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CIMA C1Fundamentals Of Management Accounting
Budgeting
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CIMA C1Fundamentals Of Management Accounting
Class Slides – Ian Wilson
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1. Explain w! a compan! will set out its plansfo" a #nancial !ea" in a $udget.
%. &"epa"e functional $udgets ' CapitalExpenditu"e()ep"eciation $udgets.
*. &"epa"e a Maste" Budget.
+. Explain Budget statements
,. Identif! Budget su"plus o" so"tfalls in caste"ms
-. &"epa"e a Flexi$le/ Budget
0. Calculate Budget a"iances
2. &"epa"e a "econciliation $etween Budget '
Actual "esults
Learning Aims (CIMA)
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We need to co3e" te following a"eas4
1. Budget p"epa"ation
%. Sales Budgets
*. Functional Budgets+. Cas Budgets
,. Income Statements
-. Balance Seets
0. Maste" Budgets
2. Flexed Budgets
Introduction
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Why do you as individuals Budget? Think aout a com!any " #hat do they
need to do$
Business planning at &epsi was 5 6e &lan isnoting7 $ut &lanning is e3e"!ting.8 &eople 9ust didn/t $udget at &epsi: te!
made commitments.
56e $udget sould $e a nume"icalexp"ession of te st"ategic plan.8 I "eall!lo3e tat: it sa!s so muc wit so fewwo"ds.
Why do #e Budget?
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A Budget% What is it?& a ;uantitati3e statement: fo" a de#ned
pe"iod of time: wic ma! include planned"e3enues: expenses: assets: lia$ilities andcas <ows fo" a fo"tcoming accountingpe"iod/.
A $udget =f"om old F"enc wo"d $ougette:
pu"se> is a #nancial plan and a list of allplanned expenses and "e3enues. It is a planfo" sa3ing: $o""owing and spending
Introduction
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Budgets are !re!ared to4
1. Set ' communicate ta"gets
%. Esta$lis a standa"d to wic actual
pe"fo"mance can $e compa"ed*. Co?o"dinate inte"(int"a functional acti3ities
Bot functional $udgets ' a maste" $udget
can $e p"epa"ed@emem$e" &4)(M4C
Introduction
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Ty!ical 'unctional udgets4
1. Sales Budget
%. Sales O3e"ead Budget
*. &"oduction Budget+. Mate"ials sage Budget
,. Mate"ials &u"case Budget
-. a$ou" Budget
unctional Budgets
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A MAS6E@/ B)E6 will include4
1. Income Statement
%. Cas Budget*. Balance Seet =Statement of Financial
&osition>
Budget const"uction is o3e"seen $! aB)E6 COMMI66EE wo often p"oduce aB)E6 MADA.
Master Budget
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Contains the 'ollo#ing4
1. O$9ecti3es $eind te Budget
%. ists of o"ganisational st"uctu"es: Ma9o"
Budgets ' Budget "esponsi$ilit!*. &"ocedu"es ' cont"ol
+. 6imeta$les
,. e! assumptions made
-. &"inciple Budget Facto"s =&BF/s>
The Budget Manual
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Functional $udgets p"epa"ed BEFO@E teMaste" Budget.
Man! Budget canges can $e expected anda"e made $efo"e a #nal 3e"sion is complete.
&"ocess $egins wit identif!ing te &BF =&"incipal Budget Facto">
6is is a imiting facto"/.
Sales: a$ou" Mate"ials ' Cas ma! all $e&BF/s.
Budget re!aration
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See pages 0- to 2 fo" Budget p"epa"ationp"actice ' examples.
Exe"cise 1 Sales Budgets Exe"cise % &lanning &"oduction Exe"cise * Mate"ial Deeds –sage '
&u"cases
Exe"cise + a$ou" Budgets
Budget re!aration
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6"u"o td
1. &"epa"e &"oduction Budget
%. &"epa"e )i"ect a$ou" Budget
*+ercise ,
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)ealing wit StocGs(In3ento"!4 Sales &S Closing StocG
ESS Opening StocG H &"oduction nits &"oduction &S Closing StocG ESS Opening StocG H Mate"ial sage
-olden .ules
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Mate"ial sage A)) Closing StocG ESS Opening StocG
H Mate"ials &u"cases ABO@ EFFICIEDC4 If EJcienc! is 2K: %K of ou"s is wasted 6o maGe p"oduct: input ou"s need to $e
enoug to maGe 1K of p"oduct.
