Page 573 - Sensors and Control Systems in Manufacturing

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classifications in the accounting system should correspond to the
classifications used in the budget.
At the end of each month, the fixed, variable, and total selling and
administrative costs budgeted for the expected level of operation
should be adjusted for the level actually reached during that month
Actual costs should be matched against these adjusted figures and
any sizable differences investigated. If possible, action should be
taken to prevent repetition of any unfavorable variances.

11.1.5 Capital Budget
Plans for the acquisition of new buildings, machinery, or equipment
should be developed annually. A list of amounts to be spent at speci-
fied times during the year will provide information for use in a firm’s
financial budget, as well as cost and depreciation figures to be shown
on its projected income statement and balance sheet.

11.1.6 Financial Budget
Any business owner must be certain that funds are available when
needed for plant or equipment replacements or additions. In addi-
tion, enough working capital must be available to take care of current
needs. This requires a financial plan or budget.
Funds for major replacement or addition can ordinarily be
planned for on the basis of each expenditure individually. Manage-
ment must know in each case whether surplus working capital will
be available or new long-term financing will be required. If new
financing is the answer, a source of funds must be found. Plans for a
loan or an additional investment by owners should be made well
before the time when the funds will be needed.
To have enough working capital at all times without a large over-
supply at any time requires detailed planning.
Planning the receipts and expenditures for each month must take
into consideration expected levels of activity, expected turnover of
accounts receivable and accounts payable, seasonal tendencies, and
any other tendencies or circumstances that might affect the situation
at any time during the budget period. Relating the inflow plus begin-
ning balance to the outflow for each month shows whether a need for
outside funds is likely to arise during the budgeted period.

11.1.7 Income Statement and Balance Sheet Projections
From information provided by the four basic budget summaries—sales,
production, selling and administrative, and financial—estimated
financial statements can be drawn up. These projected statements
bring the details together. They serve to check the expected results of
operations and the estimated financial position of the business at the
end of the budget period.