miguel cabezudo nicolas laflesselle. financial plans are called budgets and the process of making,...
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DEFINITION
•Financial plans are called budgets and the process of making, monitoring and adjusting them is called budgetary control.
•The budget may be expressed in tabular or graphical format such as S curves.
TYPES OF BUDGETS
Harris and McCaffer identification :
*Operating budget
*Annual sales budget
*Capital expenditure budget
*Cash flow budget
*Master budget
PREPARING A BUDGET
Prepare forecas
t
Consider policy
Assess resource
s
Review
Accept the
budget
Accept master budget
Consult management
Prepare forecastdata
Assess resourcesand impact on
forecastConvert to
monetary budget
PREPARINGTHE BUDGET
PREPARING A BUDGET
Prepare forecas
t
Comparitor period
Compare forecast/actua
l
Analyse and report
Action and
implement
Management Action
Quarterly,Monthly,
weekly or daily
Prepare forecast (sales,cumulative value and
cash flow)
CompareForecast with
Actualperformance
Analysis ofVarianceReport to
management
THE CONTROLCYCLE
CONTRACT BUDGETS
*It is an essential function of management to prepare forecast in order to establish a plan for the future of the business.
*The company has to plan for the next year’s
*Estimating, planning and quantity.
PRESENTATION OF A BUDGET
*Bar chartMoney or resource allocations against time
*Graphical displayValue-time curve forecast
PLANT BUDGETCUMULATIVE FORECAST MAN
WEEKS
00 1 2 3 4 5 6 7 8 9 1
011
12
13
14
Man weeks
Project duration (weeks)
10
20
30
40
50
60
Variance
PLANT BUDGETCUMULATIVE EXPENDITURE
FORECAST
00 1 2 3 4 5 6 7 8 9 1
011
12
13
14
Expenditure (£000)
Project duration (weeks)
1
2
3
4
5
6
7
8
9
10
11
12
Variance
VARIANCE
00 4 8 12 16 2
0
Expenditure (£000)
Project duration (weeks)
10
20
30
40
50
19 400
25 700
32 500
39 800
47 400
22 000
14 000
5 400
3 700
0
BUDGET CONTROL PROCEDURE
*Must be established in order to monitor the budget at clearly defined time intervals. (daily, weekly, monthly, quarterly or annually)
*Management must act where variances are apparent at each review date, whether they are positive or negative.
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