Final answer:
The order of budget preparation typically starts with the sales budget (operating), followed by production, direct materials, cash payments, combined cash (all financial), budgeted income statement, and ends with the budgeted balance sheet (financial). Each step is critical for ensuring a manufacturer has enough financial resources to operate effectively and achieve financial goals.
Step-by-step explanation:
Manufacturers often follow a sequential process when preparing their budgets, starting with projections of sales and then creating various operating and financial budgets based on these forecasts. The typical order of preparation for budgets is as follows:
- Sales budget - This is the starting point as it estimates the anticipated sales for the period. It's an operating budget.
- Production budget - It details the number of units that must be produced to meet sales goals and inventory policies. This is also an operating budget.
- Direct materials budget - This operating budget estimates the raw materials that need to be ordered to fulfill the production budget.
- Cash payments budget - An element of the combined cash budget, this financial budget includes all cash outflows.
- Combined cash budget - This financial budget consolidates the cash inflows and outflows to determine the firm's cash position.
- Budgeted income statement - This operating budget summarizes the expected income, expenses, and net profit.
- Budgeted balance sheet - This financial budget showcases the company's projected financial position at period end.
Through the budgeting process, companies can ensure enough financial resources are available to meet operational needs, make informed decisions, and ultimately achieve their financial goals.