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Budgeting Examples

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Example #1 - Incremental Budget

For the year 2018-19, Fin International Ltd paid a total salary of $ 400,000 to its employees. The budget is required to be prepared for the year 2019-20 concerning the employees' salary. The management estimates that six new employees will be hired during the next year, and for each employee, a salary of $ 25,000 will be given to each new employee.

Also, it is decided by the company to give an increment to the existing employees of 10%. What will be the budget of the salary for the company for the year 2019 –20?

Solution:

Using incremental budgeting, the budget for the salary will be:

= Previous year salary + Percentage of increment on previous salary + Salary of 6 new employees

= $ 400,000 + 10% * $ 400,000 + ($ 25,000 * 6)
= $ 400,000 + $ 40,000 + ($ 25,000 * 6)
= $ 400,000 + $ 40,000 + $ 150,000

Total Salary Budget = $ 590,000

Example #2 - Sales Budget

Sports international ltd plans to produce balls in the upcoming year ending in 2019. It forecasted the sales to be $ 4,000 in quarter 1, $ 5,000 in quarter 2, $ 6,000 in quarter three, and $ 7,000 in quarter 4. The selling price of the product for the first two quarters will be $ 5, which is expected to be increased to $ 6 in quarter three and quarter four by the sales manager of the company.

Also, it is expected that the sales discount and the allowance percentage of the company will continue to be the same in the budgeted period as well, which is 2 % of the gross sales. Therefore, prepare the sales Budget for the upcoming year ending in 2019 of Sports international ltd.

Solution:

Following is the sales budget of Sports international ltd for the year ended on December 31, 2019

The sales budget shows the sales forecasted by the company for the coming year in both units and value using the information inputs from various sources.

Example #3 - Business Budget

The Income and expense details of Mid-term International Ltd are given below. Prepare the Business budget for the year ended in December 2018.

Income in the present situation shows the sales of the company per quarter and the other incomes earned by the company during the year. The expenses are divided into operating expense and non-operating expenses. In this business budget, the difference between the budgeted amount and the actual amount is shown, which will help the company analyze analyzing the variances.

Example #4 - Production Budget

Pen international ltd plans to produce marker pens in the upcoming year ending in 2019. It forecasted the sales to be $ 7,000 in quarter-1, $ 8,000 in quarter-2, $ 9,000 in quarter-3 and $ 10,000 in quarter-4. The planned ending inventory is estimated to be $ 1,000 at the end of each quarter by the company's production manager, which in the beginning was $ 1,500.

Prepare the Production Budget for the upcoming year ending in 2019 of Pen international ltd.

Solution:

Following is the Production budget of Pen international ltd for the year ended on December 31, 2019:

The production budget shows the calculation of the number of units produced by the organization. As the production manager decreases the Planned ending units of inventory from $1,500 to $1,000 even though the production is expected to increase per quarter, it seems to be a risky forecast as there is a cut in the company's safety stock.

Conclusion

Budgeting thus helps estimate an organization’s revenue and expenses for the future. In addition, it helps perform various activities like planning, developing, testing, and implementing various projects and programs. As there are different budgets, the approach depends upon the phase in which the organization currently is and the type of business it is doing. Like new startups will prefer zero-based budgeting or incremental budgeting over other budgets.