Good day friends!
I am glad to be taking part of this class on budgeting and I welcome you as well to this article. Let's begin...

What is budgeting, and how does it relate to costing?

Source

In a nutshell, budgeting is the method of generating a financial plan for a particular time frame, usually a year. It includes the estimation of revenues, setting limits for expenses, and apportioning resources for the achievement of organizational objectives. Budgeting is necessary for financial planning, evaluation performance, as well as management of resources.

Budgeting and costing are intrinsic constituents of financial management that aid business planning, monitoring, and controlling of their their financial resources. While consting concentrates on the identification, appropriation, and management of the costs related to the production of goods and services, budgeting centers on forecasting and drawing up plans for future finamciañ performance.

Costing and budgeting are indispensable tools for the management of finance, provision of basis for efficient decision making, allocation of resources, as well as control of finanace.

Together, these two operations allows businesses to actualize financial stability, operational effectiveness, and stratagic objectives.

Explain the importance of budgeting in determining costs.

It makes provisions for pivotable plans as it serves as a financial plan of action for upcoming period of time; if all works out as planned, it demonstrates how much should be spent or gained on particular items.

By calling for a detailed review of every fixed costs and variable costs through line item, budget improves transparency, rendering it easier to identify ineffectiveness and areas of excessive pending.

Budgeting also presenta a strategical advantage in cost containment through aligning budget appropriations directly with the activities propelling costs within an organization.

Through prioritizing and identifying high-impact activities, budgeting helps to efficiently allocate resources, concentrating investments where it has the greatest returns. This focused approach allows for the identification of roadmap and financial goals while improving costs containment through the elimination of expenditures, lowering non-value-added variable and fixed expenditures, as well as carrying out optimization of resource utility across all areas of a business.

Prepare the budget, as explained, for the preparation of cakes. Consider a 4% adjustment.

A cake preparation budget with a 4% adjustment:

Original Budget:

• Ingredients: $200
• Labor: $250
• Decorations: $150
• Miscellaneous: $120
• Total: $720

Adjusted Budget (4% increase):

• Ingredients: $200 x 0.04 = $8
• Labor: $250 x 0.04 = $10
• Decorations: $150 x 0.04 = $6
• Miscellaneous: $120 x 0.04 = $4.80
• Total: $720 x 0.04 = $28.80

The 4% adjustment increases the total budget by $28.80, from $720 to $748.80.

Prepare the budget as explained, for the hairdressing service. Consider a 3% adjustment.

Hairdressing service budget preparation with a 3% adjustment:

Original Budget

• Haircutting services: $5,000
• Coloring services: $7,000
• Styling services: $3,000
• Product sales: $6,000
• Equipment and supplies: $2,000
• Rent and utilities: $3,000
• Marketing and advertising: $1,500
• Staffing and training: $2,500
• Miscellaneous (insurance, etc.): $600

Total budget: $30,600

3% Adjustment

To calculate the 3% adjustment, each line item is multiplied by 0.03.

• Haircutting services: $5,000 x 0.03 = $150
• Coloring services: $7,000 x 0.03 = $210
• Styling services: $3,000 x 0.03 = $90
• Product sales: $6,000 x 0.03 = $180
• Equipment and supplies: $2,000 x 0.03 = $60
• Rent and utilities: $3,000 x 0.03 = $90
• Marketing and advertising: $1,500 x 0.03 = $45
• Staffing and training: $2,500 x 0.03 = $75
• Miscellaneous (insurance, etc.): $600 x 0.03 = $18

Revised Budget

For this, the 3% adjustment is added to each line item to get the revised budget.

• Haircutting services: $5,000 + $150 = $5,150
• Coloring services: $7,000 + $210 = $7,120
• Styling services: $3,000 + $90 = $3,090
• Product sales: $6,000 + $180 = $6,180
• Equipment and supplies: $2,000 + $60 = $2,060
• Rent and utilities: $3,000 + $90 = $3,090
• Marketing and advertising: $1,500 + $45 = $1,545
• Staffing and training: $2,500 + $75 = $2,575
• Miscellaneous (insurance, etc.): $600 + $18 = $618

Total revised budget: $31,428

Written by:
@Onyiluvdan

Inviting @chilaw, @mercybliss, and @chima09

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