Please use reference from the budgeting text.The memo you need to do this assignment is listed below.Also, there are two assignments attached as word documents.For this week’s assignment, you will be using the information from your week 2 memo. In week 2, you were asked to explain to your employees what information you needed to complete a budget. Now you will need to utilize this information to report to your executives. Please prepare a budget presentation to give to the executives of the company. Refer to chapters 1 and 2 in Budgeting Basics and Beyond. You are free to skim through the rest of the book as well. Please be aware, I am not asking you to prepare a detailed budget. I would like a PowerPoint presentation describing what you need money for and why. Keep in mind that your executives are concerned with the big picture for the company, not the minute details of everyday expenses. While this is a fictitious report, you need to provide valid justifications for your requests. This type of presentation is often used to project the future success of the company and could be presented to investors and stockholders as well. Make sure to include a reference page using APA format!





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Running head: MEMO
December 16, 2018
To: employees
December 16, 2018
The information gathered will be used for the management’s preparation of the budget
for later approval by the executive. As such, in this exercise, everyone is requested to adhere to
the following instructions for quality information and efficiency in budgeting.

It must be noted that the information gathered must include updated budget
assumptions; this includes reviewing the assumptions of the company’s business
landscape that were applied in the last budget and updated as necessary. The
review will help in preparation of the updated budget.

Determine the available funding which refers to the amount of funding that most
likely will be available across the budget period. The determination will help in
examining whether the funds will be sufficient to finance the budget period and
also in the projection of any possible deficits.

Determine the likelihood and extent to which step costs may be incurred during
the budget period as well as the activity levels that they may be incurred; this will
aid in providing appropriate estimates of these costs thus preventing escalation of
unknown costs.

Determine revenue forecasts from the sales department. The forecasts will aid in
determining the budget amount that will be adequate to achieve the revenue

