Operating budgets
As already noted, an appropriate budget is drawn up for each central federal district. The number of operating budgets cannot be more or less than the number of responsibility centers.
The main task of drawing up operating budgets is planning and monitoring the results of the activities of the Central Federal District, i.e.
The operating budget fully describes the activities of the responsibility center and all its business transactions in the language of finance.
The activities of the unit begin with planning the results of its activities with a description of the program of action, therefore, budgeting of the Central Federal District is carried out upon planning the activities of the responsibility center. After planning, the resources that will be consumed to achieve the planned result are calculated.
The operating budget is a tool for delegating financial powers to the head of the Central Federal District. Naturally, the delegation of authority will be accompanied by responsibility for the results of the activities of the central financial district, which will be expressed in the form of profit standards, marginal profit, income or costs (depending on the status of the responsibility center).
With correct and correct planning, items and expense norms must be drawn up for each responsibility center, which are calculated in the budget depending on the planned income of the Central Federal District or the company. The financial service must monitor the compliance of costs incurred by the Central Federal District with both the approved budget and planned income.
If the revenue side of the budget is not respected, its expenditure side must also be revised. Variable cost items must be recalculated based on the results achieved. Fixed expenses for the Central Federal District should not be increased by reducing the absolute value of variable expenses provided for in connection with a decrease in income. For example, let the budget of the Central Federal District be approved at the level of 100,000 rubles. These data are calculated for the Central Federal District based on a sales volume of 200,000 units. Expenses of 100,000 rubles. for this Central Federal District were calculated based on a variable component in the amount of 2% of sales and a constant component of 60,000 rubles. Sales took place at the level of 150,000 units. Accordingly, the total expenses of this Central Federal District should have been 90,000 rubles. However, the head of the Central Federal District made a decision on non-target dis-
Organization of budget management in a company in the Central Federal District 217 circulation of funds and made an additional expense of 10,000 rubles. This example demonstrates the need to standardize not only the absolute value of expenses, but also those items for which they are incurred. Therefore, for control purposes, a list of possible expenditure items for the Central Federal District and their amounts will be necessary.
Functional budgets
Functional budgets are built based on the functions of the company - its business processes. A typical company performs the following functions:
procurement;
sales;
transportation;
management, etc.
Budget items that are formed according to the relevant functions of the company constitute the company's functional budgets. The main purpose of functional budgets is to calculate the company's need for resources to carry out the relevant functions.
The company needs to establish a relationship between functional and operating budgets. For example, such a functional budget as the “purchasing budget” is at the same time the operating budget of the Central Federal District - the supply department. Each functional budget is compiled for the entire company, so the system of functional budgets forms its budget structure. The principle of forming functional budgets is to group them by type of activity (functions, processes) of the company.
As an example, we can highlight such company functions as sales, purchasing, warehousing and storage, advertising and marketing, transportation and management. Accordingly, the grouping of these functional budgets may look as shown in Fig. 3.3.
In this case, unlike the final budgets for cost elements, budgets generated for the final cost elements (for example, labor costs, material costs, etc.) are not indicated. This is due to the fact that this presentation of budgets is formed by the type of activity of the company in the context of its commercial activities and management. In table 3.5 shows an example of a possible list of functional budgets for a company.
218 Chapter 3 Budget for business expenses
Sales expense budget
Transport budget
Budget for warehousing and storage costs
Budget for supply costs
Management Cost Budget
Rice. 3.3. An example of the composition of a company's functional budgets Table 3.5. Possible list of functional budgets 1.
Sales budget 1.1.
Product sales budget 1.2.
Sales budget for fixed assets 1.3.
Budget for other sales 2.
Procurement budget 2.1.
Budget for purchases and direct expenses attributable to cost 2.1.1.
Budget for purchases of goods 2.1.2.
Budget for transport costs included in cost 2.1.3.
Budget for customs clearance costs 2.2.
Procurement budget for expenses of functional services in the Central Federal District 2.2.1.
Procurement budget for sales needs 2.2.2.
Procurement budget for warehousing needs 2.2.4.
Procurement budget for the needs of thermal power plants 2.2.5.
Procurement budget for management needs 2.3.
Budget for the purchase of fixed assets and capital investments
Organization of budget management in a company in the Central Federal District 219 3. Budget for commercial expenses 3.1.
Budget for sales expenses 3.1.1.
