Question

What are the components of the operating Budgets? How are the operating budgets, cash budget, and budgeted balance sheet interrelated?

Answer 1

OPERATING BUDGET consists of forcasted income statement which is mainly supported by schedules:

* SALES BUDGET : Many business ownere use sales forcasting technique. they use sales figure from sales field to get knowledge of what sales will take place in future periods. and these all sales figures put together to aggregate sales forcast.

* PRODUCTION BUDGET : After developing sales budget, the next step is to develop production budget, this budget tells the owner that how many units are required to be produced to meet sales need.

* DIRECT MATERIAL PURCHASE BUDGET : It deals with raw material that firm needs for production process. it is actually a part of production budget. it states the amount and cost of raw material required for production.

* DIRECT LABOUR BUDGET : This budget determined the relationship between labour and output. it tells us how many labour hours are required for production.

* OVERHEAD BUDGET : This budget deals with everything left over from the production. Mainly overhead budget drives from labour budget. the cost which vary with direct labour hours are variable and rest cost is fixed.

* COST OF GOODS SOLD BUDGET : If owners have finished goods inventory in the begining than they need to make this budget using information from direct material purchase budget, overhead budget and direct lbour budget.

* BUDGETED INCOME STATEMENT : After making all the above budgets, you will get the information from ehich you will make income statement. and this income statement helps to know the operating income of the firm.

operating budgets, cash budget, and budgeted balance sheet interrelated because they together make master budget. Master budget is a set of interrelated budgtes like cash budget and all operating budgets that constitute a plan of action for a particular period of time. Master budget mainly consist of 2 classes: operating and financial budgets. hence they all are interrealted