Which of the following is not part of the operating budget?
a) Sales budget
b) Cash budget
c) Direct labor budget
d) Production budget
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The Correct Answer for the given question is Option b) Cash budget.
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Answer Explanation
Operating Budget
An operating budget lays out a company’s projected revenue and associated expenses for a given period – usually the next year – and is typically presented as an income statement. A budget is usually compiled by management before the start of every year, and then it is updated monthly. In an operating budget, each line item would be backed up with detail in order to provide a high-level overview. Cash budgeting follows operating budgeting and capital budgeting. A firm’s operating budget is concerned with the expenses related to regular operations, like direct labor, production, etc. whereas its capital budget is concerned with expenses whose benefits will extend over several years. Cash budgets reflect the expected cash position, i.e. cash receipts and payments.
An operating budget is a forecasted, or predicted, financial statement that identifies all the revenue and expenses a company expects during a specified period of time, like a quarter or a year. Most businesses break down their operating budget by category of revenue for each product they sell. Expenditures are also broken down by the type of product. Operating budgets are further broken down by fixed and variable costs. The operating budget consists of different budgets, or schedules. Forecasting is a process that takes into account historical activity, input from the sales force, and other elements. The result of developing the operating budget is the pro forma income statement for the firm for the specified period.
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