Budget for sales expenses (sales department 1) 3.1.2.
Budget for sales expenses (sales department 2) 3.2.
Budget for transport costs 3.3.
Budget for warehousing costs 3.3.1.
Budget for expenses for acceptance, placement and packaging 3.3.2.
Budget for documentation costs 3.4.
Marketing department budget 3.5.
Cost budget for the supply service 3.5.1.
Expenditure budget for the foreign trade sector 3.5.2.
Expenditure budget for the customs clearance sector 3.5.3.
Cost budget for the certification sector 3.6.
Project budget 3.6.1.
Expenditure budget for current projects 3.6.1.1.
Project expenses 1 3.6.1.2.
Project expenses 2 3.6.1.3.
Project expenses 3 4.
Budget for administrative expenses 4.1.
Budget of expenses for the financial directorate 4.2.
IT Directorate Expense Budget 4.3.
AHO expenditure budget 4.4.
Budget for expenses of the secretariat and office managers 4.5.
Budget for legal service expenses 4.6.
HR budget 4.7.
Budget of expenses of the General Director 5.
Tax budget 5.1.
VAT budget 5.2.
Payroll budget 5.3.
Budget for fees in the Pension Fund 5.4.
Tax budget for vehicle owners 5.5.
Income tax budget 5.6.
Land tax budget 6.
Personnel cost budget 7.
Budget for balances of goods and inventories at the beginning of the period 8.
Budget for balances of goods and inventories at the end of the period 9. Budget for accounts receivable at the beginning of the period 10.
Accounts receivable budget at the end of the period 11.
Accounts payable budget at the beginning of the period 12.
Accounts payable budget at the end of the period 13.
Budget for investment activities 13.1.
Investment budget 13.1.1.
Investment project A 13.1.2.
Investment project B 14.
Financial activity budget 14.1.
Own capital budget 14.2.
Budget of expenses for payment of interest on attracted capital 15.
Cash flow budgets 15.1.
Income budget for core activities 15.2.
Budget of receipts from clients 15.3.
Budget of payments for core activities 15.3.1.
Payment schedule for goods 15.3.2.
Payment schedule for expenses related to the cost of goods 15.3.3.
Payment schedule for commercial expenses 15.3.4.
Payment schedule for administrative expenses 15.3.5.
Tax payment schedule 15.4.
Budget for other payments and receipts 15.5.
Revenue budget for financial activities 15.5.1.
Budget for revenues to the UV and other funds 15.5.2.
Budget for receipts of loans and borrowings 15.6.
Budget of payments for financial activities 15.6.1.
Budget for repayment of loans and borrowings 15.6.2.
Budget for interest payments on loans and borrowings 15.6.3.
Dividend payment budget 15.7.
Receipt budget for investment activities 15.7.1.
Budget of receipts in the form of payments for operating systems 15.7.2.
Budget for dividend receipts from participation in the share of other companies 15.8.
Budget of payments for investment activities 15.8.1.
Budget of payments for the purchase of fixed assets and capital investments 15.8.2.
Budget for payments in the form of acquisition of shares in MFs of other companies 15.9.
Income budget for other activities 10.15.
Budget for payments for other activities
Organization of budget management in a company according to the Central Federal District 221 Depending on the needs of the company, the highest level budgets (listed in the table) can be detailed to lower level budgets, and those (in turn) can also be detailed even more deeply. For example, the budget for material costs can be detailed into a fuel consumption budget, an MBP consumption budget, etc.
Depending on the company's needs, the top-level budgets (listed in the table) can be detailed down to lower-level budgets, which (in turn) can also be further detailed. For example, the budget for material costs can be detailed into a fuel consumption budget, an MBP consumption budget, etc.
The relationship between functional and operating budgets is presented in Table. 3.6 - using the sales budget as an example. It shows the interconnection of budgets based on sales income. In a similar way, the relationship between expenditure budgets and cost centers is built.
Table 3.6. Interrelation of functional and operating budgets Functional budget of the company Name of the Income/Cost Center BDR BDDS Balance Sheet Income Center "Wholesale sales, region 1" Income from sales in region 1 Income from sales in region 1 Assets
divisions by region 1 1 Sales, product A 2 Sales, product B 3 Sales, product C Functional sales budget for the company Income center "Wholesale sales, region 2"
4 Revenues from sales by region 2
Sales, product A Sales, product B Sales, product C Revenues from sales by region 2 Assets
divisions by region 2
The operating budget is the budget of an individual Financial Responsibility Center (FRC). The purpose of drawing up an operating budget is to plan and record the results of business operations carried out by the corresponding central federal district. In essence, the operating budget is a tool for delegating the powers and responsibilities of each central financial district according to the financial indicators assigned to it.
