Management Reflection - week 5

Last week we finished the module on budget. Budget is basically a planned guideline, a goal of what the company is hoping to achieve in a long term. Without a budget, a company might spend too much money on one aspect of the firm which result in the lack of money for other areas. By having a budget, it sets a limit on how much money the company should invest in that area. As long as the company stick to their budget, their chances of success will increase because they are following the plan which they believed was the best option for the firm.

I learned that a proper budget must be done step by step because one thing leads to another. We begin with the sales budget, this decides how much we want to have sold at the end of the time frame. Production budget comes next, after we know the units to be sold, we can work out how much we need to produce in order to meet that requirement. From the production budget, we can form our direct material, labour and factory overhead budget which then goes under cost of goods manufactured and sold budget. Then we have the selling and administrative expenses budget. By combining all the previous budgets, a cash budget, probably the most important budget, can be made. This budget indicates how will the cash run in the company and how much we will have left to operate our business. Finally a balance sheet is produced.