Determining and Setting out budgets Novrita Widiyastuti, S.Sos

Setting budgets & budget periods The appropriation is the overall sum of money agreed by senior management for a particular activity The budget is a breakdown of the overall sum by individual elements Boths are usually based on past performance, forecast of future sales or the level of work and number of tasks that need to be completed within the budget period

Background information Sales Department: indicating sales achievements and also problem area Marketing Department: market research which provides information on market trends, consumer behavior, competitor’s activities, etc

Methods of setting up budget Objective task method Historical method Percentage of past sales Percentage of future sales Competitor parity/Market share Affordability Marginal Per unit

1. Objective task method A basic approach to task-method budgeting can be achieved by costing out the various elements of the promotional mix Set advertising/promotion objective Decide promotion activities to be carried out to achieve the objectives Set up the budget

2. Historical method The historical method is based on the expenditure/spending on advertising and promotion of previous years A percentage was added to cover inflation & other extra activities

3. Percentage of past sales The method is based on the idea that if a product sold well in previous years then it should be supported for future years

4. Percentage of future sales This method is based on predicting the volume of sales that is likely to be achieved Based in market research and scientific forecasting

5. Competitor parity/market share Monitor and evaluate the promotional activity of competitors by study of the media and events they are participating in Purchasing advertising expenditure data

6. Affordable method Financial director simply states the amount that has been recommended to and sanctioned by the BoD Used for new company or new product

7. Marginal (or stratified) method The marginal (or stratified) method is based on justifying levels of expenditures in relation to the amount of increased sales that will occur and is a favoured methods of sales orientated companies

8. Per-unit method It depends on every operation in the production and supply of a product being costed-from raw material to the cost of distribution