An operational budget is usually a document that provides information on all the funds needed to keep the business in operation. Small businesses and departments in various organizations use their operating budgets to determine the amount of money they need from sales revenue and the investment sources to effectively pay their bills such as costs, and payroll. The budget provides the business owner with information on how the business will operate in the next 12 months. A look at the budget will clear information on whether the company or department is earning money or it is losing money.
The operational budget has to have an income statement indicating all the income the business is to earn. This is the statement of all the revenue attained by the company from the actual sale of goods and services ( Aris, & Siti, & Hamidah, 2016) . In this case, the revenue will be specifically entailed what is earned by the imaging department. Breaking down the revenue based on the department allows the managers to make sure they understand the department that is producing the highest income and the one that is lagging behind when it comes to revenue generation.
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The other major component of the operational budget is the operational expenses. This entails the cost of the conducting business on a daily basis. They include rent, taxes, license, and utility bills. Non-production staffers can also fall into the category of the operational expenses. The variable costs in an operational budget include the raw materials as well as the finished products used for production ( Aris, & Siti, & Hamidah, 2016) . Salaries for the workers who work in the production process also fall under the variable costs category. In the case of the imaging department, the salaries include the payments made to all the individuals working in the department on a full-time basis as well as those who are expected to enter the department on a contract basis.
In contrast, the fixed costs include wages for the shops and studios, rent, amenities such as electricity and water, renovation aspects in the company, cleaning, car service, and travel costs. The other element in the fixed costs category includes the telephone costs, the postage charges, the mobile usage expenses, internet connection, and website management. Insurance, legal expenses consultancy, and networking costs also fall in the fixed costs category (Klychova, Faskhutdinova, & Sadrieva, 2014). The budget developed by the department has to focus on the interest it pays on different loans and the issue of depreciation.
The Imaging Department
In developing a budget for the imaging department, it is important to look at the purchases that the department intends to make within the net one year. For example, the department may intend to buy large equipment such as scanners and arrange for the facilities where they would be housed. The department needs to look at the situations that lead to the equipment purchases and the depreciation of the same. Some of the components that should be included when it comes to the development of the budget are:
The initial equipment expenses that the department will require within the year.
The financing interest that the company has to pay versus the department and its operations
The construction or any renovations that the department intends to make within the year to enhance operations. This may include issues to do with electrical installations, the building of new facilities, and any other improvement s that the department is looking forward to implementing in the next year.
The company should also make sure that the department’s budget is in line with the company’s vision and the strategic plan. In most cases, the strategic plan of the company is made with the view for long-term success. Therefore, the imaging department should focus on some of the things that the company has planned to undertake in their area of operations and ensure they are planned for the current budgeting year.
The department should also make sure that the imaging department has considered the service contracts of the devices it has acquired as well as the hiring costs for the professionals who will work in the department in operating the machines.
The other point of consideration is the shipping and installation of the company’s devices once the company has bought them (Klychova, Faskhutdinova, & Sadrieva, 2014).
The operational budget of the company is important in that it enhances accountability in the department. Therefore, every department will have to use the budget that it asked for at the start of the year. As a result, the imaging department will have to plan well to guarantee increased efficiency in the management of the department’s affairs.
The following is the operational budget of the department for the next one year.
| Item | Amount ($1000s) |
| Net revenue of the department from the services it has provided to the consumers | 3000 |
| Cost of sales | 100 |
| The operating expenses. This entails all the costs incurred by the company in handling the affairs of the department. In most cases, the operating expenses entail the costs that will always be there in a company despite the changes in the department. | 1700 |
| Operating profit | 1200 |
| Depreciation. This is the depreciation of the company’s devices already in operation at the start of the year. The electronic devices owned by the company depreciate at a rate of 10% per annum. | 50 |
| Tax. This is the costs incurred by the company because of the tax paid to the federal government to remain operational in the country. The tax returns are filled once per year. In this case, the department only focuses on the tax that is in line with its operations according to its revenues. | 25 |
| Interest on loans | 25 |
| Net income for the department in one year | 1000 |
The budget above has considered most of the aspects of the department that affect the smooth running of all the affairs. The depreciation rate of the company’s devices is at 10%, but due to the warranty in the first year, the company will not incur any depreciation expenses on the new devices that it will buy within the year. The interest outlined in the budget is the interest that the company incurs from the loan taken to finance the purchase of the devices used by the department.
Conclusion
The operational budget is an essential tool for the company to be able to make a mark in all its operations and enhance the concept of efficiency. It helps to ensure that the department managers are accountable and there is a reduction of waste. It also makes sure that the company remains on track when in it comes to the achievement of the strategic plan. The strategic plan outlines what each department will be required to do for the company to achieve its goals and objectives. What is evident is that early budgeting enables the company to have resources when they are needed within the year.
References
Aris, M, S. E., Ak, M. S., & Siti R. H.M A. (2016). Enhancing Managerial Performance through Target Costing and Budget Participation. In International Conference on Accounting and Finance (AT). Proceedings (p. 18). Global Science and Technology Forum.
Klychova, G. S., Faskhutdinova, М. S., & Sadrieva, E. R. (2014). Budget efficiency for cost control purposes in management accounting system. Mediterranean journal of social sciences , 5 (24), 79.
