COSTS AND BUDGETS

COSTS AND BUDGETS

1. definition

   • Cost: Sum of efforts that have been invested to produce something or also what is resign in order to obtain it
     • qualities
       • It is recoverable
       • It is presented in the balance general
     • Authors
       • Juan García Colín defines cost as set of resources lost to reach a specific good.
       • Aldo S. Torres establishes that the cost represents a decrease in resources, which have been consumed to make a product.
       • Ernesto Reyes Pérez the cost is a summary erogations - expenses-applied to a precise goal
   • Budget: Determination in advance of the income, costs, expenses and profits of a company for a specified period
     • Authors
       • Cristóbal del Rio defines what is an estimate programmed, in a systematic way, of the operating conditions and results to get by an organization
       • Jean Meyer states that a budget is the coordinated set of forecasts that allow know in advance some results considered basic by the administration of Business
       • Glenn Welsch indicates that budgeting is a method systematic and formalized to achieve the managerial planning responsibilities, coordination and control

2. classification

   • cost
     • direct expenses are expenditures that meet three qualities (identifiable, quantifiable and representative) all this in the unit of measure of satisfactory accomplished.
       • for example
         • raw material
         • direct labor
     • Indirect expenses are those that, by not meet at least one of the qualities previous. Their characteristic is that they are left free of control
   • Budget
     • Rigid, static or fixed budgets:. It does not allow adjustments to be made according to the variations that have occurred. When this type of budget is used, an advance control is practically being carried out,
     • Flexible or variable budgets: They are made for different levels of activity and are easily adaptable to the economic conditions that arise. They allow showing income, costs and expenses according to the volume of activity of the company.
     • short-term budgets : They are those that cover the operations of the company for a period of one year or less.
     • long-term budgets: They cover periods between two and five years. Normally in companies this type of budget is used when investment projects are planned to update the technology, expand installed capacity, expand markets, etc.
     • operating budgets: They are those that contain the budgeting of the activities for the period immediately following the period in which they are prepared.
       • It includes
         • sales budget
         • production budget
         • materials budget
         • labor budget
         • manufacturing overhead budget
         • expense budget
     • financial budgets : It includes those budgets that are related to items that have a direct impact on the balance sheet.
       • cash budget : It is built from the forecasted income from cash sales, collection of credit sales and other easily realized values.
       • capitalized expenditure budgets :Control capitalizable investments related to fixed assets. This budget must relate the investments destined to the acquisition of plant and equipment
     • public sector budget : They are those that prepare the State entities to quantify the resources necessary for the normal development of their activities. These budgets must include the salaries of public sector officials, investment, amortization of public debt, operating expenses and disbursements related to social benefit works.
     • private sector budgets : are those used by companies private sector budgets

3. importance

   • budget
     • Emerges as a tool for planning and control due to economic uncertainty

4. Advantages and disadvantages

   • budget
     • It allows to determine if the company has the resources required for the development of planned activities, and if not, allows viewing of possible alternatives to achieve them
     • Provides financial information that allows adopting the decisions that potentially lead the company to obtain best results.
     • It allows better control of the standards of materials, labor and indirect manufacturing costs, since these serve as the basis for the preparation of the budget.
     • It allows weighing the value of the different activities that are developed in the company and that are related to the budget activity
     • It allows clarity regarding the goals on income, costs and expenses that each department of the company must meet.
     • It allows adequate planning and control of production costs and operating expenses of the company.
     • It allows working with average costs.
     • It allows analyzing the variations that occur between the budgeted costs and the costs actually incurred in a given period, in order to make the required adjustments in the budget plan.
     • It facilitates the control activity that must be developed in the company.
     • Budgets have a high degree of subjectivity, because they will always be prepared according to the vision that those in charge of preparing them have on the different variables of the environment that intervene or that have an influence on it.
     • Its implementation is expensive and requires time, so the results derived from it are not immediate; For this reason, many companies prefer to work adrift and do not frame their financial performance in a budget plan.
     • They require the commitment of all levels of the company for it to function, which is not always possible
     • Some managers see them as a straitjacket and strive to meet the budgeted goals with accuracy, this inflexibility does not allow them to explore new financial or operational alternatives.

5. Relationship with functions administrative

   • Planning: consists of the establishment of plans, policies and objectives of the company. It is the determination of the courses of action that the company must follow.
     • The budget by itself is a quantitative plan that anticipates the actions to be developed, although the results obtained will depend on the quality of the historical information, both financial and statistical, available, since it must be based on these results. to project the expected future results of the company. It is important to emphasize that the actions that are undertaken must be in accordance with the corporate objectives
   • Organization: deals with optimally combining strategic, administrative and operational activities with a set of people and technical and material resources and establishing the relationships that people must maintain in the development of their activities
     • The preparation of a budget for each functional area makes it easier to determine the development of the activities for each area and the achievement of the particular objectives by each one of them.
   • Coordination: harmonious development and maintenance of the activities of the company in order to achieve a balance between the different areas that comprise it
     • It contributes to achieving balance in the preparation of budgets, because to prepare the budget for one area it is necessary to take information from the other areas by virtue of the interdependence that exists between them.
   • Direction: refers to making decisions and ensuring the execution of activities to obtain results.
     • The budget is an important tool in the decision-making process and compliance with policies and allows an overview of the company's activities, which is why it constitutes an important support for management.
   • Control: consists of comparing what is planned with what has been executed to determine the degree of fulfillment of the proposed objectives
     • It allows comparing what has been budgeted with what has been executed, and gives rise to the analysis of the variations that have occurred in order to adopt corrective measures. The budget allows you to adopt solutions on time, that is, before serious and irreversible consequences for the company occur.

6. Strategic planning

   • definition
     • Strategic planning is a process to establish general strategies of action that allow to achieve in the future the goals and objectives that an organization sets itself in the present
       • advantage
         • It improves the functioning of the organization because it guides it more directly to the fulfillment of its mission.
         • It enables the organization to be prepared to successfully cope with a changing environment and with lower future costs.
         • It enables managers to recognize safe and risky opportunities and therefore reduces the chances of mistakes and unpleasant surprises when selecting action options.
       • characteristics
         • Simple
         • Adaptable to all areas
         • Standardized
         • Understandable
         • Adaptable for the short, medium and long term
         • Quantified
         • Adaptable to strategic and operational dimensions
       • Mission
         • It is the current image that focuses the efforts made by the organization to achieve the fundamental purposes
         • Performance analysis and expectations: performs a recognition of its internal reality, and includes an analysis of its performance in recent years in all its areas, sales, production, finances, etc.
         • External analysis: A series of variables, situations or exogenous conditions that affect or may positively or negatively impact the development of the company in the present or future are analyzed in detail, that is, an analysis of the trends and conditions of the micro and macro environment and of its potential impact on the organization.
         • Internal analisis : analysis of the company's value chain in comparison with those of the most relevant competition and in relation to the critical success factors inherent to the company's mission. Critical success factors are those things that an organization must satisfy to ensure a competitive advantage

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