budgeting at organization

1. BUDGETING
(PROFIT PLANNING)

2. BUDGETING(PROFIT PLANNING)
• INTRODUCTION:
A budget is a detailed plan for the future that is usually
expressed in formal quantitative terms. Budget is used two distinct
purpose Planning and Control.
• Master Budget:
The Master Budget consist of a number of separate but independent
budgets that formally layout the company’s sale production and
financial goals. The master budget culminates in a cash budget, a
budgeted income statement and a budgeted balance sheet.
• Company Selected for Budgeting project:
• Wahid Industries (PAK FAN) is a Limited medium sized Electric Fan
manufacturing company in Pakistan. Wahid industries Ltd situated
near G.T.Road Gujrat.

3. PRODUCT
I select the Pedestal Fan 24 inch Deluxe Model
Export Quality for Budgeting year 1st
July 2015 to
30th
June 2016.
• Pedestal Fans with oscillation system.
• Totally concealed, complete with guard & blades.
• 1750mm flexible 3 core wire with 3 pin plug.
• Superb finish & workmanship
• Available in light blue, light green, grey, ivory and
stone colors.

4. PROVISION OF BUDGETING STRATEGY
• Based on the seasonal nature of the fan industry Raw material and finished
goods inventories are maintained accordingly.
• Labor hours are the limiting factor of the budget.
• Budget is based on standard costing and to make things simple effect of
inflation and discount rate has been ignored. It also based on present value of
money.
• Budget is based on only one segment of the company i.e. Pedestal Fan section,
among various other segments such as Ceiling Fan, Plastic Fan, Washing
Machine etc.
• Accordingly, Equity and Assets of the company have been apportioned among
various segments.
• Raw material imports i.e. steel sheet, Enameled copper wire, Clad wire, Ball
Bearings used and imported based on the international economic indicators
e.g. LME rate, Dollar Exchange rate and Fuel Prices to gain benefit due to
reduce prices.
• Whereas local purchases are also managed to reduce any stock out cost that
may have incurred due to shortage of stock in season.

5. SALES BUDGET
Sales Budget Q1 Q2 Q3 Q4 Total
Sales in Units 15,000 10,000 25,000 25,000 75,000
Average Selling Price 3,500 3,500 3,500 3,500 3,500
Total sales revenue 52,500,000 35,000,000 87,500,000 87,500,000 262,500,000

6. Expected Cash Collections
Cash Receipt Q1 Q2 Q3 Q4 Total
A/Receivables
Beg 50,000,000
- -
- 50,000,000
First quarter
sales 21,000,000 15,750,000 15,750,000 52,500,000
Second
quarter sales
-
14,000,000 10,500,00010,500,000 35,000,000
Third quarter
sales
- -
35,000,00026,250,000 61,250,000
Fourth quarter
sales
- - -
35,000,000 35,000,000
Total Cash
Collections 71,000,000 29,750,000 61,250,00071,750,000 233,750,000

7. Expected Cash Collections
Working:
Cash Collections from last
year's fourth quarter sales
Rs.50,000,000.
Company's strategy is to
collect 40 % of sales in the
1st quarter 30 % of
collected
in the 2nd quarter and
remaining 30 % in third
quarter.

8. Production budget
Production Budget in Fans
Q1 Q2 Q3 Q4 Total
Budgeted Sales in units (fans) 15,000 10,000 25,000 25,000 75,000
Add: Desired Ending Inentory- FG 2,500 6,250 6,250 3,750 3,750
Total Needs 17,500 16,250 31,250 28,750 78,750
Less Beginning Inventory- FG 3,350 2,500 6,250 6,250 3,350
Required production 14,150 13,750 25,000 22,500 75,400
Working:
Beginning inventory 3350 fans in 1st July 2014
Budgeted sales in year 2015 assumed Ending
inventory 15000 fans= 15000*25%.
Ending inventory 25 % of next quarter sales.
Q1 Q2 Q3 Q4
10000*25% 25000*25% 25000*25% 15000*25%

9. Material Budget
Direct Materials Purchases Q1 Q2 Q3 Q4 Total
Required production 14,150 13,750 25,000 22,500 75,400
Total Raw material purchase cost all 41,246,563 45,154,688 72,028,125 62,148,938 220,578,314
Working:
Ending inventory 15% of next quarter.
Opening inventory is based on 1st quarter
material requirement.

10. Material Budget
02/25/16
GRAND TOTAL 41,246,563 45,154,688 72,028,125 62,148,938 220,578,313
Cash Disbursement for Materials Purchases
Budget Q1 Q2 Q3 Q4 Total
Accounts Payable, Beg Bal 2,357,890 - - - 2,357,890
First quarter purchase 32,997,250 8,249,313 - - 41,246,563
Second quarter purchase - 36,123,750 9,030,938 - 45,154,688
Third quarter purchase - - 57,622,500 14,405,625 72,028,125
Fourth quarter purchase - - - 49,719,150 49,719,150
Total 35,355,140 44,373,063 66,653,438 64,124,775 210,506,416
Working:
Cash Disbursement from last year's fourth quarter
Purchase Rs.2357890.
Company's strategy last year is to paid 80 % of
purchase in the 1st quarter
and paid 20 % in 2nd quarter.
Q1 Q2 Q3 Q4
41246563*80% 41246563*20%
45154688*80% 45154688*20%
72028125*80% 72028125*20%
62148938*80%

11. Direct Labor Budget
Direct Labor Budget Q1 Q2 Q3 Q4 Total
Units to be produced 14,150 13,750 25,000 22,500 75,400
DL hours needed per unit 15 15 15 15 15
DL hours needed 212,250 206,250 375,000 337,500 1,131,000
Cost per hour - Rs. 10 10 10 10 10
Total budgeted DL 2,122,500 2,062,500 3,750,000 3,375,000 11,310,000
Working:
Labour take time 15 hrs. to complete
one pedestal fan.
One hr. rate cost Rs.10.

