Operating Budget Final Paper

1189 Words May 26th, 2012 5 Pages
Operating Budget Final Paper
Padube09
ACC 206
Jacob Gordon
March 25, 2012

ACC206 Final Paper
An operating budget helps to organize and manage the costs and income to run your business. It helps a company to understand day to day costs and income for the company. “A detailed projection of all estimated income and expenses based on forecasted sales revenue during a given period usually one year.” (Operating budget) Overall it is a great way to ensure that the company can see if it is set up to make and exceed its breakeven point for the year. It gives a company a chance to review any changes that need to be made in order to be profitable for the year. Elements of an operating budget include the sales budget, production budget,
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It shows this data in both dollars and units of production. This budget will give the company manager an idea of the break even point and how much merchandise needs to be produced to make a profit. Without this budget the production budget cannot be produced. It has to show accurately the amount of sales for the year. It shows expected high volume periods and low volume periods. Again, this budget has to be correct or else estimates for the year will terribly off and may have very steep and costly effects for a company.
The next budget is the production budget. This budget identifies how much supply needs to be produced in order to meet demand. This demand is identified in the sales budget. This budget is shown in number of units to be produced only. It only counts what needs or does not need to be produced. This budget gives managers of companies a view of how much to produce throughout the year. If for instance one month is a high demand month, then the manager can make a decision to create more product to have on hand in the months prior as they may not be high demand. This can save money for a company by allowing them to make sure stock is sufficient to hit to the high demand periods and not fall into a panic state trying to produce more at the last minute.
The direct materials budget creates a budget for all raw materials that needs to be bought to produce products. This

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