionalbudgeting, especially in those areas in which

flexible budget is not applicable. This is helpfulin govt. expenditure, data processing, qualitycontrol, etc.


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Identification of decision units in order tojustify each item of expenditure in theirproposed budget.

Preparation of decision packages. Eachpackage is a separate.

Ranking of decision packages on cost benefitsanalysis.

Allotment of funds based on the aboveresulting by following pyramid ranking systemto ensure optimum results.


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It promotes operational efficiency because itrequires manager to review and justify theiractivities or the funds requested.

It always find out alternatives to do a job.

It analysis and decision making because itrequire manager to review their activities.

It help in optimum utilization of scarce

resources. Coordinate within the firm is improved.

It is useful in service department.


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The paper work will increase due to large no.of decision packages.

The cost of the various packages may be very

high in large firms. Ranking of packages is very often subjective

and may be risk to conflicts.

Bad managers may resist new ideas andchanges as they want.


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It can be define as the establishment ofbudgets to the responsibilities of executives tothe requirements of a policy, and the

continuous comparison of actual withbudgeted results either to secure by individualaction the objective of that policy or to providebase for its revision.


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Determining the objective to be achieved, overthe budget period.

Determining the variety of activities that

should be undertaken for the achievement ofthe objectives.

Drawing up a plan or a scheme of operation inrespect of each class of activity, in physical aswell as in monetary terms.

Ensuring that corrective action will be takenwhere the plan is not being achieved.


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Portraying with precision the overall aims of thebusiness and determining target of performancefor each section.

Budgetary control is one of the few ways in which

an objective assessment of executives ordepartment is possible.

Providing a basis for the comparison of actualperformance with the predetermined targets.

Ensuring the best use all available recourses tomaximize profit.

Coordinating the various activities of the business.


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It enables the business to conduct its activities inefficient manner.

It is powerful instrument used by business tocontrol their expenditure.

Effective utilization of various resources like- men,material, machinery, money.

It helps in the review of current trends andframing of future of future policies.

It creates suitable conditions for theimplementation of standard costing.


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Budgets may or may mot be true, as they are basedon estimates.

Budgets are considered as rigid documents.

Budget cannot be executed automatically. Staff co-operation is usually not available during

budgetary control exercise.

Its implementation is quite expensive.


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project budjet

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