List and explain the steps that you would take to develop an annual budget for a corporation?
Budgeting is one of the tools of the management control. Internal control programs are critical to any organization, because without it the results could be chaotic.
Features of Budgeting
The "master" budget is an essential part of the coordinating effort. Such budgets consist of many individual building blocks that are tied together in logical harmony, and reflect the financial plan for the entire organization. Careful articulation is essential.
The starting point for the master budget is an assessment of anticipated sales via the sales budget. The expected sales level drives both the production plans and the selling, general, and administrative budget. Production drives the need for materials and labor. Factory overhead may be applied based on labor, but it is ultimately driven by overall production.
The major features are:
- Will help maximize efficiency and minimize waste.
- To facilitate management and control.
- Effectiveness and efficiency of operations include the use of the entity's resources.
- Help in strategy implementation
A 'bottom-up' approach, in summary, starts with the detail of expected or desired sales and costs and accumulates the budget from the detail. A 'top-down' approach starts with senior management's expectations, goals, statistics, or needs in setting an overall, high level budget. The 'top-down' budget is then broken down into detail for company operating units.)
This 'bottom-up' approach naturally has significant input and influence from senior management, in that, goals, targets, and standards are applied in the preparation of the detail budgets. Steps:
1. Laying down the goals
The first step is to formulate the goals. It also involves revision of past goals.
2. Sales Department submits budget
After the goals have been analyzed ...
This solution describes the major features of budgeting and explains the budgeting process.