OPERATING BUDGET

Operating Budget Example

An operating budget is an outline of the expected revenues and costs related to normal operations over the next fiscal year.  The operating budget is actually composed of many different sub-budgets that culminate in the creation of a pro forma (expected) income statement.  These sub-budgets outline expected quantities and dollar amounts for sales, inventory, materials, labor, overhead and other operating expenses.

BENEFITS OF CREATING AN OPERATING BUDGET

An operating budget forces the organization to devote critical thought to its operations for the upcoming fiscal year.  This thorough planning will allow your business to address potential issues and make critical decisions well in advance of their fruition.

THE OPERATING BUDGET PROCESS

• Using a forecast of expected unit sales a production budget can be generated.
• With the production budget available, the amount and cost of direct materials and direct labor can be estimated.
• Next, after the allocation of overhead, ending inventory levels and cost of goods sold can be budgeted.
• Finally, after budgeting for sales, general, and administrative expenses the pro forma income statement can be completed.

FURTHER READING

These links elaborate on the topic at hand.  They serve as a good starting point for those companies that would like to learn more or would like to address these topics “in house.”  For those firms that prefer to continue to focus on their current responsibilities and would value the objective viewpoint of a professional from outside of the organization, click here.

The Operating Budget – AAUP-Wiki
Excerpt:  “Subtracting projected cost of sales and operating expenses from sales and other publishing income leaves operating income or loss. It is this line that reveals the financial outcome of a press's publishing operations.”

ImperoCo Business Solutions - "Developing Organizational Success."