For each central federal district, one (and only one!) operating budget is drawn up. The total number of operating budgets in an enterprise is equal to the number of central financial districts formed in it. So, in this quantitative relationship, accordingly, the possibility of establishing a connection between the financial and budget structure is already visible.
For different financial responsibility centers that engage in similar activities, the content and, accordingly, the names of the articles and their groups of operating budgets may be the same.
Example can be Operating budgets for the center of income and expenses.
1. Budget of the income center "Business A"
1.1. Sales of main products.
1.2. Finished products.
2. Budget of the income center "Business B".
2.1.1. Sales of main products.
2.1.2. Services.
3. Budget of the “Commerce” cost center.
3.1. Business expenses.
3.1.2. Remuneration of sales managers.
3.1.3. Sales commissions.
3.1.4. Fare.
4. Budget of the Marketing cost center.
4.1. Business expenses.
4.1.6.1 Internet promotion.
Functional budgets
The economic activity of an enterprise can be represented as a set of certain functions. In general, the list of these functions can be presented as follows:
Sales;
Procurement;
Production;
Storage;
Transportation;
Administration (management)
Financial activities;
Investment activities.
Operating budget items, grouped according to functional affiliation, form functional budgets. The purpose of compiling functional budgets is to determine the resource requirements for various areas of the enterprise's activities.
Each functional budget is compiled for the enterprise as a whole. So, the system of functional budgets of an enterprise forms its budget structure. Thus, Budget structure - This is a system of functional budgets of an enterprise, in accordance with which consistent planning and accounting of the results of its economic activities take place.
From the perspective of this definition, the scheme for drawing up the main budget certainly reflects the budget structure, since its blocks are nothing more than functional budgets.
A more detailed list of functional budgets, according to the above-mentioned functions of the enterprise, can be considered as shown in table. 5.6.
In table 3.6 lists functional budgets at the top level. However, any of these budgets can be detailed in accordance with the needs of a particular enterprise. For example, if it makes sense for an enterprise to control not only overall production costs, but also their individual components, then Budget for direct production costs may, in turn, include Material cost budget, energy cost budget, depreciation budget etc.
Table 5.6
Example of a list of functional budgets
|
Budget name |
||||
|
sales budget |
||||
|
Sales budget for own products |
||||
|
Sales budget for purchased goods |
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|
Sales budget for fixed assets 03 |
||||
|
Sales budget for other activities |
||||
|
Budget for balances of finished goods (FP) at the beginning of the period |
||||
|
Budget for balances of finished goods (FP) at the end of the period |
||||
|
production budget |
||||
|
Budget for work in progress (WIP) balances at the beginning of the period |
||||
|
Budget for work in progress (WIP) balances at the end of the period |
||||
|
Budget of requirements for raw materials, materials, tools, etc. |
||||
|
Budget of balances of raw materials, materials, tools and others at the beginning of the period |
||||
|
Budget for balances of raw materials, materials, tools and others at the end of the period |
||||
|
procurement budget |
||||
|
Budget for the purchase of raw materials, materials, tools, etc. |
||||
|
Goods procurement budget |
||||
|
procurement budget |
||||
|
Budget of goods balances at the beginning of the period |
||||
|
Budget of goods balances at the end of the period |
||||
|
Income budget for core activities |
||||
|
Direct cost budget for core activities |
||||
|
Budget for direct production costs |
||||
|
Budget for direct business expenses |
||||
|
Overhead budget for core activities |
||||
|
Manufacturing Overhead Budget |
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|
Business overhead budget |
||||
|
Administrative budget |
||||
|
Income budget for financial activities |
||||
|
Budget of expenses for financial activities |
||||
|
Income budget for investment activities |
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|
Budget for income from other activities |
||||
|
Budget for expenses for other activities |
||||
Budget type designations:
DV - income - expenses; RGK - cash flow; NV - natural - cost.
If necessary, you can continue to drill down one more level when material cost budget detailed at raw material budget(including the main types are considered separately), Budget of materials. Budget for components (again highlighting the main types and (or) suppliers), etc.
