BUDGETING

Budgeting

Budgeting

Introduction

This report is divided into two parts, the first part talks about the whole budgeting process and calculation for Ballarat Furniture Company. This part is further divided into five sections which include sales budget, production budget, direct material usage budget, direct labour budget and the overall budgeted income statement for Ballarat Furniture Company for the year 2013.

Part 1

The data for calculation of various budgets is provided below. This includes the cost structure and Sales forecast for the Ballarat Furniture Company.

Product specification for each table for 2013

Direct Materials Particle Board (PB)

9 board feet (bf)per table

 

Red Oak (RO)

10 board feet (bf) per table

 

 

 

 

Direct Manufacturing Labour

 

 

Laminating labour

0.25 hours per table

 

Machining labour

3.75 hours per table

 

 

 

 

Inventory information for 2013

Beginning Inventory

Target Ending Inventory

PB

20,000 bf

18,000bf

RO

25,000 bf

22,000 bf

 

 

 

Finished goods - tables (units)

5,000

3,000

Sales forecast for 2013

Sales volume

52,000 tables

 

Sales price

$392 per table

 

 

 

 

Cost information:

2012

2013

PB per board feet

$3.90

$4.00

RO per board feet

$5.80

$6.00

Laminating labour per hour

$24.00

$25.00

Machining labour per hour

$29.00

$30.00

 

 

 

Variable manufacturing overhead costs

 

$1,900,000

Fixed manufacturing overhead costs

 

$1,600,000

Manufacturing overhead application base

 

Expected Direct Labour hours

Inventoriable (manufacturing) cost per table

$275

 

Sales Budget

The sales budget involves estimating future levels of revenues and selling expenses and, consequently, the contributions of utilities that makes the sales function. The result of budgeting sales seen in two documents: the sales budget and sales expense budget. The first begins with the sales forecast, which projected future sales volumes then prepare profit objectives. The sales expense budget shows the costs necessary to achieve the objectives of utilities. Through the budget, administration, sales and profits can equate costs against the hierarchy of the objectives of the firm. A sales budget is expressed in financial terms, so that it can be called "financial plan" or "flow financial statement of income and expenses." The sales budget is related to cost reduction and increased efficiency in sales. The sales budget of Ballarat Furniture Company is as follows:

Sales Budget

Budgeted number of Tables

52,000

Budgeted price per Table

$ 392

Total Sales

$ 20,384,000

Production Budget

Production involves a set of activities to create a series of products and services. This process takes place through the transformation of raw materials into finished products. Production Budget is an estimate that is closely related to the budget and sales desired inventory levels. Actually the production budget is the budget and projected sales adjusted for inventory change, first to determine if the company can produce the amounts projected by the budget sales, in order to avoid an excessive cost in labour occupied. The production budget is estimated in both volume and costs production units that we will pursue during a given year. The three major components for calculation production budget require estimated sales and inventories of finished goods.

Estimated sales are the estimate or forecast sales of a product, good or service for a specified future period, are indicators of realities economic enterprise. It determines the amount that can be sold based on reality, and Sales plan that reality allows hypothetical materialization, leading the rest operational plans of the ...