The budget is classified broadly into two categories: the operational budget, which reflects the results of operating decisions; and the financial budget, which reflects the financial decisions of the firm.
The operating budget consists of:
1. Sales budget, including a computation of expected cash receipts
2. Production budget
3. Ending inventory budget
4. Direct materials budget, including a computation of expected cash disbursements for materials
5. Direct labor budget
6. Factory overhead budget
7. Selling and administrative expense budget
8. Pro forma income statement
The financial budget consists of:
1. Cash budget
2. Pro forma balance sheet
The major steps in preparing the budget are:
1. Prepare a sales forecast
2. Determine production volume
3. Estimate manufacturing costs and operating expenses
4. Determine cash flow and other financial effects
5. Formulate projected financial statements
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