Based on budget indicators, the final financial result is also formed: profit / loss or net cash flow (cash balance). The enterprise can also create additional budgets- not to calculate the financial result, but to control functional areas in certain sections. For example, if you need to manage payroll costs across your entire enterprise, Budget for wages and salaries, which It is advisable to consider separately, in the context of production, commercial and other expenses. However, in any situation, the relationship between operating and functional budgets should be taken into account; for trade, they are schematically presented in Fig. 5.1.
Rice. 5.1. Relationship between operational and functional budgets
Let us characterize the Consolidated (Final) budgets of the enterprise. Each functional budget falls into one of three types of budgets.
1. Natural - cost (Budget of goods, inventories and fixed assets).
2. Budget of income and expenses (BDR).
3. Cash flow budget (CFB).
According to this classification, functional budgets are consolidated throughout the enterprise and form the corresponding final budgets. Thus, the direct production budget, the overhead budget, the selling expenses budget, etc. are grouped and together form the final budget of income and expenses (BDR), a Budget for revenues for core activities, Budget for payments for direct production costs, Budget for payments for overhead costs, Budget for payments for commercial activities, etc. - final Cash Flow Budget (CFB).
Many business operations affect all three bottom-line budgets. Thus, sales of products will be reflected in the budget of goods, inventories and non-current assets as shipments of finished products and, accordingly, mainly in the budget of income and expenses - as accrual of income from sales, and when the buyer pays for this product in the cash flow budget (CBDS) - as cash receipts from sales. Consequently, the functional Sales Budget is compiled in the context of the movement of goods, income and cash flow and accordingly takes part in the formation of all final budgets (Fig. 5.2).
Rice. 5.2 Relationship between the functional sales budget and final budgets
Thus, final budgets are necessary not only for planning financial results, but also for tracking the “remote” and “side” effects of changes in certain aspects in the strategy and tactics of the enterprise, as well as for reasonable adjustments to the budget as a whole. Let's take a closer look at them.
Budget of Income and Expenditures (BIB) reflects the formation of the economic results of the enterprise. The purpose of its preparation is to manage the economic results of the enterprise, that is, its profit and profitability. In this case, by economic results we mean the result of the production and financial activities of the enterprise, reflecting the change in the value of the enterprise’s property. He shows:
Enterprise income - in total volume and (or) detailed according to one or another criterion (CFD, source of receipt, etc.);
The enterprise's expenses in total volume and (or) detailed according to one or another criterion (CFD, direction of expenses, costing item, etc.);
The difference (that is, profit or loss) between income and expenses for a certain period.
Based on this data, using certain analysis tools (primarily factor analysis of profit), you can:
Develop a planned volume and determine the importance of each source of income in the total volume of both income and profit. Such information is necessary for developing the company’s marketing policy, its production program, etc.;
Identify expense items that make sense to influence in order to improve financial results (identify expense items that have savings reserves).
The format of the budget of income and expenses (sequence and grouping of items) must correspond to the format accepted at the enterprise income statement (Statement of comprehensive income), since this compliance will allow you to qualitatively plan and take into account the entire process of forming the financial results of the enterprise (Table 5.7). To ensure comparability, it is convenient to use the same format. The results obtained according to plan or in fact do not need to be regrouped, listed, or adjusted.
Table B. 7
Scheme for generating financial results
|
day off index |
adjustment |
result |
|
|
Action ("-" - subtraction, "+" - addition) |
Indicator name |
||
|
Income from core activities |
Direct production costs |
marginal |
|
|
Direct business expenses |
|||
|
marginal |
Business overhead |
Contribution towards expenses |
|
|
Coverage contribution |
Enterprise overhead costs |
Profit from core activities |
|
|
profit from basic activities |
Income from financing activities |
Profit before tax |
|
|
Financial activities expenses |
|||
|
Other income |
|||
|
other expenses |
|||
|
Profit before tax |
Net profit |
||
|
Net profit |
Contributions to enterprise funds |
Unallocated |
|
|
dividends |
|||
Based on the uniform format, it can be argued that the BDT - just like in the Income Statement - involves sequential, step-by-step subtractions from the gross financial results (revenue, contribution margin, etc.) of the relevant expense items. So, based on the results of such deduction of expenses at each step, financial results “cleaned” from a certain part of expenses are formed. And if at the first stage marginal income is formed as the difference between total income and cost, then at the last stage we get net profit.
