google.com, pub-6663105814926378, DIRECT, f08c47fec0942fa0 Around the World List 73287964: Purchasing Budget: Elements, How To Do It, and Example


Purchasing Budget: Elements, How To Do It, and Example

The purchasing budget is the report that contains the quantity of raw materials or direct materials in inventory that a company must purchase during each budget period. The quantity indicated in the quotation is necessary to guarantee sufficient inventory on hand to fulfill customer product orders.


This budget differs from the sales or expense budget because the purpose of the purchasing budget is to determine the organization's requirements for purchasing materials in inventory. The purchase budget allows you to determine how much money and how many products are needed to achieve the desired objectives.


Any company that produces or sells a tangible product needs a purchasing budget. This budget is used for companies that have products in stock, since inventory value plays an important role.


Purchasing budgeting is just one aspect of a company's overall budgeting strategy. At its simplest level, it can match the exact number of units expected to be sold in the budget period.


Inventory turnover

The purchasing budget is created to keep track of the company's inventory value and the quantity of merchandise sold.


It is also used to help keep track of the desired ending inventory value each month. It is very important to take into account the final inventory that the company requires to have at the end of each period. 


This is done following the guidelines established by the inventory policy that is managed in order to meet the production and sales needs of the following period, as well as the cost that these inventories represent.


Sales and production estimation

The main basis for making the purchase budget is the production budget, which reflects the number of finished products that must be produced in each period.


According to the quantities indicated to be manufactured of each finished product, there is an “explosion” of materials. This determines the required quantities of the materials that are part of these finished products.


In the same way, the production budget is closely based on the budget prepared by sales for each period.


Cost of materials

This element is very important to be able to plan how much money is required for the purchase of materials in each period, taking into account the amount of inventory necessary to offer a good level of service and reflecting the possible variations that may exist in the cost.


How to do it?

Because the materials purchase budget can be a significant part of all costs, both direct and indirect, careful preparation of this budget is essential to the success of the business.


Otherwise, a carelessly prepared or poorly calculated materials purchase budget can lead to over- or underestimating costs.


The budget is created using a simple formula: ideal ending inventory plus the cost of the merchandise that has been sold, less the value of the inventory that was initially had. This formula generates the total purchase budget.


For example, you want $ 10,000 in ending inventory and the value of the merchandise that has been sold is about $ 3,000; then these values ​​are added and from this total of $ 13,000 the value of the beginning inventory is subtracted. If the starting inventory value is $ 2,000, the total purchasing budget amount would be $ 11,000.


The cost of the merchandise sold is the sum collected from all the services or products offered by the company in terms of production value.


Purchase budget formula in units

The purchasing budget shows the budgeted beginning and ending inventory of materials, the quantity of materials to be used in production, the quantity of materials to be purchased, and their cost during a specified period.


The purchasing budget is a component of the master budget and is based on the following formula:


Materials purchase budget in units = budgeted starting inventory of materials in units + materials in units needed for production - budgeted ending inventory of materials in units


In the above formula, the material in units that is needed for production is calculated as follows:


Materials in units needed for production = budgeted production during the period × units of materials required


Since the budgeted production figure is given by the production budget, the purchase budget can only be prepared after having the production budget.


Example

Using a small pottery business, ArtCraft, the following information will be used to develop the materials purchase budget:


Initial data

Estimated production figures have been obtained from ArtCraft's production budget. The following budgeted units of parts are planned to be produced in each of the four quarters: 1334, 912, 1148, and 1778.


Each final piece requires 4 kg of materials to produce in the factory. The factory has 800 kg of material in stock as of January 1. At the end of the year, the desired ending inventory is 961 kg of material.


It is ArtCraft's policy to keep 15% of next quarter's production needs in Ending Materials Inventory. This policy changes the needs for the purchase of materials, because this final inventory of 15% must be considered in the budget.


It is estimated that the unit cost per kilogram of the material to be purchased will increase in each of the four quarters: $ 3.10, $ 3.20, $ 3.50 and $ 4.00.


