Forum Discussionunit 5 Budgeted Income Statement PDF

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Budgeted Income Statement The budgeted income statement is a financial statement that includes the same line items in a normal income statement but instead of actual values, it reflects the predicted values (projections) by management for a future period of time for the purpose of planning and control operations. Each line item in the budgeted income statement receive its value from budgets made for the operations components or departments which called operating budgets. So, in order to make a budgeted income statement, operating budgets have to be completed first. (Heisinger& Hoyle, n.d.). Table 1 shows an example of budgeted income statement’s line items and source budgets of their values: Table 1 Example of Budgeted Income Statement and Values’ Source Budgets Line Item Net Sales Cost of Goods Sold

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Gross Margin Selling, General & Administrative expenses Net operating Income Interest expense Net Income

Value’s Source Budget(s) Sales budget Direct material purchases budget Direct labor budget Manufacturing overhead budget SG&A expense budget Financing budget

Individuals Involved in Developing Operating Budgets The number and the level of individuals involved in creating operating budgets depends on the approach considered and approved for each different company. If a company uses a top-down” approach, the upper management creates the budgets with little inputs from other employees. Usually in a “top-down” approach, the top management with departments’’ managers are the ones involved in discussing and establishing the operating budgets. On the other hand, if a company uses a bottom-up approach, lower-level employees involve in the creation of the operating budgets and can be a great source of informationdue to their wide knowledge in their functional areas. Usually within this approach, the departments’ managers are responsible for gathering information from all important employees from their departments. Then, they submit their final results to higher management or the budget committee for the review and final approval of budgets. Budgeted Income Statement in General Motors Company As a manufacturing company, GM’s operating budgets include all budgets created in services providers and merchandising companies except when it comes to the production budget. As a producer of a big number of standardized products that need raw materials and labors to produce, GM’s operating budgets have to include direct material purchases budget, direct labor budget and manufacturing overhead budget.

Conclusion The budgeted income statement is an important tool for any business that provides managers and decision makers with a clear view about whether their business is on its desire course and determine if any changes need to be done to improve the business’ processes. At the same time, the accuracy of the bougets’ projections can be debated and raise many questions. How can a huge companylike GM ensure the quality of its projected values with the presence of many complications in their global operations such as currency exchange rates and local regulations? How can companies avoid over-optimistic or pessimistic predictions? (Montgomery, 2002) References Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. Retrieved from https://2012books.lardbucket.org/books/accounting-for-managers/index.html Montgomery, P. (2002, February). Effective rolling forecasts: Make sure your projections are high-level strategy and not just a Rehash of the operating budget. (Budgeting/Forecasting). Strategic Finance, 83(8), 41+. Retrieved from https://link.gale.com/apps/doc/A82736910/ITBC? u=lirn17237&sid=ITBC&xid=7f4c8154...