GROUP 12

BUDGETING ADMINISTRATIVE EXPENSES

Planning and controlling management relies upon budgeting to obtain financial information quickly. To conduct
business operations efficiently, managers must PLAN how the resources of their organization will be acquired
and used and CONTROL the acquisition and use of these resources.
Budgeting- process of planning future business activities and expressing those plans in a formal manner.
Budget - carefully prepared formal statement of plans for the future that is expressed in financial terms.
- Can be prepared monthly, quarterly or annually.
2 TYPES OF BUDGET
Short-range budget- divides the annual budget into quarterly or monthly budgets so that managers and
supervisors are able to evaluate performance and take corrective actions promptly over a relatively short
period of time.
Long-range budget- are important in planning major expenditures such as the purchase of buildings,
machinery, and equipment.
Budgetary control
- use of a budget in regulating and guiding business activities concerned with acquiring and using
resources.
- Preparation of periodic budget performance reports that compare the actual operating data with
budgeted data.
Example:
There is a P15,000 revenue earned from the sales of Product A during April with the P20,000 sales volume
budgeted for April. As a result of this comparison, we can conclude that the P5,000 variance (difference)
between actual sales between budgeted sales seemed to be caused by lack of sales promotion in April. As a
result, we may pan to advertise more intensively in May.
MANAGEMENT OBJECTIVES:
1.
2.
3.
4.
5.

Establish procedures for planning and studying future revenues and expenses.
Coordinate the activities of the various departments of the organization.
Build a basis for administrative control.
Communicate formally the plans.
Motivate all individuals by creating a climate of cost consciousness.

DIALOG FROM THE WORKPLACE

William P. Englesbe
Vice President
Corporate Purchasing and Environmental Affairs
Wheaton Industries Inc.
Millville, New Jersey
QUESTION: As a vice president corporate purchasing and environmental affairs, what role do you play in your
companys program of budgetary control?

ANSWER:

3 BUSINESS AREAS OF RESPONSIBILITY OF PURCHASING

1. Raw materials and components
2. Capital expenditures
3. Manufacturing, repairs and operational (MRO) supplies
CAPITAL EXPENDITURES
Contributors to capital expansion decisions:
Sales, marketing, engineering, research and development, accounting, finance, and purchasing.
Purchasing
- Primary source of creating estimated expenditures for any capital project.
- When capital project is approved, purchasing must then provide the labor, equipment, machinery and
materials at prices comparable to their estimates.
Accounting department- responsible for providing comparative data between actual costs and estimated costs.
MANUFACTURING, REPAIRS AND OPERATIONAL (MRO) SUPPLIES
Many organizations especially manufacturing operations budget the costs as a factor of labor hours, machine
hours or some other easily reportable component of the level of business activity.
ADMINISTRATIVE OFFICE MANAGEMENTS ROLE IN BUDGETARY CONTROL
Administrative Budget
An official, detailed financial plan for an upcoming period for a business. An administrative budget is usually
prepared on an annual or quarterly basis and identifies the costs of running an operation that are not tied to
producing a product or service. Costs can include those associated with non-production and supervisory
payroll, depreciation, amortization, consulting, sales, dues and fees, legal fees and marketing, rent and
insurance. The budget enables management to exercise control of the day-to-day activities of the business.
BREAKING DOWN 'Administrative Budget'
An administrative budget deals with the administrative side of running a business. Non-production payroll may
include sales staff, accounting personnel, managers, clerical staff and other support staff members not
involved in production. An administrative budget is a formal breakdown of all planned expenses, allowing
managers to make estimations and measure progress.
REPORTS PREPARED BY/FOR THE AOM
1. Budgeted expense reports for the various administrative services.
- Estimated expense reports supported by detailed schedule of costs.
2. Budget performance reports.
- Show in detail the actual costs incurred compared with the budgeted figures, the amount of percentage
of variance, and explanations of significant variance.
3. Analytical reports.
- Analysis of the total costs in each department.
4. Special reports.
- Document studies that are prepared at the request of a company officer or initiated by the AOM to
improve some phase of the information management function.
The most important factor that affects the differences in responsibilities assigned to AOM is the size of the
organization.

Small And Medium-Sized Firms

- The AOM may be an accountant who has the responsibility for all administrative services.
- Accountants assisted by the department heads or supervisors may prepare the operating budget for
general and administrative expenses.
Large Companies
- Person responsible for administrative services may be a top-level executive such as a controller or a
vice president.
- Executive in charge receives reports of budgeted expenses such as those in charge of records
management, word processing, mailing, and accounting.
- The Administrator analyzes these reports, consolidates and condenses them into one budget covering
all the information management expenses and submits the final budget to the budget committee.
BUDGET COMMITTEE
- Consists of the budget director, controller, treasurer, production manager, sales manager, and AOM.
- After receiving the various estimates of income and expenses, the budget committee reviews and
revises the money amounts.
- After the agreement has been reached, the figures are finally assembled and consolidated to form the
master budget.
MASTER BUDGET
- Consists of a number of budgets that collectively express the planned activities of the organization. The
individual budgets typically found in a master budget are listed in this figure:
OPERATING BUDGETS
-Show the expected results of the
firms operations during the
budget period.
A. Sales budget
B. Merchandise purchases budget,
Production budget and
Manufacturing budget.
C. Selling expenses budget
D. General and administrative
expenses budget

FINANCIAL BUDGETS
- Include statements that report on
the projected sources of cash and
other resources used in operations,
as well as uses of that cash and
other resources.
A. Cash budget
B. Budgeted income statement
C. Budgeted balance sheet

CAPITAL EXPENDITURES
BUDGET
- Shows the planned
expenditures for new plant
and equipment.

MASTER BUDGET
- a comprehensive budget that expresses the overall
business plan for the whole organization for a period
covering one year or less.
FLEXIBLE BUDGET
- Prediction of costs at various levels of activity.
- It adjusts or flexes for changes in the volume of activity.