Question

Assume that you are preparing a budget for your department or organization. Outline the steps you would take to prepare the budget, providing specific examples for each step.

Answer 1

We'll consider the following as an example to prepare the budget:

Now What is Budgeting? Budgeting is a method we opt to forecast the company's expenditure or revenues with the assumptions suitable for the next projection. Revenues and Expenditure is mainly seen in Income Statement of any firm, hence the above example has been set to explain. Budgeting helps the Management make and take the decisions and improve the profitability of the Business.

Steps Involved:

1.Prepare Budget for each component :

• Budgeted Revenue: We'll consider the past 10 year Revenue trend and it's growth, since we don't have information , we'll assume to increase the sales units by 5000 more.

Revenue for the Year 2018 = $1,500,000 ( =10,000*$150)

New Target for the Year 2019 would be 15,000. Then predicted revenue for the year 2019 is = 15,000 X $150 = 2,250,000

• Budgeted Salaries: Let's say we have increased the Salaries since we've increased the number of working employees since it was a profitable year and the branch is expanding.

Salaries may rise up by 14% as prediction.

New Salaries Cost could be calculated as =150000+150000*14%= 1,71,000

• Budgeted Insurance: Let us assume that no change has happened and predicted would be as much as the past year.
• Budgeted Depreciation: Let's assume that Depreciation Expense has doubled since the furniture has been increased and depreciation needs to be charged. We'll double the value by 30,000 to 60,000
• Other Operating Expenses: We'll assume that the operating expenses decreased by 10% as per the trend. We'll take off 10% from 1,00,000, we'd get 90,000.

2. Input the values into the New Income Statement to show the future forecast figues

We'd get the future forecast Budget as shown below: