Staff and Capital Expenditure Budget

Last Updated
August 22, 2009

3. The Materials Purchase Budget

This type of budget would only be prepared by manufacturing businesses. This budget will use the figures proposed on the Production budget to determine the amount of raw materials needed to compensate for manufacturing the required number of units.

At this time, it may be useful to research your suppliers to determine that the quality of the material supplied reflects what you are currently paying: it does not always involve looking for the cheapest supplier.

Also, remem ber that Economies Of Scale In Small Businesses could lower the cost of buying materials but be sure that they will be used in good time, as it will only tie up money in assets that are not productive.

For Example,

January February March

Units to be Manufactured

50 75 70

Material A @ £5 per Unit

£250

(50 x £5)

£375

(75 x £5)

£350

(70 x £5)

Material B @ £2 per Unit

£100

(50 x £2)

£150

(75 x £2)

£140

(70 x £2)

Material C @ £3 per Unit

£150

(50 x £3)

£225

(75 x £3)

£210

(70 x £3)

Total

£500

£750

£700

4. The Staff Budget

The Staff budget will compensate for the proposed staff costs during the budget period. Once you have determined how much staff you will need for the operations of the business, the staff costs can then be budgeted as follows:

(£) January February March
Pay (Before Tax) 10,000 12,000 10,000
National Insurance 1000 1150 1000
Pension Payments 750 860 750

If you employ part time workers, it may be that you will not need them as intensively during certain months: this will be reflected through reduced staff costs for that particular month(s).

5. The Overheads Budget

If you are a manufacturing business, it may be that your overheads will be a small amount of the total proportion of costs. If your business is a service, it is likely th at overheads will contribute a high proportion towards total costs.

The overheads budget can be compiled in two ways: either by allocating a proportion of the overheads to each product/service (if you have more than one), or keep the overheads as a single budget.

6. The Capital Expenditure Budget

If after compiling the production budget and sales budget, it may be necessary to purchase or hire machinery due to the lack of resources to meet demand at a particular time. In which case, it is vital that you budget for purchasing/hiring such equipment so that you can arrange finance in good time if need be.

For example,

(£) January February March
Purchase Equipment A 1000 - -
Hire Equipment B - 100 100

In the example above, it may be necessary to take out a loan (or an overdraft) at the beginning of January, or even December, so that you can purchase equipment A. Likewise, the same could be done for the months February and March, but it is more feasible that an overdraft would provide a solution if your bank balance could not compensate for the monthly hire fee.

Article Index

  1. Cash Budget
  2. Budget Preparing
  3. Sales and Production Budgets
  4. Staff and Capital Expenditure Budget
  5. Budget - The Variances
  6. Cash Budget
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