BudgetsCOLLAPSEBudgets are predictions based on a company's (or a family's) best information at the time. What are some reasons that a company or a department can't make budget in a given year? What kind of prevention and troubleshooting can be done to prevent a budget from becoming a meaningless piece of paper? Read the handout in the Course Materials folder on budgeting. Which of the three budgeting methods (incremental, zero-based, hybrid) do you think would be most useful throughout the year?

Budgeting Purpose of Budgets . Develop a break even point 0 Assist in allocating resources 0 Keep everyone on the same page 0 Reinforce priorities Types of Budgets . Master Budget (includes next 4 budgets) represents the organization's projected financial statements (balance sheet, income statement, cash flow statement) 0 Sales Budget Indicates projected sales, both in dollar amounts and unit amounts. If this budget is inaccurate, the following budgets will also be inaccurate. . Expense Budget Cost of goods sold, inventory; prediction of all expenses tied to the production and distribution of products. Subtract expense budget from sales budget to get projected profits. 0 Cash Budget Determines whether the organization will have enough cash in its accounts to cover payments. Predictions include when the money will flow in and out of the organization. . Capital Budget Projects the organization's cost and income associated with long-term projects and fixed assets. Assesses which projects are worthy of investment Five Steps to Budgeting 1. Choose information flow: Top-down or bottom-up Is it better to have senior management set priorities and projections or should individual departments and groups establish that on their own? Which makes more sense and why? 2. Measure by region (Asia, North America), product (copiers, printers, scanners), or function (marketing, manufacturing). Which makes more sense? Which industries might profit from one measurement over another? 3. Gather historical data Find past performance (sales, expenses, revenues) to help predict future trends