In some cases, it is advisable to enter additional lines “Financial result from financial activities” and “Financial result from other business operations”, which will improve the management of their financial results.
Cash Flow Budget (CFB) reflects the movement of funds (cash flows) across all types of bank accounts, cash registers and other places where the company’s funds are stored.
Based on their direction, cash flows are divided into two types:
Receipts to the enterprise (cash receipts to the enterprise);
Payments by the enterprise (company payments).
The difference between input cash flows (receipts) and output (payments) determines the net cash flow of the enterprise, which can be either positive when the enterprise accumulates temporarily free cash, or negative when cash payments exceed receipts. There is a correspondence between receipts and income, as well as between payments and expenses. The formation of most income and expenses is associated with the receipt and payment of funds. The level of detail of the BDDS and BDR articles should be the same. An example of the correspondence of articles BDDS and BDR is presented in table. 5.8.
Table 5.8
Compliance of articles BDDS and BDR
This correspondence provokes an equal sign between profit and net cash flow. However, even a start-up entrepreneur realizes that there are quite significant differences between them. The main reasons that cause differences between income and receipts or between costs and payments are:
1) differences in timing. Receipts may lag behind income in time, or may advance them, in some cases they may coincide. The same thing happens with payments. They can be carried out synchronously with expenses, they can be ahead of them, or they can lag behind them significantly - sometimes quite significantly;
2) differences in amounts. There are receipts that are not income and vice versa. An enterprise may receive income and not have revenues corresponding to these incomes. In relation to expenses/payments, there is a complete analogy: an enterprise can make expenses that do not require payments, and make payments that, from an accounting point of view, are not expenses.
Let's look at each discrepancy in more detail.
The differences in the lines in relation to income are as follows (Table 5.9).
Table 5.9
Discrepancy in lines in relation to income and receipts
By defining the connections between BDT, BGRK and the balance sheet, it can be indicated that advance receipts form the enterprise’s accounts payable, and commercial (commodity) credit provided to customers forms accounts receivable.
The difference in the lines in relation to expenses and payments look like this (Table 5.10):
Table 5.10
Payment term in relation to expenses
In the balance sheet, advance payments are presented in accounts receivable, and trade credit received from suppliers is presented in accounts payable.
Disagreements in amounts in relation to income are not so varied: income from core activities cannot be greater than income. They can only be smaller due to losses associated with “unfair” receivables. Consequently, in those enterprises where products (work, services) are sold exclusively for cash, receipts coincide with income both in terms of timing and volume. At enterprises that receive payment for products (works, services) in advance, the volume of income and receipts coincide, but receipts are generated earlier. At the same enterprises selling products mainly on commercial conditions(commodity) loan, receipts lag behind income both in terms and in amount. However, as competition increases, commercial (commodity) credit will expand and this type of income will become dominant.
The financial activities of an enterprise can generate revenues that are not income, but loans, and also revenues that are not related to income, but investments in the authorized capital of the enterprise and sponsorship (including budgetary).
Disagreements in amounts in relation to expenses are possible in both directions: as mentioned above, there are payments that are not expenses, and expenses that do not require payments. The main items for which the EDV and BDDS differ from each other are given in Table. 5.11
Thus, BDDS is a mandatory tool for managing the cash flows of an enterprise. With its help, they plan and analyze:
Volumes of specific payments and receipts;
Deadlines for payments and receipts of money;
Direction of cash flows - receipts by source, payments by intended purpose;
Cash turnover for the period (with the necessary frequency), which is sometimes necessary to assess the need for additional financing;
Balance of funds in accounts as of specific (control) dates.
