If you’ve ever wondered what is a shopping budget ? You should know that it is a tool in charge of providing help to industrial and commercial companies. Its main function is to make a financial or quantitative calculation of each of the products that the business handles or needs.
In this way, any production or inventory cost can be calculated in a more simple and organized way. If you want an optimal and efficient purchasing budget, it is necessary to establish a production budget.
That said, we can say that a report on the purchase budget allows business owners to determine the amount of money obtained and the goods that are necessary to achieve the objectives desired by the company.
This special budget is used in companies that have products in stock or inventory, since the value of said inventory plays an important role in a complete purchasing budget.
Calculation of the purchase budget
A purchasing budget provides a representation of what the company plans to purchase for inventory. It also takes care of the amount of inventory that the company plans to increase or maintain for a specified period of time.
A purchase budget is created using a simple formula. The formula is the desired ending inventory plus the cost of goods sold, minus the value of the beginning inventory. This equation is the most used when calculating the budget for total purchases.
What is and what is the cost of goods sold?
The cost of goods sold is a sum collected of all products or services offered by the company in terms of production value.
This means that the total cost of the products will be added, plus the necessary means that make these products ready to be sold. Some companies even break down and explain how the cost is divided in terms of planning, production, and testing.
What is the central purpose of a purchase quote?
A purchasing budget is created to keep track of the company’s inventory value and the quantity of goods sold.
It is also used to help keep track of the desired ending inventory value each month, as this is often a goal set by business owners. The purchasing budget is often only a partial budget for a business and is often found in a business master budget.
Purchasing budget planning
The specificity of the purchasing budget allows business owners to use the information to plan inventory. The purchasing budget is often a component of an inventory and the larger budget.
Since this particular budget is focused on the value and growth of inventories. It also helps to plan future purchases of goods.
Characteristics of a good shopping budget
You will understand the importance of a good purchasing budget, now we will define some important characteristics of it and what we can do with them to reach an optimal level in our company.
The first thing is to understand that this type of budget has great flexibility. Well, within them we can apply any necessary changes or adjustments. All depending on what the need is within the company or department where it is being applied.
On the other hand, it shows a Wide-Operability, since it also gives the option of projecting in them all the aspects related to the essence of the business in general.
Another of its characteristics is the temporality. Well, in a purchase budget, different time conditions can be applied according to the business line. This measure can be applied on a monthly, bi-monthly or quarterly basis.
Finally, it is important to understand its high effectiveness. The same lies in the fact that in this type of budget it is in the hands of the company and through its decisions the business budget will be properly formulated.
What are the objectives of a purchasing budget?
Making a brief account of the aforementioned, we can say that the objectives of a purchasing budget are mainly focused on ensuring the supply of the company in a timely manner.
In addition, it prevents the company from having an over investment within inventories, as well as optimizing resources and determining all kinds of costs and expenses related to its area.