Income budgets
The anticipated calculation of income is the first step in the implementation of any budget program since this line is the one that provides the means to carry out operations.
The income budget is made up of:
• The sales budget.
• The income budget.
Sales budget.
Formerly, sales were considered and subject to the ability of the sellers but today with techniques applied in the Administration, such as in this case the enormous comprehensive range of marketing to give rise to speculation with more or less precision in the results so Thus, in order to determine the sales budget, several have been found that serve to foresee almost correctly.
Sales are factors of various characters that mark the procedures for achieving the sales budget, said are:
• Specific sales factors. They are classified in turn into:
o Adjustment. Those factors due to accidental fortuitous causes that influence the predetermination of the sale are referred to, these can have a harmful effect or a healthy effect.
o The first ones are those that decreased the sales of the previous period and that obviously should be taken into account for the budget of the income of the following year, as an example of these factors, the following can be cited:
- Strike. Fire. Flood. Lightning.
o The second (healthy effect) are those that affected the benefit of the previous period and that may not happen again, such as:
o Products that had no competition, special sales contracts, situations or policies, etc.
o They are exchange:
o Those modifications that are going to be made and that of course will influence sales such as:
o Change of material.
o Change of products.
o Presentation.
o Redesigns.
o Production change.
o Adaptation of the production program.
o Improvements in company situations.
o Change of markets.
o Changes in sales methods.
o Better prices.
o Services.
o Advertising.
Applying better distribution systems in the lines referring to commissions and compensation.
Growth currents.
These factors refer to the development in sales, taking into account factors made by the company itself, such as loans, regardless of other productive branches with which there will logically be an increase in sales.
General economic forces.
They represent a series of external factors that influence sales and these factors are a state of affairs and not something precise, of which qualitative terms arise, arising in problem when referring to quantitative terms.
To determine this factor, data must be obtained from credit institutions, government agencies and private organizations that prepare indices of general economic forces, providing data such as prices, production, occupation, purchasing power of the currency, finances, reports on the bank, income from and national production, income per capita, by class, by zone, etc.
Based on the above data, it is possible to know the trend in the economic cycle and the movement that may occur to the company.
Administrative Influences.
Unlike the previous one, it is internal to the economic entity, referring to the decisions that its managers must make, after considering the specific sales factors and the general specific factors that of course have a direct impact on the sales budget. These decisions may choose to change the nature or type of product, study a new market policy, apply another advertising policy, vary the production policy, price, etc.
Sales budget formula.
PV = D
PV = Sales budget.
V ± = sales of the previous year.
F = specific sales factors.
a) adjustment factors.
b) Factors of change.
c) Current growth factors.
E = General economic forces (% estimated realization of planned)
D = Administrative influence. (% estimated by the Administration).
Adjustment factors:
They are non-recurring accidental events.
• Detrimental adjustment factors (strike, fire).
• Healthy adjustment factors. (special contracts, etc)
• Beneficially influence sales.
The factors of change:
They offer a means of estimating sales if the possibilities were explored.
a) Change of product, material or redesign.
b) Change of production, facilities, etc.
c) Changes in markets, fashion, etc.
d) Changes in the methods of sale, advertising and advertising, commissions and compensation, etc.
Common growth factors:
Outselling.
Development or expansion.
Goodwill.
General economic forces: these are external factors that also influence when quantifying sales.
Prices, production, occupation, purchasing power of currency, finances, reports on banking and credit, income and production, national, income per capita, by occupation, by class, by zone, etc.
Administrative influencing factors: this internal factor refers to the decisions made by managers and that influence the study of the sales budget.
The decision is made after knowing the specific sales factors and general economic forces.
Change in the nature or type of product, study of a new market policy, new advertising policy, variation in production policy, prices.
Sales budget in units and values.
Generally, the sales budget is the axis of the other budgets, so it must first be quantified in units, in kind, for each type of item lines to later proceed to its valuation according to the market prices governed by the offer and the demand or when it is not so by the determined unit sale price with which the amount of sales is had in monetary values.
Sales budget formula.
PV = D
PV = Sales budget.
V ± = sales of the previous year.
F = specific sales factors.
d) adjustment factors.
e) Factors of change.
f) Current growth factors.
E = General economic forces (% estimated realization of planned)
D = Administrative influence. (% estimated by the Administration).