All of the above allows you to manage the solvency of the enterprise, that is, its ability to repay obligations in a timely manner. This is achieved through the following measures:
Maintaining the required amount of funds in the account (to make all scheduled payments);
Table 5.11
Disagreements in articles between BDT and BDDS
Cash flow budget items
Budget items of income and expenses
| Name |
| 1. Income from core activities |
| 1.1. Income from the sale of goods |
| 1.2. Income from sales of services |
| 1.3. Income from product sales |
| 2. Direct production costs |
| 2.1. Direct material costs |
| 2.2. Wages of main production workers |
| 3. Overhead |
| 3.1. Salaries of administrative and management personnel |
| 3.2. Administration salary accruals |
| 3.3. Depreciation of general business fixed assets |
| 3.4. Entertainment and travel expenses |
| 4. Income from financial activities |
| 4.1. Positive exchange rate and amount differences |
| 4.2. Interest on deposits |
| 4.3. Interest on loans issued |
| 5. Expenses for financial activities |
| 5.1. Negative exchange rate and amount differences |
| 5.2. Payment for cash management services |
| 5.3. Interest on loans and borrowings received |
| 6. Income from other activities |
| 6.1. Penalties and fines received |
| 7. Expenses for other activities |
| 7.1. Penalties and fines paid |
| 7.2. Payments for damages |
| Name |
| 1. Receipts |
| 1.1. Income from core activities |
| 1.1.1. Proceeds from the sale of goods |
| 1.1.2. Proceeds from the sale of services |
| 1.1.3. Proceeds from product sales |
| 1.2. Income from financial activities |
| 1.2.1. Credits and loans |
| 1.2.1. Interest on loans issued |
| 1.3. Income from other activities |
| 1.3.1. Fines and penalties received |
| 2. Payments |
| 2.1. Payments for core activities |
| 2.2.1. Raw materials |
| 2.2.2. Wage |
| 2.2.3. Payroll accruals |
| 2.2.4. Equipment and intangible assets |
| 2.2. Payments for financial activities |
| 2.2.1. Repayment of loans and borrowings |
| 2.2.2. Interest on loans and borrowings |
| 2.3. Payments for other activities |
| 2.3.1. Payment of penalties and fines |
| 2.3.2. Payments for damages |
Functional budgets allow you to manage a separate area of activity of the organization, the boundaries of which are determined by the process model of activity. Processes that have an output measurable in physical or monetary terms are subject to budgeting. Functional budget items must correspond to consolidated budget items for proper consolidation of financial results.
Distribution “Processes - functional budgets”
| Functional budget | Process |
| Calculation budgets | |
| 1. Budget for payments to suppliers | |
| 2. Budget for settlements with customers | |
| 3. Payroll budget | |
| 4. Budget for tax calculations | |
| In-kind cost budgets | |
| 1. Sales budget | A3 Promotion and sales |
| 2. Budget for finished goods balances | |
| 3. Budget for finished products | |
| 4. Production budget | A4 Production |
| 5. Procurement budget | A2.1 Tool reproduction |
Functional budget is formed on the basis of the operating budgets of the enterprise. The economic activity of an enterprise can be represented as a set of certain functions. In general, the set of these functions may look like this: sales, purchasing, production, storage, transportation, administration (management), financial activities and investment activities.
Purpose Drawing up functional budgets is to determine the resource needs for various areas of the enterprise. Functional budgets reflect the main decisions about the parameters with which the company’s business processes should be implemented (production volumes, prices, purchase volumes, etc.).
Sales budget.
The sales budget contains information about part of the economic indicators that characterize the effectiveness of the sales business process. All information on this business process, as a rule, is reflected in two budgets: the sales budget and the business expenses budget. The sales budget reflects the estimated volume of product sales, sales prices and possible revenue from the sale of these products.
Business expenses budget.
It contains information on indicators that mainly characterize the effectiveness of the sales business process. Selling expenses reflected in this budget include all costs associated with the sale of products. This includes the variable part of the salaries of marketing department employees, transportation costs associated with delivering products to consumers, marketing costs, advertising, etc. The business expenses budget must ensure that the sales budget is met. These two budgets must be interconnected and any change in one of them must lead to adjustments in the indicators in the other. The business expenses budget format includes the following indicators:
1) the total amount of commercial expenses for the enterprise;
2) variable selling expenses (change in proportion to changes in sales revenue and volume of products sold);
3) fixed business expenses;
4) the share of commercial expenses in sales revenue;
5) the share of transportation costs in sales revenue;
6) the share of expenses for product promotion in revenue;
7) the share of expenses for maintaining and servicing retail outlets in revenue;
8) profitability of commercial assets.
Production budget.
All information about the efficiency of the production business process is reflected in two budgets: the production budget and the production expenses budget.
The production budget contains information on production volumes in physical terms in terms of the range of products produced by the enterprise, as well as information on the degree of use of the enterprise's production capacity. The production budget is the source document for the operational management of production processes. The production budget format includes the following indicators:
1) production volume by type of product;
2) percentage of production capacity utilization;
3) equipment utilization rate;
4) level of work in progress;
5) level of labor productivity.
