1. IENG 216 Budgeting

2. Guidelines  Set Objectives  Bottom Up vs Top Down  Sales Forecast  Historical Data  Non-Financial Parameters  Responsibility Accounting

3. Setting Objectives

4.  Profit  Increased market share  Return on Investment  Cost Reduction  Revenue increases

5. Bottom Up vs Top Down  Iterative Process  You cannot ask a manager at any level to accept responsibility for living within budgets that he or she had no hand in setting.

6. Categories  Operating Budget  Sales  Production  Direct Materials/Labor  Factory Overhead  Pro-forma income  Financial Budget  Cash  Pro-forma balance sheet

7. Preparation  Prepare sales forecast  Determine aggregate production  Estimate manufacturing costs & operating exp.  Determine cash flow  Formulate project financial statements

8. Sales Budget Production Budget Direct Material Factory Overhead Direct Labor Cost of Good Sold Budget Selling Expense Admin Expense Budgeted Income Budgeted Balance Desired Ending Inventory Capital BudgetCash Budget

9. Sales Forecast

14. Example

15. Example (cont.)

21. Selling & Admin Expenses

22. Cash Budget

23. Budget Income

24. Pro-forma Balance