Developing an Operating Budget Paper

Developing an Operating Budget Paper

Developing an Operating Budget Paper

Introduction

An operating budget is a financial projection of a company’s expenses and revenue over a period. Companies use operating budgets to plan their operations expected to run over a specified period (Khan, 2019). The critical components of an operating budget include non-cash expenses, fixed costs, variable costs, production, direct materials, labor, overhead costs, and revenues. The major purpose of operating budget is to establish accountability, manage expenses, and project future expenses. Developing an Operating Budget Paper

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Why Budgets Are Important

Budgets are critical because they help organizations/governments/individuals to effectively plan for their daily activities. In particular, budgets help their users to track their actual day-to-day expenses while projecting future expenses (Hastings, 2021).

Businesses operate on pre-determined start-up and operating money Operating budgets help organizations to ensure that they are operating within their financial budgets. Besides, operating budgets help firms to maintain financial accountability (Batra & Verma, 2017 Developing an Operating Budget Paper). Through budgets, firms can practice financial prudence which is careful management of available funds.

Difference between Operating, Project, & Capital Budget

Operating budget refer to finances used by companies to cover their day-to-day operations. Capital budgets are budgets for finances used for long-term investments or projects (Schmidgall, & Kim, 2018). A project is an investment/endeavor which is temporary and requires financial investment to operate. In operating budget, companies create an estimate budget by estimating the value of revenues versus the cost of expenses. Examples of operating costs include raw materials, utilities, labor costs, and raw materials. Capital budgeting is used by firms to plan and finance major projects such as purchase of new equipment or building a new plant. Developing an Operating Budget Paper

Provide Correct Revenue & Expenses

When a company wants to calculate its revenue, it deducts its expenses form the cost of goods sold. A firm that records more revenue than its expenses have a positive net income. Conversely, when a company’s total expenses are more than its revenues, it has negative net income. From the Med/Surg department, the total of the current year’s actual is $ 182, 228,324. The total of next year’s budget is 177,700, 500.

Estimate the Correct Revenue & Expenses

The estimation of revenue is done by subtracting the Cost of Goods Sold from the expenses. Conversely revenues- expenses= Net profit, Operating Expense = Sales Commission + Advertising Expense + Salaries + Depreciation + Rent + Utilities. Based on this formula, the correct revenue is 68,680,597. The correct expenses from the budget is 45,557,081. Developing an Operating Budget Paper

Balanced Budget for the Next Fiscal Year

For next year’s fiscal budget, identify the sum of all costs for which you or the company will be liable over each time frame. Sort each expenditure based on the time for which it is a concern, then classify each cost as fixed or variable.

Conclusion

An operating budget is a critical tool used by companies/individuals/governments to plan effectively for their day-to-operations. Operating budgets help firms to achieve financial accountability through prudent spending of funds. Besides, operating budgets is used by firms to make future financial projections.

Developing an Operating Budget Paper References

Batra, R., & Verma, S. (2017). Capital budgeting practices in Indian companies. IIMB Management Review29(1), 29-44. https://doi.org/10.1016/j.iimb.2017.02.001

Hastings, N. A. J. (2021). Capital Planning and Budget. In Physical Asset Management (pp. 241-262). Springer, Cham.

Khan, A. (2019). Evaluating Capital Projects and Budget Decisions. In Fundamentals of Public Budgeting and Finance (pp. 319-359). Palgrave Macmillan, Cham.

Schmidgall, R., & Kim, M. (2018). Operating budget processes and practices of clubs: a repeated cross-sectional study over four decades. Journal of Quality Assurance in Hospitality & Tourism19(4), 476-494. https://doi.org/10.1080/1528008X.2018.1438958