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Factors to Consider when Preparing a Budget (Cash Budget (outflows…
Factors to Consider when Preparing a Budget
Production Cost Budget
an operational budget contained in the master budget of a business
it includes only the variable costs of production, usually Labour, Materials, and Variable Production Overheads
only the costs for producing the units are included in this budget
factors to consider
direct material/labour costs
all indirect costs
expected shortages of raw materials
expected labour shortages
anticipated machinery idle time
possible lack of storage
Cash Budget
a cash flow forecasts an estimate of future figures based on experience
in a business, you can forecast future Revenue figures, or the likely cash flow into and out of a business
a business often prepares a cash flow forecast showing the money likely to flow into and out of its bank account in a given period
inflows
revenue of products
capital from owners
bank loans
grants
outflows
payments to suppliers
rent and rates
wages and salaries
power
advertising
buying fixed assets
it is important to plan cash flowing into and out of the business at the correct time to make sure that money is available for any expenses
if it looks like there will be a negative bank balance the business may want to arrange short term finance like a load or overdraft
if there are large surpluses in the bank the company may wish to invest this extra cash rather than leave it in the business bank account
factors to consider
cash and timing of credit sales receipts
cash and timing of credit supplier payments
other revenue payments - overheads
timing of capital payments
anticipated overspending
deficits and the need to borrow