Question

Mark Newton has just opened a gourmet coffee bar, the first of its kind in Fountain, North Carolina. You are Mark's accountant. On a recent visit to the store, you asked how the budget was coming along. Mark replied that since there was no history of gourmet coffee sales in Fountain, he didn't know how to prepare a budget, and he didn't really see the need for one.

Explain to Mark the importance of budgeting and provide some guidance on how he should go about the process.

Answer 1

Ans : Budgeting plays a very important tool to forecast the business future and plan accordingly. And ensures that the company had adequate resources i.e. cash capital and raw material to meet its business objectives in the future.

It starts with predicting the future sales or requirement and accordingly forecasting the company raw material requirements and cash requirement to meet those sales demands.

So it's starts in following sequence: Sales budget then production budget then purchase of raw material budget then cash budget.