Preparation of the purchasing budget

The first step in preparing the purchasing budget is to use this information to calculate the ending material inventory for quarters 1, 2, and 3. The second step is preparing the materials purchasing budget.


Final inventory of material quarter 1 = 15% x (912 units x 4 kg of material) = 547


The final inventory of material quarter 2 = 15% x (1148 units x 4 kg of material) = 689


Final inventory of material quarter 3 = 15% x (1778 units x 4 kg of material) = 1068


Keep in mind that the budgeted final material for the first, second and third quarters is the initial material in the second, third and fourth quarters, respectively.


The table was developed from two simple accounting equations:


Material required for production + final material inventory = total material required.


Total material required - initial material inventory = material purchase budget in kilograms.

 


Annuities Meaning

Finding Travel Insurance For Cancer Diagnosis

How Does the Stock Market Work

Top 10 Ways to Make Money Online

10 Legit Ways to Make Money and Passive Income Online

10 Ways To Cut Your Health Care Costs

The Ultimate Assurance of Buy-sell Agreements

5 Tips to Prepare for Your Property Settlement

8 Habits of Wealthy and Successful People

Why Millennials Choose to Buy Home

7 Tips Every Homeowner Need to Know About Insurance

8 Tip on Homeownner Insurance

10 Question You Should Ask Mortgage Lenders

How Much is My Car Accident Settlement Worth

200 Business Movement News

150 Financial Tip You Should Know

Essential List of Mortgage Application Document

Prepare Yourself Before Investing in Stock

Shopping is the Right Way Without Debt

Factors Affecting Home Loan Rates

Using Credit Cards With No Debt

Plan for Business Loans

Step Before Buying Insurance

Choosing Life Insurance

How to Get Cheap Car Insurance

If in Debt With a Credit Card

Type of Insurance

How to Request a Claim

Deposit With Banks or Take Out Insurance

Why Do We Need Life Insurance

Insure Assets and Liabilities How is It Different

Contract for Buying a House

Happy if in Debt

Can Not Pay the Car Installments

16 Most Important Car Insurance Terms

Want to Use Urgent Money Where Should I Request a Loan

Save Money in Stocks

How to Have a Home

Plan Before Retirement

Plan for Repayment Carefully

50 Financial Movement You Should Know

How You Can Hit the Heights While Plunging to the Depths

10 Ways to Cut Your Health Care Costs

Tips for Handling an Employee's Departure

How to Get Your Product Onto Retailers' Shelves

A List of Pointers for Low-cost Promotion

A Field Guide to Office Colleagues

How to Get Your Tqm Training on Track

4 Excuses to Use Unconscious Credit Cards

Be Careful Terms of Insurance Agreement

Changing a Home to Pay Off Debt

Want Money to Invest

Credit Card Addiction Symptoms

How to Manage Credit Card Debt if Lose Job

What is Private Fund

Loans for Education

10 Things That Lead to Poverty

Do Not Overlook Insurance

There Are Also Saving on Debt

10 Things You Need to Do Before Retiring

Seed Funds for the Smallest Start-ups

Health Insurance Managed Care Can Cost More

States Go for Bold Changes

Outside Directors: How They Help You

Helping Your Children Plan for a Distant Future

The Tax Advantages of a Home Office

Job Skills Have Declined Firms Say

American Get More for Their Money

Boost Your Problem-solving Power

Finding the Essence of Good Sales People

Suggestions on Selling Your Service Firm

Warming to the Idea of Customer Feedback

It's Timely to Consider Still Another Inequality

More Tax Cuts Coming

Vice Presiddency Becoming More Attractive Goal

Turn Anger Into an Asset

Making the Most of Trade Shows

Ideas for Making the Most of Time on the Road

The Benefits of Smart Inventory Management

Policies That Protect a Company's Good Name

Market-neutral Funds May Offer Solace if Stocks Tank

Bargains in Business Insurance

Bills Would Affect the Hiring of Skilled Foreign Workers

The Ups and Downs of a Postal Rate Proposal

Locking on to Teamwork

Nurturing Part Timers to Be Entrepreneurs

Holding Things Together When Selling A Location

