Page 1 - HA 241604010121

CH-5: BUSINESS ARITHMETIC

CODE: 241605010114

TOPIC:BUDGET

NOTES:

For any business, a budget is a quantitative expression of a plan for a defined period of time. It may
include planned sales volumes and revenues, resource quantities, costs and expenses, etc. Essentials of
budget include:

To control resources

To communicate plans to various responsibility center managers.

To motivate managers to strive to achieve budget goals.

To evaluate the performance of managers.

For accountability.

Budgeting process:

Budgeting is a collective process in which operating units prepare their plans in conformity with
corporate goals published by top management.

Each unit plan is intended to contribute to the achievement of the corporate goals.

Unit managers prepare projections of sales, operating costs, overhead costs, and capital requirements.
They calculate operating profits and returns on the investment they intend to use.

The budget itself is the projection of these values for the next calendar or fiscal year.

In this process, each unit presents its plans and budget to a reviewing upper management panel and
may, thereafter, make whatever changes result from instructions or negotiations with the higher level.

Texts presenting, documenting, and defending the rationales underlying the numbers are usually part of
the planning document.

Approved budgets then become the road¬map for operations in the coming year. Ideally monthly or
quarterly budget reviews track performance against the budget.

As part of such reviews, changes to the budget may be approved. At the end of year managers are
judged by their performance against the budget.