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Master budget in accounting (mian awais arif)
- 2. Budgeting is a process. This means budgeting
is a number of activities performed in order
to prepare a budget. A budget is a
quantitative plan used as a tool for deciding
which activities will be chosen for a future
time period.
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- 3. In a business, the budgeting for operations
will include the following:
- preparing estimates of future sales
- preparing estimates of future cash
collections and disbursements
- preparing estimates of the future day-to-
day activities of the organization
- summarizing these estimates into an
income statement and balance sheet
.
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- 4. The budgeted income statement and balance
sheet are also known as pro-forma financial
statements. Once prepared and approved, the
budgeted income statement and balance
sheet are used to control the future activities
of the business.
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- 5. A sales budget is a detailed schedule showing
the expected sales for the budget period;
typically, it is expressed in both dollars and
units of production. An accurate sales budget
is the key to the entire budgeting in some
way. If the sales budget is sloppily done then
the rest of the budgeting process is largely a
waste of time.
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- 6. The production budget is prepared after the
sales budget. The production budget lists the
number of units that must be produced
during each budget period to meet sales
needs and to provide for the desired ending
inventory.
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- 7. Production requirements for a period are
influenced by the desired level of ending
inventory. Inventories should be carefully
planned. Excessive inventories tie up funds
and create storage problems. Insufficient
inventories can lead to lost sales or crash
production efforts in the following period.
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- 8. Direct materials budget is prepared after
computing production requirements by
preparing a production budget.Direct
materials budget or materials budgeting
details the raw materials that must be
purchased to fulfill the production
requirements and to provide for adequate
inventories.
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- 9. The direct labor budget is developed from the
production budget. Direct labor requirements
must be computed so that the company will know
whether sufficient labor time is available to meet
the budgeted production needs. By knowing in
advance how much labor will be needed
throughout the budget year, the company can
develop plans to adjust the labor force as
situation requires. Companies that neglect to
budget run the risk of facing labor shortages or
having to hire and lay off workers at awkward
times. Erratic labor policies lead to insecurity and
inefficiency.
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- 10. The manufacturing overhead budget provides
a schedule for all costs of production other
than direct materials and direct labor.
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- 11. After preparing sales budget,production
budget,direct materials budget,direct labor
budget, and manufacturing overhead budget the
management has all the data needed to calculate
unit product cost. This calculation is needed for
two reasons: first, to determine cost of goods
sold on the budgeted income statement and
second, to know what amount to put on the
balance sheet inventory account for unsold units.
The carrying cost of unsold units is calculated on
the ending inventory finished goods budget.
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- 12. A budgeted income statement can be prepared
from the data developed in:
Sales budget
Ending finished goods inventory budget
Selling and administrative expense budget
Cash budget
The budgeted income statement is one of the key
schedules in the budget process.
It shows the company's planned profit for the
upcoming budget period, and it stands as a
benchmark against which subsequent company
performance can be measured.
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