Operating Budgets

670 Words Dec 26th, 2012 3 Pages
Operating Budgets
Your Name
ACC206
Instructors Name
April 09, 2012

Operating Budgets An operating budget for a company is a budget that the company operates by. Without this, the company could spend too much money leading them into a bankrupcy or could spend too little money and could cut into the loss of potential sales. The operating budget helps a company maximize its maximum potential without falling in a hole that it cannot climb out of. The operating budget is part of the company's master budget. Horngren, Harrison & Oliver state that the operating budget is a set of budgets that project sales revenue, cost of goods sold, and operating expenses, leading to the budgeted income statement that projects operating income
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It is their responsibility to insure that the company sells enough products to cover all these expenses and make a profit for the company. The elements of the budget consists of three things: The sales budget, the inventory, purchases, and cost of goods sold budget, and the operating expenses budget. There cannot be an operating budget without these three things. The way these budgets are constructed are set by the company. The sales budget is what the company wants to sell in a certain amount of time, usually monthly. This is very important goal to reach, as it is the way the company will generate revenue to cover expenses. The budget set forth is merely a prediction and a goal that will need to be reached. Horngren, Harrison & Oliver state that the inventory, purchases, and cost of goods sold budget determines cost of goods sold for the budgeted income statement, ending inventory for the budgeted balance sheet, and purchase for the cash budget. This is calculated by: Beginning inventory + Purchases - Ending Inventory = Cost of Goods sold. The operating expenses budget is set by all the other expenses that the store will incur. Rent, Salaries, Utilities and every other expense at the store level. All these are added together to calculate the operating expenses budget. Managers are responsible for following these budgets that are set forth by the company and to stay ahead of
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