The operating budget reflects in the projected income statement and is the centerpiece of the budgeting system.
It generally consists of several sub-budgets, most important one being the sales budget which is prepared first. Since an operating budget is a short term budget, capital outlays are excluded because they are long-term costs.
It is built up in terms of following subbudgets:
1. Sales forecast
2. Production budget
3. Materials and purchases budget
4. Labour cost budget
5. Manufacturing overhead budget
6. Non-manufacturing cost budge
The focus of an operating budget is to ensure that there are funds to maintain the continued operation of a business, and that those funds are distributed in the most cost-efficient manner. Most experts believe that an operation budget should begin with a sales budget. An operating budget should also project expenses.
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