Chapter 15 Budgeting (31/01/2012) Looking at why a company needs to do budgeting. What is budgeting. Its to facilitate management with planning.

. Big organizations run on plans and budgeting is a forward planning process. What is the company goal? The right allocation of budget will help to achieve goals. Case example: P&G Johnson and Johnson. P&G bought over Gillette. Prepare for marketing and be ready for Baby boom in dragon year. Diapers, baby powder etc. So P&G relocate their R&D to Singapore as dragon year boom always in asia. Planning requires a timeline and thats where budgeting comes in. Budgeting is for : Planning Coordination (stock purchase, new assets etc) Communication Implementation (bad planning, ipad china launch understock) Evaluation (consumer response, co. performance) [page 5]

Budget definition and types of budget on [page 6] *impt Budget has to be prepared a few months before hand so it can be reviewed, approved and included into P&L [page 9] Fixed and flexible budget Fixed budget is not reliable as there are external factors that will affect The budget. (1997, companies increase budget cause year was looking good and came the economic crisis.) That calls for flexible budgeting. (Thailand Toyota cars werent financially prepared for the flood 2011 and all the cars were spoilt) [page 10] Budgetary impact If forecast of budget is not realistic, too optimistic or pessimistic, he sales will be affected. Tutorial Questions Lesson Five chapter 15 Page 7/Question 2 **Vimpt (for assignment 1)

CASH BUDGET $000 Sep RECEIPTS Issue of shares(Q6) Sales of old equipment(Q5) 10 Cash Sales 120 Credit sales 120 Total Receipts 250 Oct Nov Dec

75 140 139 354 150 158 308 170 177 346

PAYMENTS Loans (Q7) New office equipment(Q5) 25 Capital Expenditure (Q4) 15 Administratiive expenses(Q3)20 Payment(Q2) 158 Total Payments 218 Surplus/(deficit) Balance B/D(Q8) Balance C/D(Q8) 32 10 42

5 15 20 168 208 146 42 188

200 5 15 20 178 418 110 188 78

5 15 20 188 228 119 78 197

*Surplus and deficit is total receipts minus/plus total payment

Workings Q5. $50,000

50% upon delivery

50% by 5 equal instalment

Q2.

$000 Aug 150 120 28 148 Aug 120 60 25 Sep 160 128 30 158 Sep 140 70 30 20 Oct 170 136 32 168 Oct 160 80 35 24 Nov Dec 180 190 144 34 178 152 36 188

July Credit purchase 140 80%: 20%: Actual payment 112 Q1. $000 July 100 50 112

Credit sales 50%: 25%: 20%:

Nov Dec 180 200 90 40 28 100 45 32

5%: cant collect Actual payment 50 85 120 139 158 177