Flexible Budgets & Variance Analysis I

Master Budget

A comprehensive financial plan that includes all aspects of a company’s operations for a specific period.

Sales Budget

The initial budget that dictates production needs based on sales forecasts.

Production Budget

Determines the production quantity required based on sales projections and inventory levels.

Direct Manufacturing Labor Budget

Calculates labor costs needed for planned production.

Cost of Goods Sold (COGS)

Calculates the direct costs attributable to the production of goods sold.

Non-manufacturing Budgets

Budgets that account for other operational costs not directly tied to production.

Operating Income

The profit realized from normal business operations.

Capital and Cash Flow Budgets

Budgets designed to project cash needs and investments.

Pro forma Financial Statements

Forecasted financial statements that project future financial performance.

Production Formula

Production = Sales + Ending Inventory - Opening Inventory.

Production Needs Formula

Total Requirement = Sales + Ending Inventory; then, Production Needs = Total Requirement - Opening Inventory.

Labor Costs

Estimates of labor expenses based on budgeted production while accounting for varying labor hours.

Ending Inventory Calculation

Determines the required ending inventory levels using future sales expectations.

Adjust for Inventory Movement

Ensure to calculate inventory movement accurately to avoid shortages or overproduction.

Identify Sales Forecasts

Examine the sales budget to gather projected sales figures for each month.