Obtain management comments and recommendations of the previous budget as it
will provide deeper insights into developing an updated budget that entails the
diversity of ideas.
Kindly ensure that the above standards are strictly met. Thank you.
Budget Manager
The What and Why of Budgeting
Copyright © 2011. John Wiley & Sons, Incorporated. All rights reserved.
An Introduction
B U D G E T I S D E F I N E D as the formal expression of plans, goals, and
objectives of management that covers all aspects of operations for a
designated time period. The budget is a tool providing targets and
direction. Budgets provide control over the immediate environment, help to
master the financial aspects of the job and department, and solve problems
before they occur. Budgets focus on the importance of evaluating alternative
actions before decisions actually are implemented.
A budget is a financial plan to control future operations and results. It is
expressed in numbers, such as dollars, units, pounds, and hours. It is needed
to operate effectively and efficiently. Budgeting, when used effectively, is a
technique resulting in systematic, productive management. Budgeting
facilitates control and communication and also provides motivation to
Budgeting allocates funds to achieve desired outcomes. A budget may span
any period of time. It may be short-term (one year or less, which is usually the
case), intermediate (two to three years), or long-term (three years or more).
Short-term budgets provide greater detail and specifics. Intermediate budgets
examine the projects the company currently is undertaking and start the
programs necessary to achieve long-term objectives. Long-term plans are very
Shim, J. K., Siegel, J. G., & Shim, A. I. (2011). Budgeting basics and beyond. Retrieved from
Created from apus on 2018-12-13 10:04:07.
Copyright © 2011. John Wiley & Sons, Incorporated. All rights reserved.
Budgeting Basics and Beyond
broad and may be translated into short-term plans. The budget period varies
according to its objectives, use, and the dependability of the data used to
prepare it. The budget period is contingent on business risk, sales and operating
stability, production methods, and length of the processing cycle.
There is a definite relationship between long-range planning and shortterm business plans. The ability to meet near-term budget goals will move the
business in the direction of accomplishing long-term objectives. Budgeting is
done for the company as a whole, as well as for its component segments,
including divisions, departments, products, projects, services, and geographic
areas. Budgets aid decision making, measurement, and coordination of the
efforts of the various groups within the entity. Budgets highlight the interaction
of each business segment with the whole organization. For example, budgets
are prepared for units within a department, such as product lines; for the
department itself; for the division, which consists of a number of departments;
and for the company.
Master (comprehensive) budgeting is a complete expression of the planning operations of the company for a specific period. It is involved with both
manufacturing and nonmanufacturing activities. Budgets should set priorities
within the organization. They may be in the form of a plan, project, or strategy.
Budgets consider external factors, such as market trends and economic
conditions. The budget should list assumptions, targeted objectives, and agenda
before number crunching begins.
The first step in creating a budget is to determine the overall goals and
strategies of the business, which are then translated into specific long-term
goals, annual budgets, and operating plans. Corporate goals include earnings
growth, cost minimization, sales, production volume, return on investment,
and product or service quality. The budget requires the analysis and study of
historical information, current trends, and industry norms. Budgets may be
prepared of expected revenue, costs, profits, cash flow, production purchases,
net worth, and so on. Budgets should be prepared for all major areas of the
The techniques and details of preparing, reviewing, and approving budgets
vary among companies. The process should be tailored to each entity’s
individual needs. Five important areas in budgeting are planning, coordinating,
directing, analyzing, and controlling. The longer the budgeting period, the less
reliable the estimates.
Budgets link the nonfinancial plans and controls that constitute daily
managerial operations with the corresponding plans and controls designed to
obtain satisfactory earnings and financial position.
Shim, J. K., Siegel, J. G., & Shim, A. I. (2011). Budgeting basics and beyond. Retrieved from
Created from apus on 2018-12-13 10:04:07.
The What and Why of Budgeting
Effective budgeting requires the existence of:
Copyright © 2011. John Wiley & Sons, Incorporated. All rights reserved.
Predictive ability
Clear channels of communication, authority, and responsibility
Accounting-generated accurate, reliable, and timely information
Compatibility and understandability of information
Support at all levels of the organization: upper, middle, and lower
The budget should be reviewed by a group so that there is a broad knowledge
base. Budget figures should be honest to ensure trust between the parties. At the
corporate level, the budget examines sales and production to estimate corporate
earnings and cash flow. At the department level, the budget examines the effect of
work output on costs. A departmental budget shows resources available, when
and how they will be used, and expected accomplishments.
Budgets are useful tools in allocating resources (e.g., machinery, employees), making staff changes, scheduling production, and operating the business.
Budgets help keep expenditures within defined limits. Consideration should be
given to alternative methods of operations.