It is necessary to pay attention to the fact that part of the indicators of this budget is calculated by product groups, and part of the indicators by production lines. At the same time, products from various product groups can be produced on one line. Therefore, such an indicator as the percentage of production capacity utilization does not duplicate the indicator of equipment utilization rate. Equipment utilization rate shows how efficiently production lines are used according to production plan. And if the percentage of production capacity utilization is less than the equipment utilization rate, it means that the company produces a wide range of products, but in small volumes. The cost indicators of the production business process are reflected in the budget of production costs.
Budget for production costs.
This budget reflects all indicators associated with the company’s costs for producing the volume of products that was planned in the sales budget. At the same time, this budget may also reflect indirect expenses of the enterprise in addition to direct ones. The production cost budget format may contain the following indicators:
1) the total amount of production costs;
2) variable production costs;
3) fixed production costs;
4) percentage of compliance with production standards;
5) production cost for each type of product;
6) finished product inventories;
7) profitability of production assets.
Procurement budget.
It contains information about economic indicators characterizing the supply business process. Depending on the complexity of organizing a given business process at an enterprise, the structure of the procurement budget is also selected. If a company deals with almost all purchases in one structural unit, then one procurement budget is developed, if in several structural units, then for each of them its own procurement budget is developed. As a rule, in large companies, to control supply activities, a separate group of specialists is created to monitor market prices and control the purchasing activities of the enterprise.
Payroll budget.
It contains analytical information on departments regarding labor costs and assessing the effectiveness of the motivation system operating in the company. The wage budget must provide all information on the company’s wages, and must also reflect a system of restrictions on the maximum amount of permanent wages and the minimum amount of the variable part of wages. The salary budget format may include the following indicators:
1) total wage fund;
2) total variable wage fund;
3) total permanent wage fund;
4) labor productivity;
5) staff turnover rate;
6) wage fund by structural divisions;
7) wage fund in the context of main business processes.
Administrative expenses budget.
Administrative expenses are the most difficult expenses to link directly to the business. It is believed that administrative expenses should not exceed 5% of the company's revenue. Otherwise, they will have a negative impact on the efficiency of the enterprise. Typically, this budget includes the following indicators:
1) total administrative expenses;
2) the share of administrative expenses in the company’s revenue;
3) administrative expenses by structural divisions of the enterprise.
budgeting financial management
It is necessary to distinguish between the concepts of budgeting and budget. So, if budgeting is the process of drawing up and implementing this document in the practical activities of the company, then the budget is, first of all, a document that reflects the quantitative indicators in accordance with which the enterprise conducts its business activities.
A budget is a financial plan that covers all aspects of an organization’s activities, allowing one to compare all costs incurred and results obtained in financial terms for the upcoming period of time as a whole and for individual subperiods. .
A budget is a financial forecast approved by the head of an organization, which defines the main limits of expenses and costs, standards for financial results, and various target financial indicators. The budget includes planned financial estimates, projected volumes of attracting external financial resources (loans and investments), conditions for their receipt, etc.
As noted earlier, budget is a very broad concept and each enterprise interprets it in its own way and each company has its own classification of budgets.
Depending on the tasks set, the budget can be general (general) or private, flexible or static.
A private budget is an activity plan for a specific area of activity (division) of an organization. Given the versatility of an organization's activities and the interrelationship between certain types of activities, private budgets are closely interconnected.
The general (general) budget is a coordinated plan for the organization’s activities, developed as a whole based on the main budgetary factor. It combines the private budgets of the organization's departments. The general (general) budget consists of two parts: operating and financial budgets.
Operating budget - current, periodic, characterizes planned operations for the upcoming period. The purpose of such a budget is to develop a profit-loss plan. If the main budget factor is sales volume, then it is formed from such auxiliary estimates as: sales budget, production budget, material costs budget, labor costs budget, overhead budget, general and administrative expenses budget, budget profit and loss statement.
The financial budget reflects the expected sources of funds and directions for their use. The purpose of the financial budget is to plan the balance of funds received from activities and expenses associated with the implementation of activities in such a way that the normal level of financial stability of the enterprise is maintained during the budget period. Its components are capital expenditure estimates, cash flows and a projected balance sheet.
The form of budgets, unlike financial reporting, is not standardized; its structure depends on the type of activity and size of the organization, the object of planning, and the degree of qualification of the developers.
