Budgeting System Essay Example | Topics and Well Written Essays - 2000 words

Budgeting System - Essay Example By Budgetary process, an organization makes short term tactical planning or budgetary planning by preparing detailed , short term(usually 1 year) plans for the functions, activities and departments of the organization thus putting into action of the long term corporate plan. Budgets are created by adding monetary values to plans for departments, functions such as production, inspection, marketing, or financial and resource items such as capital expenditure, cash, materials etc. Annual process of budgeting should be seen as stages in the progressive fulfillment of the long-term plans of the organization. Thus the budgetary process steers the organization towards the long-term objectives defined in the corporate plans. (Lucey p.133) Budgetary process is a long-drawn but an essential one... First a Budgetary committee is entrusted with the task of developing and co-coordinating budgets. Committee members are usually from various functions of the organization. The committee will have bud geting officer who will be the accountant of the company. His duty will be to administer the budget and provide technical assistance and data during budget preparation. The budget planning precedes the budget period and it is a continuous and regular activity in case of budgets prepared on a rolling basis. Having see Having seen the overview of budgetary process, let us make an empirical study of how it is implemented in a chemical manufacturing company. The chemical company's current year's annual turnover will touch $1.5 billion. They cater to the market in different segments namely Food Industries, Pharmaceutical industries, and Exports. In addition to the usual 10% increase every year, each year will witness some more variances peculiar to the period. Again the amount of increase in sales forecast helps work out purchase budgets for different inputs according to categories. Most importantly, the sales figure forecast is the deciding or limiting factor for the budget process in this case assuming that the sales forecast is an achievable one in terms of production capacity. After deciding on the deciding or limiting factor for the budgetary process to start, the expenditure budgets are prepared for funds required to deploy additional labor, increased inputs for manufacture and consumables and a ll other recurring expenditures such as advertising, electricity, traveling and local conveyance, wages and salaries, professional charges, interest charges, and quality control charges and a master budget is prepared pooling all the information collected, known also as Projected Profit and loss and Balance Sheet. Since I happen to be working at the Chief Executive's Secretariat, I am proximate to preparation of the Master Budget. This enables me to have an overall view of the organization and insight into the preparation of the individual budgets from the functional departments. Master Budget also known as summary budget is a summary of all supporting budgets. Another summary budget is the Cash Budget which also comes under our division's purview because of its controlling effect. Cash budget is vital for the organization since it involves liquidity and cash flow management. A typical cash budget which is of rolling nature is prepared for periods such as week, month or quarter. It is a primary tool in