Budgets are by departments and responsibility centers. They should reflect
the goals and objectives of each department through all levels of the organization. Budgeting aids all departmental areas, including management, marketing, human resources, engineering, production, distribution, and facilities.
In budgeting, consideration should be given to the company’s labor
and production scheduling, labor relations, pricing, resources, new product
introduction and development, raw material cycles, technological trends, inventory levels, turnover rate, product or service obsolescence, reliability of input
data, stability of market or industry, seasonality, financing needs, and marketing
and advertising. Consideration should also be given to the economy, politics,
competition, changing consumer base and taste, and market share.
Budgets should be understandable and attainable. Flexibility and innovation are needed to allow for unexpected contingencies. Flexibility is aided by
variable budgets, supplemental budgets, authorized variances, and review and
revision. Budgets should be computerized to aid what-if analysis. Budgeting
enhances flexibility through the planning process because alternative courses
of action are considered in advance rather than forcing less-informed decisions
to be made on the spot. As one factor changes, other factors within the budget
also change. Internal factors are controllable by the company, whereas
external factors usually cannot be controlled. Internal factors include risk
and product innovation.
Shim, J. K., Siegel, J. G., & Shim, A. I. (2011). Budgeting basics and beyond. Retrieved from
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Budgeting Basics and Beyond
Vice President
of Finance
Vice President
of Manufacturing
Vice President
of Marketing
of Manufacturing
Director of Sales
Investment Centers
Profit Centers
Revenue Centers
Cost Centers
Copyright © 2011. John Wiley & Sons, Incorporated. All rights reserved.
EXHIBIT 1.1 Budget Segments
Forecasting is predicting the outcome of events. It is an essential starting point
for budgeting. Budgeting is planning for a result and controlling to accomplish
that result. Budgeting is a tool, and its success depends on the effectiveness
with which staff use it. In a recessionary environment, proper budgeting can increase the survival rate. A company may fail from sloppy or incomplete budgeting.
Exhibit 1.1 shows a graphic depiction of budget segments.
We now consider planning, types of budgets, the budgetary process,
budget coordination, departmental budgeting, comparing actual to budgeted
figures, budget revision and weaknesses, control and audit, participative
budgeting, and the pros and the cons of budgets.
Budgeting is a planning and control system. It communicates to all members of
the organization what is expected of them. Planning is determining the activities
to be accomplished to achieve objectives and goals. Planning is needed so that a
company can operate its departments and segments successfully. It looks at what
should be done, how it should be done, when it should be done, and by whom.
Shim, J. K., Siegel, J. G., & Shim, A. I. (2011). Budgeting basics and beyond. Retrieved from
Created from apus on 2018-12-13 10:04:07.
The What and Why of Budgeting
Planning involves the determination of objectives, evaluation of alternative
courses of action, and authorization to select programs. There should be a
good interface of segments within the organization.
Budgets are blueprints for projected action and a formalization of the
planning process. Plans are expressed in quantitative and monetary terms.
Planning is taking an action based on investigation, analysis, and research.
Potential problems are searched out. Budgeting induces planning in each phase
of the company’s operation.
A profit plan is what a company expects to follow to attain a profit goal.
Managers should be discouraged from spending their entire budget, and should
be given credit for cost savings.
Budget planning meetings should be held routinely to discuss such topics
as the number of staff needed, objectives, resources, and time schedules. There
should be clear communication of how the numbers are established and why,
what assumptions were made, and what the objectives are.
It is necessary to be familiar with the various types of budgets to understand the
whole picture and how these budgets interrelate. The types of budgets include:
Copyright © 2011. John Wiley & Sons, Incorporated. All rights reserved.
Master budget
Operating and financial budgets
Cash budget
Static (fixed) budget
Flexible (expense) budget
Capital expenditure budget
Program budget
Incremental budget
Add-on budget
Supplemental budget
Bracket budget
Stretch budget
Strategic budget
Activity-based budget
Target budget
Rolling (continuous) budget
Probabilistic budget
Shim, J. K., Siegel, J. G., & Shim, A. I. (2011). Budgeting basics and beyond. Retrieved from
Created from apus on 2018-12-13 10:04:07.
Budgeting Basics and Beyond
These budgets are briefly explained next.
Master Budget
A master budget is an overall financial and operating plan for a forthcoming
calendar or fiscal year. It is usually prepared annually or quarterly. The master
budget is really a number of subbudgets tied together to summarize the planned
activities of the business. The format of the master budget depends on the size
and nature of the business.
Operating and Financial Budgets
The operating budget deals with the costs for merchandise or services produced. It covers income statement items comprised of revenues and expenses.
In contrast, the financial budget examines the expected assets, liabilities, and
stockholders’ equity of the business. It encompasses balance sheet items. Both
budgets are needed to see the company’s financial health.
Copyright © 2011. John Wiley & Sons, Incorporated. All rights reserved.
Cash Budget
The cash budget is for cash planning and control. It presents expected cash
