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Production Department: Budget Report Essay

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Updated: Mar 24th, 2021


A budget is a financial expression that is used to plan for future operations; it involves allocations of funds to various activities in order to achieve the projected outcomes. Budgets differ depending on the timelines and functions (Shim & Siegel 2009). As a result, there are budgets that cover a short period and budgets that cover a long period. The period used in the budgeting depends on the objective and strategic goals of the organization.

The fundamental pillars of budgeting entail planning, coordinating, directing, evaluation, and controlling. According to Conboy (2010), budgets provide the link between daily operations and the plans that have been put in place. Budgets provide a financial viewpoint to guide an organization to accomplish its goals. The following is a quarterly budget report for the production department that I presented to the company’s director; see Appendix 1 for the provisional budget.

Budget Justification

The budget is based on the past and the prevailing trends in the business. The budget includes the cash outflow for a projected period of three months. According to Conboy (2010), a budget provides practical skills for the use of money. It serves as a journal that guides the expenditure. Shim and Siegel (2009) noted that a budget acts as principal financial freedom because it aligns goals to the money. In order to meet the projected goals for the company, the cash required for the three months is $ 178,500.

The cash is required to finance the key requirements for production. The requirements include servicing the payroll and the purchase of the inventory. The quantification of the cost of the inventory is based on the current consumption, and the trends observed in the business, and the anticipations for the three months. The anticipation determines the probable finances that would be required to achieve the set goal (Shim and Siegel, 2009). In line with the assertions by Shim and Siegel (2009), the budget is based on the capacity of the factory and the cost of the inventory. The inventory level is also based on the company’s projected sales for the period.

A comprehensive budget should be based on the needed inputs that include the equipment, the required material, and the personnel that that is tasked with the coordination of the processes (Siyanbola, 2013). The factors are key determinants of the units that can be produced and sold. As such, the amount provided for the expenses is based on predictive production and the level of inventory. The primary objective of the company is to increase sales by 10% over the three months period.

Therefore, it is projected that production capacity should be increased to cater to the increased need for the goods. Based on the current operations, the predictive cost of direct expenses is projected to increase by 2%; hence, $2000 is projected for each month. During the quarterly production period, the other direct expenses that the department is to incur include administrative expenses, travel, servicing of the plant. Therefore, the estimates provided for the expenses are based on the goals of the company to increase sales and the current market trends.

A budget entails the outline of the activities that are needed to achieve the strategic goals (Conboy, 2010). Based on the organizational goal to achieve a 10% increase in sales, the production department estimated the cost of production would consequently increase by 2%. The allocation of the direct expenses of the inventory, the payment of the personnel, and the other direct expenses are factored in the 2% increase. In addition, the $ 10, 000 will be used to cater for the advertisement for the three months. The advertisement will aid in ensuring that the company remains competitive.

In the budgetary allocations, the noncyclical occurrences should be factored, and allocations made to cater to the costs. The company intends to modify the production line; the modification will increase the costs required in the design process and commencement of the new product line and the subsequent services. The predicted costs for the modifications that will aid the company in achieving its goals are $ 600 for each month. In the preparation of the budget, the projections for aggregate expenditures should be based on a broad economic category (White, 2002). The budget is thus based on the fiscal objective of the company.

Though the direct expenses are for the three months projections, the review for the costs will be made on monthly basis. Thus, there is the probability of the figures to fluctuate upwards or downwards. To cater to the fluctuations, the costs are based on a flexible margin that will ensure that the overall costs at the end of the three months are within the budgetary limits.


Shim and Siegel (2009) retaliated that a budget should be based on the capital needs, the requirements of the personnel, and the financial status of the firm. Based on the provisions and the departmental objectives that are aligned with the overall company strategic goals, the department requires the projected amounts in order to operate efficiently. The provisions are short term and thus a review of the projections and actual budget will be carried out after the end of the three months.


Conboy, K. (2010). Project failure: a study of loose budgetary control in ISD projects. European Journal of Information Systems, 19 (3), 273-287.

Shim, J, and Siegel, J. (2009). Budgeting basics and beyond. Hoboken, New Jersey: John Wiley & Sons, Inc.

Siyanbola, T. (2013). The Impact of budgeting and budgetary control on the performance of the manufacturing company. Journal of Business Management & Social Sciences Research, 2 (12), 8-16.

White, J. (2002). IRS’s budget justification. Washington, DC: U.S. General Accounting Office.

Appendix 1: Production Department Budget

Production Department Budget. For the three months ending June 30, 2015.

Item April May June
Expected cash payments: $ $ $
Raw materials (or inventory) 50,000 11,000 5,000
Payroll 10,400 10,400 10,400
Other direct expenses 2,000 2,000 2,000
Advertising 10,000 0 0
Selling expense 6,000 8,000 6,000
Administrative expense 4,500 4,500 4,500
Plant and equipment expenditures 10,000 10,000 10,000
Payments for design modifications 600 600 600
Total cash expenses 93,500 46,500 38,500
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IvyPanda. "Production Department: Budget Report." March 24, 2021. https://ivypanda.com/essays/production-department-budget-report/.


IvyPanda. 2021. "Production Department: Budget Report." March 24, 2021. https://ivypanda.com/essays/production-department-budget-report/.


IvyPanda. (2021) 'Production Department: Budget Report'. 24 March.

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