Operating Budget is the details projection of estimated
sales, revenue and expenses during which
will be projected to be consumed in a short period of time like in a budgeted
year. That Operating Budget is consist of many small budgets which are
important and a part of the operating budget these are commonly start from the
most important part of the Operating Budget which is known as sales budget. The
other parts of this kind of budget is Production budget, purchase budgets, expenses
budgets, equipment budgets and cash budgets some organization make the capital
budget a part of this budget but mostly not include the capital budget in it
because the capital budget requires more detail and capital expenditures.
Here is the overview of the other important parts of
operating budgets and that is in details which helps us to understand that
question how the operating budget is more important for the business
operations.
Sales Budget:
Sales
Budget is a budget in which we estimates the sales for the next projected time
period. That estimation has some limitations and key points like advantages and
disadvantages which are as follows:
·
In sales budgets we
estimates that how much the sales we expect in the upcoming year.
·
How much units we need to
produce the goods and services to achieve the projected sales budget values.
·
How much cash we need to
spent over the projected sales achievement.
·
That’s very easy to
understand because the projected sales values is a numerical values.
Production Budget:
Production
budget a projected estimate about the coming year production of services and
goods. Production budget is a measurement of the company ability to produce the
minimum and maximum number of goods and services in a specific time horizon in
a limited approved budget.
·
The production budgets
helps the accountants to know the value of the goods and services how much the company will need to produce the
goods and services for each department and when these will be produce.
·
The Production budget will
be represent in Labor Hours, Wages and rates etc.
Purchases Budget:
A
budget which helps the professional s to know the actual or projected figure of
the of raw materials and supporting goods and services to produce the goods and
services.
·
The mostly known terms in
this respect is to maintain the stock level and reduce the stock out situations
.
·
The Inventory levels
management and the conversion into the materials and goods helps the business management
to purchase budgets.
·
The mostly purchases
represent in the monetary terms.
Expenses Budget:
Expenses
projection for the next fiscal year is a part of the operating budgeting.
That helps the business units to know
that how much a business need spend on
his operating activities? The expenses
like the wages, advertising, food allowances, maintenance charges, Supplies, utilities are the part of the expenses
budgets. That also helps us to understands that how much a business firm can
expense out over its operating activities.
Equipment Budget:
The
equipment budgets helps us to understand that what kind of equipment’s a business unit needs and how much we can spend
for its possession. That also can link with the purchases but in equipment budget we focus on the equipment purchases
and maintenance which helps us to complete the production of all units and
departments.
Cash Budget:
The
Cash budget helps the business to maintain a sufficient amount of cash to run
the important business operations. That’s helpful for the business goodwill.
The Working Capital maintenance in a corporate environment is very necessary.
The Cash budget is always prepared by the company departmental head according
to their usage and according to their daily necessities.
Here bellow is an example of the Operating budget in which a
company prepare the operating budget for a quarter basis.
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