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Title of paper Budgets and Management
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Introduction
An
operating budget is an annual budget of activity in the company. The budget is
explained in relation to budget classification code, cost accounts as well as
functions or sub functional types. An operational budget demonstrates the full
value of resources required to have different functions in the company.
Additionally, an operation budget has got workloads explained as per work units
identified by the cost accounts. Companies split their budgets into 2. That is
operating budget as well as capital budget. The primary purpose of any company
is to remain in business by making profit as well as reducing the sum of money
it spends in production of services and goods. An operating budget is a plan
which companies prepare to make sure they accomplish their objectives. The
operating budget demonstrates the income as well as expenditures an
organization will incur so as to earn money in a given interval.
Main issue
The
significance of operating budget in control over companies is an issue because
folks have different viewpoints regarding operating budgets as well as
administration. Some people think that budgets including operating budgets are
ineffective ways of controlling companies. It is because budgets impact the
administration of the company. Administrators simply depend on budget to make
decisions about the organization rather than various other ways for example
predictions. Other folks think that budgets are necessary in controlling
companies because they assist administrators perform their managerial
functions. The budgets assist in scheduling, control and so on. As a
consequence, various ways have been developed to assist administrators in
controlling organization for example scorecards as well as forecasts.
Forecasts
and budgets are variable and let organizations to survive in a competitive
atmosphere because administrators make decision as well as develop methods depending
on the existing market situations (Drury, 1992).
Operating Budget and Management
I
have picked up different things regarding operating budgets as well as
management. I have found out about the significance of operating budgets in
correcting administrators in the company, components of a financial budget as
well as development of budgets. I have also found out about the present as well
as future use of budgets in the office. An operating budget performs an
important role in controlling a company. Budgets including operating budgets
assist in scheduling in the company when they are geared up properly. The
budgets find out the organizational objectives as well as performance goals.
The objectives as well as goals are mentioned in fiscal terminology. Operating
budgets control administrators in different ways. First, operating budgets
determine problems in the company as well as force the administrators to
coordinate efforts to organize in advance in order to attain the organizational
objectives (Drury, 1992).
The
best way, to stay effective as well as successful in the market a company must
set objectives. For example, the company specifies the product it must
manufacture in order to make profit. After establishing the objectives, the
administrators must execute the plan formulated. The operating budget functions
as the plan which companies are expected to execute.
The
operating budget compels the administrators to think seriously regarding the
organization's operations as well as pin point hurdles which the company might
face down the road. Businesses which do not have an operating budget are unable
to set objectives, organize as well as accomplish their objectives. It is
because they are not capable to operationalize their plans. Second, an operating
budget lets administrators to arrive at their desired destination in the most
effective way (Bozat, Korubuk, Onar, &
Abbasoglu, 2014).
The
operating budget contains a lot of sub budgets which administrators follow to
achieve the organizational objectives set. Third, the operating budget as well
as the sub budgets let administrators to make moral decisions because they
offer enough info about the company. The operating budgets offer detailed
information regarding sales, production, labor, material as well as
expenditures. The administrators use the info to make decisions about the
organization operations, profitability as well as expenditures. Additionally,
the info is used in strategic planning and creation of different ways to
increase the efficiency of the company as well as profitability (Drury, 1992).
Budgets
may be used to determine if the administration is accountable or otherwise. In
this situation, a person assesses the capability of the administrator to manage
the organizational resources in order to achieve the objectives set. The budget
outcomes are compared to the program prepared by the administrators to decide
whether the company is performing well or not. Administrators are capable to
take notice of the difference observed after comparing the difference between
his real value as well as allocated value. The variable may be positive or
negative. An unfavorable value demonstrates that the company is not doing
nicely and the other way around. A big difference can demonstrate bad budgeting
skills or doubtful economic situations rather than the administrators being
accountable.
An
operating budget contains various elements. The elements contain sales budget,
production budget, material, as well as labor and expense budget. The sub
budgets offer important info about sales as well as expenses in the company.
The sales budget demonstrates the units sold as well as the cost of each unit.
The administrators must agree on the sales budget because it impacts decision
making as well as preparing of other sub budgets. The sub budgets are prepared
using sales budget data. Administrators find it hard to decide on the units
sold as well as price tag although the elements of the sales budget are easy.
Making a sales budget is difficult as well as time consuming because different
people in the company may not decide on sales units and expense. The company
can make sale budgets by the end of the year, month or quarterly.
Administrators
are expected to prepare the production budget prior to preparing the direct material,
labor and production budget. The manufacturing budget demonstrates the total
items which must be manufactured. The administrators must be conscious of
different things so as to make the production budget. They must be aware of
units they must sell and the volume of stock required each year. Additionally,
they must be aware of items in the opening stock. The administrators must have
the same information when they are making quarterly budget. The production
budget increases production in the company and thus sales. Companies that make
production budgets can meet customer requirements. The companies are capable to
know what clients require and after that manufacture it. Moreover, the
companies reduce manufacturing expenses to enhance profit.
Additionally,
the direct material budget assists in the control over the company since it
decides the total units of raw materials which are expected to be purchased.
The direct material budget is made after making the production budget because
it uses the items produced from the production budget. Additionally, the direct
material budget uses info about the quantity in the opening inventory. As soon
as the quantity of items to be purchased is decided, it is multiplied by the
cost of each unit to find the raw material to be purchased. Labor is essential
in manufacturing of services and goods. Companies require human resource in
order to remain productive and successful. The direct labor budget relates to
the quantity of direct labor hours and the cost or the cost of direct labor.
The labor required to produce items is different from one product to another.
Some items may take too much time and labor to manufacture and thus very high
cost of labor and the other way around.
