Budget as an Operating Plan

Introduction All managements make plans. A group of people not operating under some sort of plan is incoherent, directionless and not an organization. In any organization such as a company operating a business, the leaders (the managers), give much thought to what the objectives should be and the best way of reaching them. Although all … Read more

Discretionary Budget

Definition A discretionary budget is an unspecified lump sum which states what it is for, what the maximum sum overall is to be and possibly specifies also a maximum sum per item. Discretionary budgeting is useful in situations where expenditure for each item is of small value. The administrative cost of dealing with each item … Read more

Revenue and Cash Budgets

Definition Revenue budgets are primarily concerned with Sales Income or income generated in other ways. Revenue needs to be scheduled as to when it is expected to come in and how it is to be allocated. This is part of the function of the Cash Budget. Explanation The operating budget is prepared in terms of … Read more

Manpower Budget

Definition Manpower is the most expensive and complex resource in any business. In a responsibility accounting system, each cost centre manager will specify the people resources available and required to carry out this section of the operation and to prepare the manpower budget. Explanation Employment costs need careful consideration. These are affected by internal factors … Read more

Project Budget

Project Budget Definition and Explanation Projects are long term and may stretch over several annual budget periods. The term ‘project’ is used to indicate, for example, the construction of a building rather than a one-off major purchase, normally covered in the capital budget. The long-term project budget has many difficulties, among the cost escalation and … Read more

Operating Budget

Parts of Operating Budget The operating budget has two parts: a ‘program’ budget and a ‘responsibility’ budget. Both arrive at the same figure for projected net income and return on investment. i. The Program Budget This describes the major programs that the company plans to undertake. This budget is arranged by product line and shows … Read more

Profit Planning

Definition of Profit Planning Profit planning aims to set a profit objective for a budgeting period. Also, it seeks to establish the main policy decisions regarding how to achieve the objectives. The profit objective will normally be related to the return required on the investment in the business. In profit planning, alternatives are evaluated to … Read more

Performance Budgeting (PB)

Performance budgeting involves the development of refined management tools (such as work measurement performance) so as to achieve the specific goals of the business over a period of time. The emphasis in performance budgeting is on the improvement of internal management, keeping in view the volume of work and its cost, that has to be … Read more

Zero-Based Budgeting (ZBB)

What Is Zero-Based Budgeting? – Definition In the Zero-based budgeting approach, all organizational activities are initially set to zero. Zero-based Budgeting is the newest approach to Budgetary Planning and Control. It was successfully developed and implemented in the seventies by Peter A. Phyrr. The approach became further popular when President Jimmy Carter, in 1979, required its use … Read more

Implementation of Budget

The implementation of budget is the responsibility of the budget director. The success of the entire exercise of budgeting depends on two important factors. First, proper and clear communication to all key people involved in the implementation of the budget. They should clearly know what is expected of them and how to achieve the goals. … Read more