inflow and outflow for a designated time period. The cash budget helps
management keep cash balances in reasonable relationship to its needs and
aids in avoiding idle cash and possible cash shortages. The cash budget typically
consists of four major sections:
1. Receipts section, which is the beginning cash balance, cash collections
from customers, and other receipts
2. Disbursement section, comprised of all cash payments made by purpose
3. Cash surplus or deficit section, showing the difference between cash
receipts and cash payments
4. Financing section, providing a detailed account of the borrowings and
repayments expected during the period
Static (Fixed) Budget
The static (fixed) budget is budgeted figures at the expected capacity level.
Allowances are set forth for specific purposes with monetary limitations. It
is used when a company is relatively stable. Stability usually refers to sales.
The problem with a static budget is that it lacks the flexibility to adjust to
unpredictable changes.
Shim, J. K., Siegel, J. G., & Shim, A. I. (2011). Budgeting basics and beyond. Retrieved from
Created from apus on 2018-12-13 10:04:07.
The What and Why of Budgeting
In industry, fixed budgets are appropriate for those departments whose
workload does not have a direct current relationship to sales, production, or
some other volume determinant related to the department’s operations. The
work of the departments is determined by management decision rather than by
sales volume. Most administrative, general marketing, and even manufacturing management departments are in this category. Fixed appropriations for
specific projects or programs not necessarily completed in the fiscal period also
become fixed budgets to the extent that they will be expended during the year.
Examples include appropriations for capital expenditures, major repair projects,
and specific advertising or promotional programs. The static budget will be
illustrated in Chapter 6, “Master Budget.”
Flexible (Expense) Budget
Copyright © 2011. John Wiley & Sons, Incorporated. All rights reserved.
The flexible (expense) budget is most commonly used by companies. It allows for
variability in the business and for unexpected changes. It is dynamic in nature
rather than static. Flexible budgets adjust budget allowances to the actual activity.
Flexible budgets are effective when volumes vary within a relatively narrow range.
They are easy to prepare with computerized spreadsheets such as Excel.
The four basic steps in preparing a flexible (expense) budget are:
1. Determine the relevant range over which activity is expected to fluctuate
during the coming period.
2. Analyze costs that will be incurred over the relevant range in terms of
determining cost behavior patterns (variable, fixed, or mixed).
3. Separate costs by behavior, determining the formula for variable and mixed
4. Using the formula for the variable portion of the costs, prepare a budget
showing what costs will be incurred at various points throughout the
relevant range.
Due to uncertainties inherent in planning, three forecasts may be projected: one at an optimistic level, one at a pessimistic or extremely conservative
level, and one at a balanced, in-between level. Flexible budgets are illustrated
in Chapter 7, “Cost Behavior.”
Capital Expenditure Budget
The capital expenditure budget is a listing of important long-term projects to be
undertaken and capital (fixed assets such as plant and equipment) to be
Shim, J. K., Siegel, J. G., & Shim, A. I. (2011). Budgeting basics and beyond. Retrieved from
Created from apus on 2018-12-13 10:04:07.
Budgeting Basics and Beyond
Need for Flexible Budgets
he difficulty of accurately predicting future financial performance can be
readily understood by reading the annual report of any publicly traded
company. For example, Nucor Corporation, a steel manufacturer
headquartered in Charlotte, North Carolina, cites numerous reasons why its
actual results may differ from expectations, including: (1) the supply and cost
of raw materials, electricity, and natural gas may change unexpectedly; (2) the
market demand for steel products may change; (3) competitive pressures from
imports and substitute materials may intensify; (4) uncertainties regarding the
global economy may affect customer demand; (5) changes to U.S. and foreign
trade policy may alter current importing and exporting practices; and (6) new
government regulations could significantly increase environmental
compliance costs. Each of these factors could cause static budget revenues
and/or costs to differ from actual results.
Copyright © 2011. John Wiley & Sons, Incorporated. All rights reserved.
Source: Nucor Corporation 2010 annual report.
acquired. The estimated cost of the project and the timing of the capital
expenditures are enumerated, along with how the capital assets are to be
financed. The budgeting period is typically 3 to 10 years. A capital projects
committee, which is typically separate from the budget committee, may be
created solely for capital budgeting purposes.
The capital expenditures budget often classifies individual projects by
objective, as for:
Expansion and enhancement of existing product lines
Cost reduction and replacement
Development of new products
Health and safety expenditures
The lack of funds may prevent attractive potential projects from being
An approval of a capital project typically means approval of the project in
principle. However, final approval is not automatic. To obtain final approval,
a special authorization request is prepared for the project, spelling out the
proposal in more detail. The authorization requests may be approved at various
managerial levels, depending on their nature and dollar magnitude.
Shim, J. K., Siegel, J. G., & Shim, A. I. (2011). Budgeting basics and beyond. Retrieved from
Created from apus on 2018-12-13 10:04:07.
The What and Why of Budgeting

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