Additionally,
administrators make the production overhead budget as part of the operating
budget. The production overhead budget says the predicted variable head
expenses and fixed overhead costs for each interval which the organization is
budgeting. Companies are expected to split fixed expenses and variable expenses
while preparing the production overhead budget. Additionally, organizations
determine typical expenditures as well as administrative expenditures and make
a budget. A common and administrative expenditures budget demonstrates the
variable operating expenditures and fixed operating expenditures for the
administrative and general departments in the company. The fixed expenditures
consist of wages, rent, and office supplies among others.
The
fixed expenditures depend on the company because some companies might not have
variable administrative expenditures. For that reason, administrators must be
cautious while identifying the fixed and variable expenditures to make sure
they contain all of the related expenditure while preparing the budget. Finally,
an operating budget has got budget demonstrating the selling expenditures. The
budget has info about variable selling expenditures and fixed selling
expenditures. The variable expenditures depend on the sale dollars.
Construction of Operating Budgets
Budgets
which are properly made provide correct information which can be used to make
managerial decisions. Administrators must have in mind the different parts of
the budget while making financial budgets. They must be experienced with the
parts of the operating budget when making operating budgets which include
sales, operating income as well as cost of items sold. They must also be
familiar with the present market rates. They must also establish the link
between the operating, fiscal and capital expenditure budget while making a
budget (Atkinson, & Mourato, 2006).
Budgets
are expected to be customized to the requirements of the company in order to
get the greatest results. A master budget contains various budgets which are
linked and sum up the activities in the company. The preparation of a budget
starts with the sales budget (Drury, 1992).
Administrators
are expected to make the sales budget in advance of preparing other budgets and
convey the units they are ready to sell. The administrators use the info
provided in the sales budget to decide the units they must manufacture. The
administrators make a sales prediction prior to making the sales budget. All
administrators in the company must join hands to make the sales prediction
because their feedback is essential. The sales administrators provide
information and facts regarding the product. The next measure after making the
sales budget is computing the expected income from the units mentioned and the
price for each unit. After that the administrators make the closing stock
budget by informing the dollar value of the end product stock and closing
material. The end stock budget is used to make a budgeted fiscal report because
stocks contain present assets (Layard, 1994).
The
administrators make the production budget as well as direct material budget
following the inventory budget. The production budget is made using info
provided in the sales budget and the material budget if made using info in the
production budget. The direct labor budget as well as production overhead
budget is made soon after the production and material budget. Other budgets
which are made are cost of goods, income report and administrative expenditure
budgets. The administrators must know the link between the various budgets so
as to incorporate accurate info and carry out the required computations (Atkinson, & Mourato, 2006).
Activities that facilitated understanding of the topic
There
are many activities which helped knowledge of budgets and operating budgets.
The use of case studies as well as simulations assisted to understand budgets
and the part of operating budgets in correcting administrators in the company.
The teacher used case studies on budgeting as well as administration to assist
the students know the subject. Additionally, the teacher used simulations to
allow students to know the subject. The students were needed to make budgets
and use info provided in the budget to prepare managerial decisions. Additionally,
using demonstrative examples while teaching helped comprehension of the
subject. The teacher used instances to demonstrate the principles being taught.
For example, he used instances to teach making of the budget and use of the
budget in administration (Atkinson, &
Mourato, 2006).
Current and future application of budgets in the organization
Although
folks have got different points of views regarding budgets and administration,
budgets particularly operating budgets are essential in controlling companies
these days as well as in the long run. Budgets assist administrators in
performing their managerial works which include managing, planning, guiding
among others (Layard, 1994). The supervisors develop
programs to increase the efficiency of the company and output. The programs
made are carried out by staffing, guiding as well as controlling workers. The
administrators manage operations and develop proper ways to compare the real
values and projected values. Budgets will make sure administrators are
accountable because they will be needed to meet the goal and objectives defined
in the program developed. Budgets are used to assess the accountability as well
as efficiency of administrators in the company by deciding that they are using
the organization resources. Budgets will be used in long term to control
companies although they are not flexible since they provide info on sales and
cost (Emmanuel, Otley, & Merchant,1990).
Conclusion
To
conclude, administrators use various methods to control companies.
Administrators use budgets as well as predictions to regulate companies. Some
people declare that budgets are ineffective in running companies like
predictions and balanced score cards because they are not flexible. Budgets are
not flexible since they provide fixed info. Administrators use the info
provided in the different kinds of budgets to make decisions and run it. The
info provided is not subject to modification because the administrators are not
able to modify the info according to market situations. This impacts decision
making because the administrators make immoral decisions. Predictions are
effective in controlling because administrators make decisions based on market
situations. But, budgets are essential in correcting administrators as they
direct them in their day to day jobs. Administrators make sure they meet the
objectives and goals mentioned in the budget. They make sure administrators are
accountable and use the means available to achieve the organizational
objectives. For that reason, administrators will continue to use budgets to run
the company in spite of the criticism.
References:
Atkinson, G., & Mourato, S. (2006). Cost-benefit analysis and the
environment: recent developments.
Bozat, E., Korubuk, G., Onar, P., & Abbasoglu, O. (2014).
Cost Analysis of Premixed Multichamber Bags Versus Compounded Parenteral
Nutrition: Breakeven Point. Hospital
Pharmacy, 49(2),
170-176.
Drury, C. (1992). Cost-volume-profit analysis. In Management and Cost Accounting (pp. 205-235). Springer US.
Emmanuel, C., Otley, D., & Merchant, K. (1990). Accounting for management control (pp. 357-384). Springer US.
Layard, P. R. G. (1994). Cost-benefit
analysis. R. Layard, & S. Glaister (Eds.). Cambridge University Press.
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