Question

Research, define, describe, and explain the above-mentioned (Minimum 250 words answer for each questions)

What is an operating budget?

Answer 1

An operating budget is prepared prior to the reporting period as a goal that the business wants to achieve. Operating budget consists of all revenues and expenses over a period of time(usually an year) which an entity uses to plan its operations.

It consists of:

Revenues: Revenues will be arrived at no of units/products sold × selling price. It is possible to forecast revenue on year to year basis.

Variable costs: Varaiable costs depends on revenue and calculated as a percentage of sales.

Examples: Raw materials, labour, electricity.

Fixed costs: These costs are fixed in nature irrespective of the level of production.

Examples: Rent, depreciation.

Non-cash expenses: Budget includes non-cash expenses such as depreciation and amortization. These expenses don't impact cash flow but will impact financial reporting.

Non-operating expenses: These are expenses incurred by an organization that does not relate to its main activity.

Example: Rent and taxes.