Example:
Sales from the previous year. 5,000,000
Specific sales factors
to -800,000
b 500,000
c 600,000
E -5%
D 10%
Substituting in the formula:
PV = 1.10
PV = 1.10
PV = 5,300,000 * 1,045
PV = 5,538,500
Sales budget chart.
Sales of the previous year 5,000,000
Specific sales factors
Adjustment (sales decreased) –800,000
Exchange (sales increased) 500,000
Growth currents 600,000
300,000
Budget with specific sales factors 5,300,000
Economic factors
Sales are considered to have decreased by 5% -265,000
Budget up to general economic factors. 5,035,000
Factors for administrative influence, an increase of 10% is estimated 503,500
5,538,500
Example:
Sales from the previous year. 9,000,000
Specific sales factors
to 600,000
b -250,000
c 10%
E 8%
D 0%
Substituting in the formula:
PV = 1.00
PV = 10,250,000 * 1.08 * 1.00
PV = 11,070,000
Taking as a base $ 11,070,000 which is the result of the previous year and arbitrarily distributing in months: 60% from January to June and from July to December 40%
Month% Amount
January 7 11,070.00 774,900
February 6 “664,200
March 9 “996,300
April 15 “1,660,500
May 10 “1,104,000
June 13 “1,439,000
July 11 “1,217,700
August 9 “996,300
September 5 “553,500
October 8 “885,600
November 3 “332,100
December 4 “442,800
sum 100% 11,070,000
Budget of other income.
It refers to own and third-party income that are not the normal ones that an entity has, such as:
Loans and financial operations, in which banking, refaction, authorization and accreditation aspects, issuance of obligations, mortgages, etc. are integrated.
Capital increases for cash deliveries, etc.
It is common for other sales to be found within this budget, which by the way have the same characteristics of not being basic, normal and among these are sales of fixed assets, waste, partners, etc.
This budget is made up of the inventory budget, the production budget, production cost and purchases.
Distribution Cost Budget which is divided into 3: sales, administration and financial costs.
Investment budget.
Tax budget (on profits).
Utilities application budget.
Budget of other expenses.
Inventory budget.
Once the sales whose budgets are an indispensable element in the formulation of the work program of almost all the functions of the companies have been predetermined, it is necessary to project the production of arts. In sufficient quantity to cover the demand required in the sales budget, in order to formulate the production budget it is essential to predetermine the necessary stock to efficiently cover the pre-calculated sales.
An excessive inventory would cause unnecessary expenses derived from the management and storage of idle investments, such as the payment of insurance, interest, obsolescence, etc.
On the other hand, insufficient inventory would lead to delays in ordering aspects and consequently lower sales.
It follows that it is necessary to determine the appropriate inventory for which it is advisable to consider several factors such as:
The length of the production period.
The fluidity of manufacturing.
Thus, by maintaining a rhythm in production, the necessary and sufficient quantities of inventories are provided to adequately supply orders and avoid excessive accumulation of inventories in times of low demand.
To measure the efficiency of the operation, the procedure called INVENTORY ROTATION can be used, which is an analytical measure to analyze, determine the times that inventories in stock have turned in relation to sales in such a way that the greater the The lower turnover will be the amount of working capital required and the operating profit may be higher in relation to the capital invested. For this reason, inventory turnover is used as a measure of efficiency in the operation and administration of the business.
The relationship that is desired in a year and the actual inventory at a given time is what is known as the STANDARD INVENTORY ROTATION for budgeting purposes.
By making a comparison of the real with the standard, it is possible to say if an inventory is excessive or insufficient, for example:
Suppose that sales in units in a year were 60,000 and the average inventory is 20,000 units, the inventory ratio will be 3 (60000/20000) if the inventory is 15,000 logically it is appreciated that to maintain the rotation of 3 the ending inventory is insufficient as we need 60,000 units for the established sale.
According to the previous example, the standard rotation has been achieved, which is satisfactory for the following exercise, which is basic for the determination of the necessary inventory that must be covered from sales that you have drawn.
Production budget.
It is based on expected sales and on the determination of a base inventory, that is, sales must be calculated and in the same way a base inventory to be able to determine production.
Sales budget
1,600,000 units
Base inventory
800,000 units.
Being the actual inventory at the end of the fiscal year of 825,000 units.
