Capital And Operational Budget
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Question: Create a PowerPoint presentation to educate others regarding the development of an operational budget and a capital budget. Be sure to include the following: Provide the process for developing an operational budget. Provide the process for developing a capital budget. Differentiate between the operational and capital budgets. Explain how the capital budget is required for strategic management.
Answer: Meaning Of Capital Budget: • Money Utilized for Acquiring Asset.
• It deals in raising high value funds which are mainly for the Investment purpose for an long term basis.
• They are lump sum payments done on a irregular basis
• Large Value Payments
• Basically done for the Plant and Machinery , Equipment's, Assets for expansion.
Meaning Of Operation Budget: • Money Utilized for Day to Day Activities.
• It deals in with two types mainly one being the revenue income and expense daily with business transactions .
• They are regular payments done on a regular basis for operating activities
• Small Value Payments
• Basically consists of Revenues, variable costs, semi variable costs, fixed costs.
Difference Between The Both
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Basis
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Operating
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Capital
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Time Period
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Short basis as well as long term basis . Thus, it is short term and Mid Term basis
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Long Term Basis
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Nature
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Day to Day Activities
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One Time Activities
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Expense
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out-of-pocket costs- Cannot be avoidable
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Investment Decisions - Avoidable
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Examples
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Non-personnel costs as rent, electric bills, minor repairs
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Investments, Maintenance Plans, Expansions Plans
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Transactions Effects
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Income and Expenses Statement
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Balance Sheet
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Frequency
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Very High in Nature
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Rare Limited to One of Two Transactions in a plan of Three to Five Years.
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Plan Of Action Of Making A Budget: To create a budget it is necessary to have a proper plan of action which helps in understanding as to what steps are required or what must be the framework while preparing an budget .Moreover, must ensure what all aspect must be properly segmented as well as evaluated in correct perspective.
(Barr, & McClellan, 2018)
Plan Of Action Of Making A Budget: Action Plan can be Listed As follows:- (Barr, & McClellan, 2018)
1st: • Set Goals - Financial and Operational
• Gather All Necessary Documents
2nd: • Design and Implement Plan
3rd: • Monitoring and Control
• Evaluation and Verification
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Steps Of Making An Operation Budget: It includes the process where various small budgets needs to made and the budgets needs to be formulated and analyized together in order to understand and build a combined and a cumulative operational budget. It basically is a summation small segments of day to day expenses and revenue.
Illustration For An Operation Budget: 1. Variable Expense May Include
• Material
• Labour
• Overhead of Both Production as well as Selling and Distribution
2. Fixed Expense May Include
• Overhead of Both Production as well as Selling and Distribution ( Fixed Nature)
• Eg:- Annual Expense, Plant and Buildings, Maintenance Expenses, Subscription Charges.
Steps of Making An Capital Budget: It includes a process which deals with and four step analysis where the capital budgeting is done on a step by step process. In this segments a potential opportunity is mapped which provides an process where the various options are checked , ticked and by standard process capital budget is evaluated
Illustration For An Capital Budget- (Barr, & Mcclellan, 2018):
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Steps Of Making An Capital Budget
Capital Budget And Strategic Management: Strategic Planning is a process which ensures or involves the following perspective of variables
• Understanding the Strength
• Understanding Business Environment as well as external Factors
• Understanding the Internal Factors
• Understanding the Weakness
• Understanding Goals and Plans
• Understanding Financial Process (David, & David, 2016)
Thus, strategic planning is a process where the long term planning is made where the process is managed and monitored on the basis of the specific and measurable financial strategic goals. Thus, Capital budgets supports in terms with
1) Economic Evaluation
2) Asset Management
3) Ratio and Analysis
4) Growth Indices
5) Tax Optimization
6) Risk Management (David, & David, 2016)
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