Knowing When Cut The Cord

A New Selling Approach Makes Fashion Sense

Too Much Team Harmony Can Signal Trouble

Oiling The Wheels Of Consumer Satisfaction

Networking 101: Seeing And Being Seen

Nuts About Snack Food

A Jet-Powered Takeoff

Grooming For Success

Switching to Self Insurance

Promoting A World Ethical Standard

Help Wanted Desperately

How to Get a Yes From Your Banker

Lawmakers Have Their Work Cut Out For Them

Making The Climb Onto Store Shelves

Hammering Home Performance Incentives

Have You Seen Your Banker For Your Annual Checkup

Protect Your Company's Proprietary Information

Adding Some Byte To Retirement Plans

From The Ground Up

Pluses And Pitfalls In Voice Mail

Lawmakers Have Their Work Cut Out For Them

Making The Climb Onto Store Shelves

Market Bulls Battle A Case Of Nerves

Check The Fine Print In Picking A 401 (k) Plan

5 Pitfalls Make Your Work Inefficient

Wrong Stock Investing

What is a non life insurance

5 things to do if you want to succeed

5 steps Emphasize the use of credit cards correctly

Unemployment can be saved by doing 5 steps

Obstacles that prevent from saving

Want to be rich do these 3 things

New to the stock market

Change the attitude of saving with 3 steps

Home loan Not difficult anymore

Start investing is not difficult

Come check the finance health

Live 3 items for solving the poor

5 wrong financial views Risking destruction

4 things that should not be overlooked for Save money

Wise financial planning techniques for the family

5 mistakes checklist when buying insurance

5 reduce the risk of doing business

3 risk levels that must be known before investing

Advantages and disadvantages of Requesting a loan

Saving The US Economy

What price loyalty at Vodafone

Alphabet soup and economic recovery

Our growing nostalgia for commuting

Financial alchemy

Personal credit

4 principles of financial success

Buying housing is not a big deal anymore

Essential insurance

How to teach your child to be wise With the use of money

6 Collection techniques That a salary man needs to do

How to choose a credit card that best suits your needs

Beware The Scammers out to empty your bank account

Avoid The Traps Set By Estate Agents

10 Ways To Cut Your Health Care Costs

What is the stock market

Adjust the idea of adding value to your business

How ready are you for down

10 techniques to use money

10 Ideas To Conquer Stocks

10 Year Retirement Plan

Factors That Make Your Finances Worse

Eliminate 5 Weaknesses to Create Success in SME

Retirement Investment Plan Longevity Simpler

5 Secrets to Financial Freedom

How to Invest Without Losing

Do We Need Too Much Money

8 Alarms When Finances Are in Trouble

How to Use Money Saving Techniques

Credit Card Debts Not Difficult Anymore

Long Term Savings

Financial Matters Young People Should Know

The 5 Phases of Money Flow

Youth Fever for Cryptocurrencies

Economy Versus Demagoguery

Resistance to Organizational Change

What is Production budget

What are the Goods in Commission

What are Returns on Purchases

What are Pre Operating Expenses

What is a Technical Organization

10 Types of Credit Securities

5 Main Types of Business Organization

What Is a Business Advisor

What is the Personification of Accounts

What Is Expense policy

6 Stages of Administrative Organization

Social Responsibility of Institutions

What Is Business Environment

Forms of Organization of Economic Entities

Top 9 Functions of a Salesperson

7 Duties of an Accounting Clerk

7 Most Outstanding Comptroller Functions

What Is Bookkeeping

What Are Taxes Payable

Armand Feigenbaum Biography

What Is Zero Base Budgeting

What Is Chart of Accounts

What Is Sensitivity Analysis

What Is Purchasing Department

Origin of Business Management

What Is Administrative Organization

What is Cost Accounting

What Is Organizational Structure

What Is Nominal Salary

What Is Centralization In Administration

What Is Payable Documents

What Is Indirect Labor

What Is Going Business

What Is Commercial Paper

What Is Delivery In Business

What Is Equivalent Units

What Is Income Centers


Search This Blog

Popular Posts

Blog Archive