Comprehensive Guide to Operating and Financial Budgets in Business

Operating Budget

The plan of operations where the details of sales production and expenses are laid out, taking the form of a budgeted income statement showing the operating results of a company in the coming year.

Sales Budget

The designed revenue that a company is anticipated to generate based on the forecasted sales volume.

Production Budget

Identifies the number of units to be produced after the sales budget has been established and the ending inventory has been set.

Ending Inventory Budget

Specifies the number of units that a company desires to have in their balance sheet at the end of the period.

Direct Materials Budget

Shows the quantity of materials required to meet the production units and the number of units that must be purchased.

Direct Labor Budget

Provides the total cost of labor to meet the production requirements.

Factory Overhead Budget

A schedule of all manufacturing costs other than direct material and direct labor.

Selling and Administrative Budget

Shows the details of the sales and administrative expenses in selling the products of a company.

Pro Forma Income Statement

One of the major schedules in financial planning which shows the projected income of a company.

Financial Budget

Shows the budgeted financial resources of a company and is prepared right after the operating budget.

Cash Budget

Prepared to determine the financial needs of a company, showing the detailed lists of all cash receipts and disbursements for a particular period.

Pro Forma Balance Sheet

Presents the forecasted components of the balance sheet at a future date, starting from the actual balance sheet of the previous period.

Budget Preparation Steps

The budget preparation is done in a sequential manner, identifying items such as company's sales, production volume, materials' cost, materials purchased, direct labor cost, and factory overhead.

Company's Sales

The total revenue generated from the sale of goods or services by a company.

Production Volume

The total number of units that a company plans to produce in a given period.

Materials' Cost

The total cost incurred for materials used in production.

Materials Purchased

The quantity and cost of materials that a company acquires for production.

Direct Labor Cost

The total cost of labor directly involved in the production process.

Factory Overhead

All manufacturing costs that are not classified as direct materials or direct labor.