12. Manufacturing Overhead Budget
Overhead Budget Q1 Q2 Q3 Q4 Total
DL hours needed 212,250 206,250 375,000 337,500 1,131,000
Variable overhead rate /hour 2 2 2 2 2
Budgeted variable overhead 424,500 412,500 750,000 675,000 2,262,000
Budgeted fixed overhead 400,000 400,000 400,000 400,000 400,000
Total overhead 824,500 812,500 1,150,000 1,075,000 3,862,000
Less Depreciation 200,000 200,000 200,000 200,000 800,000
Cash disbursement for FOH 624,500 612,500 950,000 875,000 3,062,000
Working: Rs.
Total manufacturing Overhead a 3862000
Budgeted Direct Labour hrs. b 1131000
Predetermined Overhead rate (a/b) 3

13. Selling and Admn. Exp Budget
Selling and Administrative Expense
Budget Q1 Q2 Q3 Q4 Total
Units sold 15,000 10,000 25,000 25,000 75,000
Var S&A rate 0.75 0.75 0.75 0.75 0.75
Budgeted variable S&A 11,250 7,500 18,750 18,750 56,250
Budgted fixed S&A 1,740,000 1,740,000 1,740,000 1,740,000 6,960,000
Total S&A 1,751,250 1,747,500 1,758,750 1,758,750 7,016,250
Less Depreciation 50,000 50,000 50,000 50,000 200,000
Cash disbursement for S&A 1,701,250 1,697,500 1,708,750 1,708,750 6,816,250

14. Cash Budget
Cash Budget Q1 Q2 Q3 Q4 Total
Beg Bal. Cash 2,000,000 32,884,110 13,699,047 1,661,859 2,000,000
Cash Receipts 71,000,000 29,750,000 61,250,000 71,750,000 233,750,000
Cash Available 73,000,000 62,634,110 74,949,047 73,411,859 235,750,000
Cash disbursements
Materials 35,355,140 44,373,063 66,653,438 64,124,775 210,506,415
Labor 2,122,500 2,062,500 3,750,000 3,375,000 11,310,000
Overhead 624,500 612,500 950,000 875,000 3,062,000
S&A 1,701,250 1,697,500 1,708,750 1,708,750 6,816,250
Dividends 187,500 187,500 187,500 187,500 750,000
Purchase equip 125,000 2,000 37,500 36,500 201,000
Total disbursements 40,115,890 48,935,063 73,287,188 70,307,525 232,645,665
Ending cash balance/ex.sh 32,884,110 13,699,047 1,661,859 3,104,334 3,104,335
Repay - - - -
Interest - - - -
Borrowing - FAPC II - - - - -
Cash at end of period 32,884,110 13,699,047 1,661,859 3,104,334 3,104,335

15. Ending Finished Good Inventory
Ending F.G. Inv Budget Quantity Cost per Unit Total
Production Cost per Fan
Direct Material 3750 2925 10968750
Direct Labour 3750 150 562500
Manufacturing Overheads 3750 51 191250
Ending Finished Goods Inventory 3750 3126 11722500
Working Working
MATERIALS PRICES DIRECT LABOUR PRICES
BLADE 225 HOURS RATE 10
GUARD 500 TOTAL HOURS 15
MOTOR 1200 150
BASE 400 Working
ROD 200 TOTAL OVERHEADS 3862000
PAINT & OTHERS 400 D.L HRS. NEEDED 1131000
= 3.4147
2925 T.HR*RATE 15*3.4 51

16. Budgeted Income Statement
Budgeted income statement
Sales (75000*3500) 262,500,000
less COGS 234,450,000
Gross margin 28,050,000
Selling and admin 7,016,250
Interest expense -
Net income before tax 21,033,750
WORKING CGS
Required Prod*per unit 235700400
75400*3126
Add: Opening FG Inventory 10472100
3350*3126
246172500
Less: Ending FG Inventory 11722500
3750*3126
CGS 234450000

17. Budgeted Balance Sheet
Budgeted Balance sheet
Cash 3,104,335
Accounts Receivable 35,000,000
Inventory: raw materials 6,208,313
Inventory: Finished Goods 11,722,500
Land 800,000
Building and Equip 30,201,826
Accum. Deprec. - 24,000,000
Total Assets 63,036,974
Acct Payable 12,429,788
Capital stock 500,000
Retained Earnings 50,107,186
Total Liabilities and Stockholders 63,036,974

18. Thank you