Greetings from
Sitaraindaryas,

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Hello my dear friends how are you? I hope all of you happy and all will be fine by the grace of Allah. Today am here to participate in the 4th week of cost management class.

What is budgeting and how does it relate to costing?

Budget & costs are very closely related with each in the context of financial management of business. As that the budget is a financial plan that sets the out expected income & expenses for the given period, usually for a year. It is the tool that helps to business managers to make informed decisions about the resource allocation & control spending. And the costing is the process of determining total costs of manufacturing of product. It includes the identify & quantify all the direct and indirect costs associated with manufacturing.

Relationship btw Budget & Cost

Budgeting and costing are related with each because costing helps to determine the total production costs, which is critical to establishing the realistic budget. They allocates financial resources to cover the costs of production, marketing & personnel, etc. They helps us to control our expenses and ensure that we do not exceed our planned costs. Costing & budgeting allow us to analyze business profitability and make informed decisions about pricing, production and investment.

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Explain the importance of budgeting in determining costs.

The budget plays a crucial role in determining costs. Budget sets financial limits. They defines the financial limits for the production or project, which helps to determine the maximum allowable costs. Budget helps to identify all the costs that associated with the production or project, including the direct and indirect costs.

The budget allocates the financial resources to the cover production costs, to ensuring that the sufficient funds that are available to cover expenses. It helps to control expenses and avoid the cost overruns, which reduces the risk of financial losses.

The budget facilitates the planning & coordination of the activities, that's helps to reduce the costs and improve the efficiency of manufacturing. Budgeting allows to make a comparison of actual costs with the budgeted costs, which helps to identify the deviations to take corrective action.

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Prepare the budget as explained, for the preparation of cakes. Consider a 4% adjustment.

Now after understanding the importance of budget in the determination of cost i will make the budget for the preparation of cakes, for this i considered the direct & indirect costs of the manufacturing of cake.

Direct costs

From our previous lessons we learned that the raw material costs and the labour costs are the direct costs of manufacturing of any product. Here in the raw material is Sugar, Egg, Flour and other ingredients & flavors. In the below sheet you can see the direct cost of cake manufacturing.

From the above calculation the Total indirect cost of cake manufacturing is 12,300$. Now i calculate the indirect costs of cake manufacturing.

Indirect Costs

Now in this section i will calculate the Indirect costs of cake manufacturing in which i calculate the local rental, utilities, equipment, and advertising costs. In the below sheet i will show you my calculation of indirect manufacturing costs.

After the total cost calculation the Indirect costs per cake is $85,000 / 100 per cakes = $850 per cake.

And the total costs per cake: 12,300$ + 850$ = 13,150$.

After the 4% adjustment

The total costs per cake with 4 % adjustment is $13,150 x 1.04 = $13,674 per cake.

The Budget My Profit, cake sales revenue: 15,000 per cake & Total costs per cake: 13,674 per cake. So profit per cake is 1,324$.

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Prepare the budget as explained, for the hairdressing service. Consider a 3% adjustment.

To prepare the budget for the hairdressing service, i have need to consider the following data such as the Income data and costs.

Here is the income average price of per haircut is 50$ and the number of haircuts per day is 10 and the number of working days per month is 25. So, the total monthly income is 50$ x 10 x 25 = 12,500.

Now here is the cost of materials or hairdressing products is 4000$ per month. Total Staff cost or hairdresser's salary is 500$ per month. Rental cost of the premises is 2000$ per month and the advertising cost is 100$ for per month.

Total monthly cost is 4000 + 500 + 2000 + 600 = 7,100$

After the 3% adjustment, 7100 × 1.03 = 7,313

Total monthly income is 12,500
Adjusted Total monthly cost is 7,313
Monthly gross profit: 12,500 - 7,313 = 5,187$.

Now this is my participation for this challenge i hope all of you like and enjoy this participation. Now i am going to invite my friends @suboohi, @faran-nabeel, @josepha and @ashkhan to participate in this challenge.

Regards,
Sitaraindaryas