A static budget is a budget planned for a specific level of implementation. All private budgets that are part of the general (general) budget are static, since the income and expenses of the enterprise are predicted in the components of the general budget based on a certain planned level of implementation. In a static budget, the costs of an organization (division) are planned. The static budget includes income and costs based on the planned sales volume.
A flexible budget is the link between the planned budget and the actual results achieved. It is compiled after analyzing the impact of changes in sales volume on each type of cost. It takes into account changes in costs depending on changes in the level of implementation, so a flexible budget represents a dynamic basis for comparing achieved results with planned indicators. The basis for drawing up a flexible budget is the division of costs into variable and fixed. In this budget, the variable costs of the organization (division) are calculated based on standards per unit of production and sales level. Fixed costs do not depend on the business activity of the organization, so their amount remains unchanged for both static and flexible budgets. A flexible budget includes income and expenses adjusted to the actual sales volume.
A budget can have an infinite number of types and forms. Unlike a formalized income statement or balance sheet, a budget does not have a standard form that must be strictly followed. The budget structure depends on what the budget is subject to, the size of the organization and the degree to which the budgeting process is integrated into the financial structure of the enterprise, and the qualifications and experience of the developers.
Budgets are presented in the following table 1.1:
Table 1.1
Classification of types of enterprise budgets
|
Classification feature |
Budget type |
|
By area of activity of the enterprise |
Operating budget |
|
Budget for investment activities |
|
|
Budget for financial activities |
|
|
By type of cost |
Operating cost budget |
|
Capital budget |
|
|
By breadth of item costs |
Functional budget |
|
Comprehensive budget |
|
|
By development methods |
Fixed budget |
|
Flexible budget |
|
|
By time period |
Monthly, quarterly, annual |
|
By period of compilation |
Operating budget |
|
Current budget |
|
|
Forward Budget |
|
|
By continuity of planning |
Self budget |
|
Continuous (sliding) budget |
|
|
According to the degree of information content |
Enlarged budget |
|
Detailed budget |
All these types of budgets (Table 1.1) are necessary for making a forecast of the financial condition of the enterprise and for carrying out item-by-item analysis. This classifier allows you to group budgets by type of activity to simplify their consolidation into the main financial reports.
The tool of the budgeting process is budgets. The relationship between budgets is shown in Fig. 1.1.
Rice. 1.1.
The production budget forms the cost of production. General organizational (administrative and commercial) expenses complement production costs and form the full cost of sales volume and serve to draw up basic budgets: budget of income and expenses, cash flow budget, balance sheet.
Many heads of organizations, when building a budgeting system, proceed from certain concepts. There are many budgeting methods and each reflects a certain planning concept.
Speaking about methods for developing budgets, the following methods can be distinguished:
Increment method. It is traditional. The following approach is used: the basis for its preparation for the coming period is based on data on expenses and income for the previous period. Then these data are adjusted taking into account possible changes in prices, as well as possible changes in the volume of product sales. Thus, budgets are prepared on the basis of the increase in expenses and income from the achieved level of activity.
The disadvantage of this method is that ineffective decisions “laid in” in the previous period of activity are transferred to the budgets of the following periods.
Zero basis method. The essence of the method is that each type of activity carried out within the framework of a financial responsibility center or structural unit must first prove its right to further existence by justifying the future economic efficiency of the allocated funds. As a result, management receives information that allows them to more accurately determine priorities.
When comparing these methods, their disadvantages and advantages are revealed. Budgeting using the incremental method is simpler. Budgeting based on a basis is more labor intensive. If applied to all budgets being developed, the process of its preparation is time consuming.
- - flexible budget method. The report is compiled not in absolute numbers, but as a percentage of sales volume. The advantage of this approach is that if the business situation at the enterprise is bad, budgeting a percentage of sales volume is often easier. The risk is that with this approach it is difficult to pay due attention to running a business.
- - line-by-line budget method. It is a long list of items, and the assessment is carried out for each item separately. The larger the organization, the more difficult it is to use this method. This method is often used in government organizations due to the scrupulous calculation of all indicators. Monitoring the implementation of such a budget is very difficult.
- - stock method. Under this method, expenses are planned across the broadest categories. The main advantage of the method is its simplicity; the disadvantage is that there is no assessment of individual decisions and their possible impact on the organization.
The choice of one or another development method, types and forms of budgets is determined based on the specifics, goals and objectives of the organization.