More -olden .ules
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What is a Cash Budget?. @eco"ding of te cas impacts of te
functional $udgets and is used as aplanning tool to deal wit a cassu"plus(de#cit positions.
1. So"t te"m cas su"plus
%. So"t te"m cas de#cit
*. ong te"m cas su"plus+. ong te"m cas de#cit
Cash Budgets
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olden "ules4 Cas items onl! DO )E&@ECIA6IOD 6iming ? wen cas impacts
Exe"cise - L td Const"ucting a CasBudget
&"oduce a &"o?Fo"ma: tat is te $estapp"oac
Constructing a CashBudget
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Set up !ou" g"id: @ows ' Columns: Columnsfo" eac mont – anua"! to Ap"il.
ou need "ows fo" eac t!pe of "e3enue 'expense
)eal wit te eas!/ items #"st Macine – Cost N, in anua"! B6 &AI) ID
FEB@A@.
@ent N1 pe" mont: paid in AD ' A&@I @ates ? N1 pe" mont
*+ercise / 0 Ltd
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Sala"ies – % pa"ts to tis4 2K paid in mont '%K paid next mont as tis is o3e"time
ou need an 24% split ie N2 ' N% pe" mont 6e "emaining issue to te diJcult one: Sales. Sales a"e made eac mont of4
1. an ? N,
%. Fe$ ? N-
*. Ma" ? N+
+. Ap"il ? N,
*+ercise / 0 Ltd
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Eac mont: Sales @ECEI&6S in CASP a"epased in at4 -K afte" 1 mont: *K afte"% monts ' 1K afte" * monts.
ou a3e to p"oduce a model tat "e<ectstis position4
We also made Sales AS6 !ea"4 Some cas p"oceeds will fall into 6PIS !ea"
Wo"G tis t"oug also4 We can now BAADCE eac mont4
*+ercise / 0 Ltd
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6e MAS6E@ B)E6 is an additional ' 3italB)E6 p"epa"ed afte" te FDC6IODAB)E6S a"e Gnown
Fo" !ou" C1 exam: te maste" $udget willinclude4
1. Budgeted Income Statements =IS>
%. Budgeted Statement of Financial &osition
=SF&>
Master Budgets
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6is is a &"o#t ' oss Account Students ma! $e gi3en a pa"tiall!
completed Income Statement on sc"een andasGed to complete wit missing #gu"es.
&"o?Fo"ma on page 2*
Budgeted Incometatements
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A student ma! $e asGed to calculate Ge!$alance seet #gu"es.
6is could in3ol3e eite" updating a cu""ent$alance seet fo" a t"ading pe"iod o"d"afting a $alance seet fo" a new $usiness.
&"o?fo"ma on page 2+
Exe"cise 0 Budgeted Balance Seet
Budgeted Balance heet
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All we a3e looGed at to?date cent"e ofFixed/ Budgets.
We now a3e to conside" Flexi$le/ Budgets.
A Flexed/ $udget conside"s 3a"!ing le3elsof acti3it!. a $udget $! wic: $! "ecognising diQe"ent
cost $ea3iou" patte"ns: is designed to
cange as 3olume of acti3it! canges/
le+ile Budgets
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@elati3el! st"aigtfo"wa"d to p"oduce aste! use ma"ginal costing p"inciples.
Fixed ' a"ia$le Costs a"e st"aigtfo"wa"d
Ca"e needs to $e taGen wit Semi?a"ia$leCosts. ou ma! a3e to use te Pig?ow metod:
see ea"lie" sessions.
Exe"cise 2 Flexing a Budget
le+ile Budgets