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

Assumption :- we are preparing a budget for an organisation.

Steps involved in preparation of a budget of an organisation :-

1. Update budget assumptions :- review the assumptions about the company's business environment that were used as the basis for last budget and update as necessary.

Example :- assumption that cost of raw material is lesser in previous budget due to increase in inflation rate the cost of raw material may increase in this year so that assumption has to be revised and updated.

2. Review bottlenecks :- review the capacity of the primary bottleneck that is constraining the company from generating further sales and define how it affects on the company's revenue growth in future.

Example :- any entrance of strong competitor into the same industry in which our organisation is operating. That entrance of competitor may reduce our sales and turnover in this year. According to this budget has to be prepared.

3. Available fundings :- determine all the available funds which can be used for the the operations in the next year.

Example :- estimate all the sources of finance to the organisation which is useful for continuing operations in the future.

4. Step costing points :- determine whether any cost will be incurred during the likely range of business activity in upcoming budget period and define the amount of these cost and at what activity levels this will be incurred.

Example :- there are some cost which having the nature of step fixed cost. discourse are not completely fixed cost and not completely variable cost there are in nature of semi variable cost we need to estimate its behaviour in the future budget period.

5. Creating budget package :- taking the instructions given in the preparation of previous budget. Insert new instructions which are required in the future budget and create a estimated budget package.

6. Issue budget package :- issue the created budget package and receive any necessary corrections from the other staff in the organisation.

7. Obtain revenue forecast, departmental budgets, capital requisition budget from all the other staff and all the departments.

8. Update all the budget model :- the following all the above previous steps we gathered all the required information regarding of revenues and cost incurred in the next budget period.

9. Process the budget and issue the budget

10. After issuing while the budget is in implementation phase a continuous review of budget is to be happened for making any necessary corrections and updations to the budget.

These are all the the steps involved in preparation of a budget of an organisation.

These are all the information required to solve the above given question.

I hope, all the above mentioned information and explanations are useful and helpful to you.

Thank you.