For the different budgets related to the NoLag product of JetSet Travel, Inc. (JTI), I would expect to see different items. Below are said budgets and items. But I would like to define what budget is first. Horngren, Datar and Foster (2002) defined budget as the “[quantitative] expression of a proposed plan of action by management for a specified period and is an aid to coordinating what needs to be done to implement that plan (p. 835).
Sales budget. This is usually the staring point for budgeting. The budgeted sales for a future period determines the production and inventory levels which also determine the manufacturing costs of JTI as well as its nonmanufacturing costs for its NoLag product. Items seen in the sales budget are the budgeted selling price for the product, budgeted number of units to be sold, and of course, the budgeted total revenues fro the product. With respect to costs behavior, the items shown in the NoLag sales budget are all variable. That is, these items changes in total in proportion to the number of products to be sold.
Purchase budget. This budget identifies the direct materials to be purchased which depends on the budgeted usage of direct materials. Items seen in this budget are the direct materials needed, and under each material the following are specified:
Direct materials usage for the period,
Target ending inventory for the direct material,
Beginning inventory for the direct material,
Cost per unit of each of the direct material requirement, and
Budgeted direct materials purchases for the period
The direct material cost, specifically the direct materials purchase cost is a variable cost. The amount changes relative to the number of direct materials budgeted.
Operating expenses budget. This budget included the nonmanufacturing costs related to the NoLag product value chain. Included in this budget are research and development, marketing, distribution, customer-service, and administrative costs. The research and development costs’ behavior – fixed or variable – depends on how management allocates funds to it.
If management decides that 10 percent of the total sales budget is to be allocated to research and development, then it is variable – it varies according to the sales budget. The rest of the items under the operating expenses budget exhibit the same characteristics. For example, marketing costs are usually budgeted as a percentage of the sales budget.
Capital expenditures budget. This is composed of the investing requirements of JTI with regard to the manufacture of the NoLag product. The expenses here are fixed which includes budgeted purchase amount of new equipments.
Cash budgets. The cash budget, according to Horngren, Datar and Foster (2002), “is a schedule of expected cash receipts and disbursements” (p. 197). Generally, the cash budget has several main sections.
Beginning cash balance AND cash receipts. These will form part of the cash available for financing requirements of JTI. Cash receipts come from collections from customers and sales of the NoLag product.
Cash disbursements are composed of direct materials purchases, direct labor and other wage and salary outlays, interest on long-term borrowing, income tax payments, and other costs and disbursements.
Short-term financing requirements. JTI needs short-term financing requirements if its total cash receipts for the period are less than its total cash disbursements.
Ending cash balance.
Include considerations for the variable aspects of this product and its sales
Horngren, C. T., Datar, S. M. & Foster, G. (2002). Cost accounting: A managerial emphasis. New Jersey: Prentice Hall.