classic budgeting (powerpoint)

BUDGETING

BCFMA3-1Group 3

Arpilleda, BernardBarcarse, Judy Grace

Barrion, Ma. Joana

Espera, Abigail (A)Go, Willesa

Ruiz, Adrian Paolo

BUDGET

Introduction

PLANNED

ESTIMATED

CONTROLED

The Budget Meeting

The committee will discuss the Budget and Plans For the following Year.

Draw up a budget to estimate what the cooperative will EARN and what it will SPEND.

To prepare a plan.

“A Manager want to be sure that there will be a SURPLUS – NOT A LOSS!”

Agenda In the Budget Meeting:

Estimating the Sales of Produce Estimating the Sales of Farm Supplies Estimating the Running Cost Completing the Estimates

Estimating the Sale Of Supplies

Estimate how many farm supplies they would sell,

Calculate the cost of these goods and their margin.

The Margin

---TUBO in Tagalog.

PRICING PROLEMS LEAKAGE PROBLEMS

Estimating the Gross Surplus Gross Surplus- Earnings on the

operation.

*Estimating Running Costs

*Running Costs

*Expenses associated with administering a business on a day to day basis.

*Operating costs include fixed costs, variable costs and overhead.

*It also include costs associated with non-operating activities, such as interest expenses on a loan.

$182,000

STAFF

BUILDING, EQUIPMENT

TRANSPORT

INTEREST

BAGS

OTHER COSTS

Breakdown of Running Costs

CostItems

This Year Estimation Next Year

Mark. Supply Total Mark. Suppl

y Total

Staff 28,992 6,048 35,04

0Building, Equipment

7,645 815 8,460

Interest 3,600 180 3,780

Transport 7,360 1,840 9,200

Bags 2,200 - 2,200

Other Costs 2,957 328 3,285

Total 52,754 9,211 61,96

5

*Staff

*Permanent staff and occasional laborers

*Fixed wages to permanent staff per month:

Manager $ 700

Clerk 600

Storeman 550

Driver 550

Total $ 2,400

*Permanent Staff

*Wage increase of 7% next year

*Additional 5% social fee (insurance and pension)

This year’s wages $ 2,400 per month

+ Wage increase (7%) 168

Wages next year $ 550

+ Social fee (5%) 128

Total cost $ 2,696 per month

$2,696 X 12 months = $32,352 $32,400

*Occasional Laborers

*This year paid $4,800

*Next year will need more laborers because of production increase

$4,800 $5,800

*Staff

*Costs for training next year = $280

$31,860 $31,900 $6,620 $6,600

$38,480 $38,500

ESTIMATED STAFF COSTS NEXT YEARMarketing Supply Total

Permanent Staff 25,920 6,480 32,400Occ. Laborers 5,800 - 5,800Training 140 140 280 Total 31,860 6,620 38,480

Estimation of Running Costs

CostItems


Mark.

Supply Total Mark. Suppl

y Total

Staff 28,992 6,048 35,04

0 31,900 6,600 38,500

Building, Equipment

7,645 815 8,460

Interest 3,600 180 3,780

Transport 7,360 1,840 9,200

Bags 2,200 - 2,200

Other Costs 2,957 328 3,285

Total 52,754 9,211 61,96

5

*$136,000 building’s annual depreciation cost:

$136,000 ÷ 20 = $6,800

*$2,000 office renovation’s annual depreciation cost:

$2,000 ÷ 20 = $100

*Estimated building maintenance and minor repairs next year:

$800

*Building and Equipment

Depreciation and Maintenance of Building

Dep. Cost of the Building $ 6,800

Dep. Cost of the Office 100

Maintenance and Repairs 800

Total costs $ 7,700


*$4,000 FFE’s annual depreciation cost:

$4,000 ÷ 5 = $800

*$1,500 new screeners’ annual depreciation cost:

$1,500 ÷ 5 = $300

*Estimated equipment maintenance and minor repairs next year:

$100



Depreciation and Maintenance of Equipment

Dep. Cost of Equipment $ 800

Dep. Cost of New Screeners 300

Maintenance and Repairs 100

Total costs $ 1,200


Estimated Building and Equipment Costs Next YearMarketing Supply Total

Building 6,900 800 7,700Equipment 1,100 100 1,200 Total 8,000 900 8,900


CostItems



y Total

Staff 28,992 6,048 35,04

0 31,900 6,600 38,500

Building, Equipment

7,645 815 8,460 8,000 900 8,900

Interest 3,600 180 3,780

Transport 7,360 1,840 9,200

Bags 2,200 - 2,200

Other Costs 2,957 328 3,285

Total 52,754 9,211 61,96

5

*$30,000 loan’s interest:

$30,000 X 6% = $1,800

*Overdraft’s interest

$1,980 $2,000

$3,620 $3,600 $180 $200

*Interest

ESTIMATED INTEREST COSTS NEXT YEARMarketing Supply Total

Bank Loan 1,620 180 1,800Overdraft 2,000 - 2,000 Total 3,620 180 3,800


CostItems



y Total

Staff 28,992 6,048 35,04

0 31,900 6,600 38,500

Building, Equipment

7,645 815 8,460 8,000 900 8,900

Interest 3,600 180 3,780 3,600 200 3,800

Transport 7,360 1,840 9,200

Bags 2,200 - 2,200

Other Costs 2,957 328 3,285

Total 52,754 9,211 61,96

5

*Same as previous year’s figures except an increase for petrol, oil and mileage because of increased production

$5,600 $7,400

*Transport

TRANSPORT COSTS

This Year Estimated Next Year

Fixed Costs (License, Insurance) 550 550Variable Costs (Petrol, Oil, Mileage) 5,600 7,400Maintenance, Repairs 1,050 1,050Depreciation 2,000 2,000 Total 9,200 11,000


CostItems



y Total

Staff 28,992 6,048 35,04

0 31,900 6,600 38,500

Building, Equipment

7,645 815 8,460 8,000 900 8,900

Interest 3,600 180 3,780 3,600 200 3,800

Transport 7,360 1,840 9,200 8,800 2,200 11,000

Bags 2,200 - 2,200

Other Costs 2,957 328 3,285

Total 52,754 9,211 61,96

5

*Cost of new bags:

$2.80 X 2,200 bags = $6,160

$6,160 $6,200

*Bags


CostItems



y Total

Staff 28,992 6,048 35,04

0 31,900 6,600 38,500

Building, Equipment

7,645 815 8,460 8,000 900 8,900

Interest 3,600 180 3,780 3,600 200 3,800

Transport 7,360 1,840 9,200 8,800 2,200 11,000

Bags 2,200 - 2,200 6,200 - 6,200

Other Costs 2,957 328 3,285

Total 52,754 9,211 61,96

5

ITEMSTHIS YEAR

Marketing Supply TotalInsurances 1,026 114 1,140

Stationery 590 65 655

Sundries 1,341 149 1,490Total 2,957 328 3,285

*Other Costs

*Increase Insurances (from $1,140 to $1,400)

Insurance Premium: $800

Insurance for Stock: $600

*Stationery

Receipt Production: $480

New Accounting Books: $100

*Sundries

Miscellaneous Costs: $590 $700

Due to Cooperative Union: $900

*Other Costs

ITEMS

THIS YEAR

ESTIMATE FOR NEXT YEAR

TotalMarketin

gSupply Total

Insurances

1,140 1,260 140 1,400

Stationery

655 480 100 580

Sundries 1,490 1,440 160 1,600

Total 3,285 3,180 400 3,580

*Other Costs

$3,180 $3,200 $3,580 $3,600


CostItems



y Total

Staff 28,992 6,048 35,04

0 31,900 6,600 38,500

Building, Equipment

7,645 815 8,460 8,000 900 8,900

Interest 3,600 180 3,780 3,600 200 3,800

Transport 7,360 1,840 9,200 8,800 2,200 11,00

0

Bags 2,200 - 2,200 6,200 - 6,200

Other Costs 2,957 328 3,285 3,200 400 3,600

Total 52,754 9,211 61,96

561,70

010,30

072,00

0

FOLLOWING UP THE BUDGET

Sabu says: “This cash budget is very useful for me. In fact, I use it as the main instrument for controlling developments and to help me follow up result.”

