Budget Methodologies CMA Part 1 plan is a defined benefit plan. But either way, they will be variable. Usually medical, dental and vision insurance premiums are fixed. Life insurance premiums may be fixed or variable, depending upon the terms of the policy and whether the amount of coverage is fixed or based on the employees salary. Most companies do not try to project employee related costs exactly. Instead, they develop a factor which is a weighted average cost and apply that factor to the total budgeted salaries and wages for a given employee group to calculate the budgeted employee related costs for that group. Even though some components of employee related costs are fixed, enough of them are variable to make this a valid way to budget for them. However, to develop that factor, companies do need to do some analysis of historical employee-related costs as a percentage of salaries and wages. The company usually prepares several direct labor budgets, one for each type of labor used for production. Note: The company must also choose how the costs of employee benefits - both actual and budgeted - will be treated. They may be included in the cost of direct labor or treated as an overhead and allocated to the units produced. In some cases, these costs may be treated as a period cost. The method in which these costs are treated may have a small effect on cost of goods sold, income or inventory. Only in cases where direct labor is a large portion of the total expenses will this difference be significant. Cost of Goods Sold Budget After all of the production related budgets are completed, the company can produce the cost of goods sold budget, which is based on the calculation of cost of goods sold, as follows: + Expected Budgeted Purchases or Production = Expected Goods Available for Sale = Budgeted Cost of Goods Sold Other Budgets Other budgets that will need to be prepared in order to complete the budgeting process and to have all of the necessary information to prepare budgeted financial statements are: • Research and development (R&D) budget, • Selling and marketing budget, • Administrative and general expense budget, • Budgets for other expenses or sources of revenue, and • Capital budget. This is the budget for long-term capital expenditures, and any expenditures that are to be made in the budget year will need to be included in the budgeting process. Capital expenditures budgeted for the coming year will affect the budgeted balance sheet as increases in fixed assets and in accounts receivable, inventory and accounts payable; and they will affect the budgeted income statement as income expected from the new projects along with related expenses, including depreciation on the new equipment. Those that affect cash will, of course, also flow to the budgeted statement of cash flows. Note: Each of the individual budgets prepared for expenses will also most certainly be broken down into variable and fixed costs. This is significant because of the fact that fixed costs cannot be changed. Also, the variable costs (particularly for overhead and selling and administration) are needed to determine the contribution margin from the business unit. Beginning Inventory (this is a known quantity and not budgeted) Desired Ending Inventory
Posted on: Mon, 10 Mar 2014 13:50:45 +0000
Trending Topics
Recently Viewed Topics
© 2015