It is asked to determine the production budget to cover the sales volume.
Solution:
Determine the standard rotation;
Standard inventory turnover = 1,600,000 / 800,000 = 2
Comparison between the base inventory and the actual ending.
Actual Inventory 825,000
Base Inventory 800000
Excess 25000
Production budget.
Sales budget 1600000
Less
Excess inventory 25,000
1,575,000 units.
Summary.
1,575,000 units have to be produced.
Achieve a sale of 1,600,000 units.
Finish with an inventory of 800,000 units.
In the year 2000, 800,000 more units are sold at the equivalent factor of sales of 400,000 units that is considered as a budget for the following year.
The base inventory for that year is assumed to be 200,000 units with the actual inventory for the year being 300,000 units.
Determine the standard turnover and the number of units of the production budget:
Standard rotation = 1200000/200000 units = 6
Inventory comparison.
Actual inventory 300,000 units.
Base inventory 200,000 units.
Excess 100,000 units.
Production budget:
Sales budget 1,200,000 units.
Excess inventories 100,000 units.
Production budget 1,100,000 units.
Production budget valuation.
Following the development of the sales budget seen through the previous year obtained based on units, the starting point for the predetermination of the base inventory and later the production budget, as well as knowing its volume in units, we proceed to make a quantification, which will be relatively simple and fast if the estimated or standard cost technique is implemented, since in either case, the unit cost sheet will exist and the production cost will be known immediately but if there is the historical valuation technique then it will be necessary to estimate a unit cost that will serve as the basis for the application to the budgeted production and thus determine its cost,logically being necessary before to have carried out the study of the constant expenses and variations in relation to the budgeted production.
To obtain the accounting expenses, they are based on the data from previous years and apply the possible changes in the budgeted period, such as salary increases, changes in depreciation and amortization, in the leases obtained, etc.
By reference of variable expenses, there must also be a database of previous periods without considering the normal situations that do not affect the budget period, in order to refine the data and be in a better possibility of realization, possible changes must be included and determined a cost that will serve for the valuation of budgeted production.
On some occasions, when it is produced under the production order, companies tend to adjust their production volumes to previously known orders.
Shopping budget
It is made up of selling, administrative and some financial expenses.
Selling expenses budget:
These expenses are those incurred by the activities tending to carry out the sales function and range from the time the product was manufactured until it is placed in the hands of the customer.
Such functions are considered the expenses for remuneration to sellers, office expenses, advertising and propaganda, etc.
It is important to know how to manage these expenses where we will classify the constant concepts (fixed and regulated and variable in relation to sales).
The advertising budget: it is the set of means necessary to awaken the interest of potential consumers and create purchasing habits through messages, in the same way the impact produced by the presentation of the product, benefits that it offers, quality, etc.
Advertising will be more effective the more individual, specific and different it is.
Advertising is one of the means that merchants and industrialists use to get their products to the final consumer in coordination with the other resources available to the company, in order to increase its sales.
To prepare the advertising budget it is necessary to know the amount of money that has been allocated in order to be able to make estimates of the objectives to be achieved and the means to achieve them.
The preparation of this budget can be carried out following the best known methods but using the one that best suits the requirements of each company, among which are: the fixed percentage on sales, the advertising effort of the competition and the objectives to be achieved.
Of the previous methods, the most logical is that of the objectives that consists of:
Make an analysis of the company's situation in terms of resources, production, sales force and market potential, always limited to the size of the campaign and the advertising and financial means, as well as the benefit that it is intended to have.
The budget for administrative expenses.
This budget includes those expenses that derive directly from the functions of management and control of the various activities of the company, since its content is so broad and that the determination of its nature will depend on the internal organization and the environment in that develops in particular.
Of these types of expenses are mentioned. Fees, representation, executive and administrative expenses, payments to lawyers, etc.
In relation to these expenses, it is necessary to carry out an analysis of the expenses incurred in the past so that the constants and variants are also determined.
Differences between selling expenses and administrative expenses.
By department carried out, in sales expenses we have: commissions, advertising and in administration expenses…: payment to lawyers.
Financial expenses budget.
This budget is determined in a similar way to the other expense budgets and includes all those disbursements from interest on loans contracted in order to finance the operations program, such as: authorization or accreditation loans, refactional loans, etc. and in general all the expenditures necessary to raise funds to the company.
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