The budgets must be used, otherwise it would be meaningless to prepare them.

OPERATIONAL BUDGET

It can be used for continuous follow-up, if it is subdivided into shorter periods, months or at least quarters.

CASH BUDGET

Can help him to oversee that everything goes accordingly to plan, month by month.

October

ESTIMATED ACTUAL

Paid to suppliers for FERTILISERS

37000 42000

TRANSPORT 1200

TOTAL 6200

Clearly, it is useful for Sabu to have this budget. He can immediately see how small things that happen now in October will cause problems in February.

March (middle of trading period)“No I haven’t. Now more than ever I must remember the estimates and compare them with the actual operations. I Keep a special eye on the expenses. If they should increase suddenly, outside of the control, there will be problems.”

EXPENDITURES FOR FEBRUARY ESTIMATED ACTUAL

PAID TO MEMBERS FOR:GROUNDNUTS 493,500 491,800

POTATOES 102,000 91,600

BEANS 15,300 15,180

PAID TO SUPPLIERS FOR:PESTICIDES

PESTICIDES

RUNNING COSTS:STAFF 4,500 4,800

BUILDING/EQUIPMENT 1,500

INTEREST

TRANSPORT 1,500 1,250

BAGS

OTHER COSTS

TOTAL 616,800 606,130

THE FOLLOW-UP PROCEDURE

He compares the actual income and expenditures with the budget. He notes if there are any large differences.

He tries to find out the reasons for the differences.

THE FOLLOW-UP PROCEDURE

He considers whether or not the difference will affect the overall result for the whole year.

If it does so, he decides (together with the committee) what action he will take.

In this way, by checking the progress each month and taking action when necessary, the committee and the manager guide the cooperative towards the goal, which is to achieve the result they have planned for in the budget.

PLANNING AND CONTROLLING

Means 3 things:Planning the sales,Planning the costs,Following up and checking that

the business if going according to plan.

PREPARING A CASH BUDGET

Ma. Joana G. Barrion

A cash budget shows how much

money is expected to come in

every month, and how much is

to be paid out.

• Groundnuts

Sabu can see that they have estimated sales of 840 tonnes, and that they expect to receive $ 2,100,000 from the marketing board as payment for this. The Marketing Board will pay an advance in January so that Sabu have something to pay for farmers when they start to bring the nuts. Sabu will apply for $ 1, 000,000 and they trust they can get it. That is about half the estimated amount. Otherwise, they will receive the balance in May when everything has been delivered.

Open “Preparing A Cash Budget.xls”

for reference.

From previous years, Sabu knows that 25% of the harvest is collected in January, 50% in February, and 25% in March. Traditionally, Unity pays about half of the total price when the nuts are collected, and the rest in May or June, as soon as the Marketing Board has sent their final payment to Unity. Sabu’s calculations are based on a price of $2,350 per ton, which is 6% lower than the Marketing Board price. As we remember from the operational budget, the cooperative takes 6% in commission.

• Beans

Last few years’ production figures had hovered steadily around 12 tons and the committee found no reason to expect a change. The price had increased with the inflation rate in recent years and would probably gain need to be raised by few percentage points. The committee agreed a cautious estimate of $3 per kg for beans; assuming that half will be sold by April and half by May.

After some discussions and tentative calculations, Sabu decided to settle on a 15% commission for potatoes and beans. Sabu will pay half of this to the farmers as an advance when the beans are collected on February and the final payment on June.

• Potatoes

Sabu expects to receive $240,000 for the potatoes. The potato company pays Sabu cash on delivery and that will be in April.

Unity was going to take 15% commission on the potato business. That means that $ 204,000 would be paid to potato growers. They will receive half of this as an advance when the potatoes are collected in February, and the final payment in June.

• Farm Supplies

Unity Cooperative delivers the fertilizers to the farmers in June every year. Total sales are estimated $105,000. Usually Sabu collects the payment in connection with the final payment to the farmers for groundnuts, so he can be quite sure about this income.

Sabu will receive $45,000 for pesticides in March, although he may receive some of it already in January and February when members start bringing their produce in.

The invoices from the wholesalers for fertilizers will be about $ 98,000, which must be paid at the latest in August. The pesticides will cost about $37,000 and must be paid for in January.

• Staff Cost

The total staff costs amount $ 38,500. Sabu first takes the cost for the full-time permanent staff, $ 32,400 and divides this by 12. That gives the sum of $2,700 to be paid out every month. A sum of $5,800 had been estimated for occasional labour.

To divide this amount, Sabu relies on his statistics again, checking last year’s practice and using the same pattern, Sabu decided to allocate $ 300 to October; $ 1,400 to January; $ 1,800 to February; $ 1,400 to March; $600 to April; and $300 to June.

Furthermore, there are travel costs for Sabu’s training course and the committee members’ seminar. Both these vents will be in September, so the September amount must be increased by $280.

• Building and Equipment

There are a few things that make the operational budget and the cash budget differ here. First, the depreciation cost is nothing that is paid out in cash, so Sabu can forget about that one. Second, there will be a cost for renovating the office, and that amount of $2,000 will over the depreciation period. But the amount of $2,000 will be needed, when the job is to be done in October, so it must be included in the cash budget. The same goes for the new screeners, to be purchased in December for $1,500.

The cost for maintenance and repairs is $900. Sabu cannot say when the money will be needed, so he includes it early in the year to be on the safe side.

• Interest: $3,800

MARKETING SUPPLY TOTAL

BANKLOAN $ 1,620 $180 $1,800

OVERDRAFT $2,000 $2,000

TOTAL $3,620 $180 $3,800

• Transport

Total Transport Cost: $11,000

JULY–SEPTEMB

ER

OCTOBER-

DECEMBER

JANUARY-MARCH

APRIL-JUNE

$ 900 $ 2,100 $ 5,500 $ 2,500

• Bags

The committee members stressed that there must be enough bags in the store when the season started, so they decided to buy 2200 new bags. Any su.rplus bags could of course be saved for the next year. Sabu calculated the cost- $6,200.

OTHER COSTS

• Insurances

Sabu told the committee that they should increase the insurance value for the building when the new office is ready. The new pemium will be about $800. And the new insurance for our stock will cost about $600 next year.

•Stationery

Sabu needs to print produce receipts for $480 and buy a new set of accounting books for about $100.

• Sundries

Last year, Sabu spent $128 on cleaning material; $226 on travel costs; $116 on bank charges; and $80 to entertain some visitors from the ministry. That is $590 in all. Sabu allow a little bit more next year, because of price increases and the increased business, say $700. Also, Sabu have to pay a levy of $900 to the Cooperative Union.

COMPLETING THE BUDGET

WAYS OF IMPROVING THE NET SURPLUSCan the sales of produce or supplies

be increased?Can the commission on produce be

increased?Can the margin on supplies be

increased?Can the costs of running the business

be reduced?

To avoid a risk of loss, it may sometimes be necessary to increase commissions and margins, or to reduced the costs drastically, perhaps by reducing the number of staff.

THE BUDGET AS MAIN TOOL

Used to make quick action to solve the problems.

It helps discover any unexpected changes and to solve any problem that arise..

QUARTERLY OR MONTHLY BUDGETS

The budget in its initial form just shows the total result of the operation – it is an “operational budget”. If sales and expenditures conform to the budget, then the coop will have another successful year and make a net surplus.

TRSANSPORT COST:

JULY-SEPTEMBER

OCTOBER-DECEMBER

JANUARY-MARCH

APRIL-JUNE

900 2,100 5,500 2,500

As the budget looks now, it is not easy for Sabu to control the development of the business according to plan. This is because the budget shows the TOTAL RESULT for the whole year.

Open “Completing the Budget.xls”

for reference.

With this differentiated budget the manager will find it easier to control the transport costs. This is one way of developing and using a budget.

Another way is to develop the operating budget into a CASH BUDGET.

classic budgeting (powerpoint)

Education