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Budgeting: A Comprehensive Guide #362226

Course Overview

Credit

Amount

CPA

Course Author: Steven M. Bragg, CPA Field of Study (CPA): Finance

Course Description

Course publication/revision date: This course was updated on 6/9/2026.

A business may need a well-defined budgeting process in order to estimate its future financial situation and arrange for appropriate amounts of financing and personnel. The Budgeting course provides clarity to the process by showing how to assemble a complete set of budgets, as well as supporting procedures, controls, and reports. The course also addresses several variations on the basic budgeting concept – the flexible budget and the zero-base budget. And for those organizations that prefer to operate without the rigidity of a formal budget, the course discusses how to do so. In short, Budgeting provides the complete toolkit of solutions for building a tailor-made budgeting system.

Table of Contents

Chapter 1 - Introduction to Budgeting2

The Advantages of Budgeting	2
The Disadvantages of Budgeting	3
Capital Budgeting Problems	4
The Command and Control System	5
Behavioral Impacts	5
Bureaucratic Support	6
Information Sharing	7

Chapter 2 - Cost-Volume-Profit Analysis9

Contribution Margin	9
Contribution Margin Income Statement	10
Breakeven Point	11
Margin of Safety	14
Cost-Volume-Profit Analysis	15
Sales Mix	17

Chapter 3 - The System of Budgets20

The System of Budgets	20
AI-Assisted Budgeting	24
Operating Decisions Impacting the System of Budgets	25
The Reasons for Budget Iterations	26
The Number of Budget Scenarios	27

Chapter 4 - The Revenue Budget30

Overview of the Revenue Budget	30
The Detailed Revenue Budget	31
Responsibility for Revenue Information	33
Sources of Revenue Information	34
The Impact of Pacing on the Revenue Budget	36
The Inherent Variability of the Revenue Budget	37

Chapter 5 - The Ending Finished Goods Inventory Budget39

Ending Inventory Assumptions	39
Impact of Changes in Ending Inventory	40
The Ending Finished Goods Inventory Budget	40

Chapter 6 - The Production Budget44

The Production Budget	44
Other Production Budget Issues	45
Budgeting for Multiple Products	47

Chapter 7 - The Direct Materials Budget49

The Direct Materials Budget (Roll up Method)	49
The Direct Materials Budget (Historical Method)	51
The Direct Materials Budget (80/20 Method)	52
Anomalies in the Direct Materials Budget	54
Supply Chain Budgeting Issues	54
The Role of the Direct Materials Budget	55

Chapter 8 - The Direct Labor Budget57

The Direct Labor Budget (Traditional Method)	57
The Direct Labor Budget (Crewing Method)	59
The Direct Labor Budget for Manufacturing Cells	60
The Cost of Direct Labor	61
Anomalies in the Direct Labor Budget	61

Chapter 9 - The Manufacturing Overhead Budget64

The Manufacturing Overhead Budget	64
Overhead Allocation between Periods	66
Additional Issues	67

Chapter 10 - The Cost of Goods Sold Budget69

The Cost of Goods Sold Budget

Chapter 11 - The Sales and Marketing Budget72

Types and Timing of Sales and Marketing Expenses	72
Structure of the Sales and Marketing Budget	73
Sources of Sales and Marketing Expense Information	76
Analysis of the Sales and Marketing Budget	77
Sizing the Department	78
Diminishing Returns Analysis	80
Sales and Marketing Pacing	81
The Impact of Bottlenecks on the Sales and Marketing Budget	81
Sales and Marketing Metrics	82

Chapter 12 - The Research and Development Budget87

General Funding for Research and Development	87
Research and Development Funding Decisions	87
Expected Commercial Value	88
Project Risk	89
Project Selection Issues	90
The Project Failure Rate	91
Structure of the Research and Development Budget	92
Ongoing Project Analysis	94
Research and Development Measurements	95
Treatment of Cancelled Projects	96

Chapter 13 - The Administration Budget98

The Administration Budget	98
Sustainability Budgeting	100
Cost Variability in the Administration Budget	101
Allocation of Administration Expenses	101
Service-Based Costing	102

Chapter 14 - The Capital Budget104

Overview of Capital Budgeting	104
Capacity Expansion Strategy	105
Capacity Reduction Strategy	106
Risk Levels	106
Additional Risk Factors for International Investments	107
Bottleneck Analysis	108
Net Present Value Analysis	108
The Payback Method	111
Capital Budget Proposal Analysis	112
The Outsourcing Decision	114
The Capital Budgeting Application Form	115
The Post-Installation Review	117
The Lease versus Buy Decision	118
Capital Budgeting with Minimal Cash	119

Chapter 15 - The Compensation Budget122

The Compensation Budget	122
The Treatment of Hourly Pay and Overtime	124
The Benefits Budget	125
The Headcount Budget	127
The Link between Budgets and Bonus Compensation	128

Chapter 16 - The Master Budget131

The Budgeted Income Statement	131
Components of the Budgeted Balance Sheet	133
Accounts Receivable	133
Inventory	135
Fixed Assets	137
The Financing Budget	141
The Budgeted Balance Sheet	143
Accompanying Documentation	144

Chapter 17 - Nonprofit Budgeting147

The Revenue Budget	147
The Management and Administration Budget	149
The Fundraising Budget	150
Program and Grant Budgets	151

Chapter 18 - Flexible Budgeting153

The Flexible Budget	153
The Flexible Budget Variance	154
Advantages of Flexible Budgeting	155
Disadvantages of Flexible Budgeting	155

Chapter 19 - Cost Variability158

Mixed Costs	158
Labor-Based Fixed Costs	160
Costs Based on Purchase Quantities	161
Costs Based on Production Batch Sizing	162
Costs Based on Step Costs	162
Time-Based Costs	162
Experience-Based Costs	163
Incorporating Cost Variability into Reports	165

Chapter 20 - The Zero-Base Budget169

Incremental Budgeting	169
Overview of Zero-Base Budgeting	170
The Zero-Base Budgeting Process	171
Step 1 - Develop Decision Packages	171
Step 2 - Rank Decision Packages	175
Advantages of Zero-Base Budgeting	177
Problems with Zero-Base Budgeting	178
Conditional Budgeting	179

Chapter 21 - Operating without a Budget182

Alternatives to the Budget	182
Forecasting without a Budget	183
Capital Budgeting	184
Goal Setting without a Budget	185
Strategy without a Budget	186
Management Guidelines	187
The Role of Senior Management	187
Corporate Staff Roles	189
Board Approvals	189
Compensation without a Budget	189
Controls without a Budget	191
Behavioral Norms	191
Profit Knowledge	192
Information Exchange	192
Hiring, Promotions, and Continuity	192
Customer Ownership	193
Accounting Reports	193
Investor Relations	195
Implementation of the No-Budget Environment	195

Chapter 22 - The Rolling Forecast198

The Rolling Forecast Process	198
Rolling Forecast Governance	199
The Rolling Forecast Format	200
Continuous Budgeting	202

Chapter 23 - Budgeting Procedures205

Procedure – Formulation of the Budget	205
Procedure – Issue Budget Variance Reports	207
Procedure – Subsequent Account Changes	208

Chapter 24 - Budgeting Efficiencies210

Budget Model Efficiencies	210
Spreadsheet Error Checking	210
Verification Opportunities	212
Simplification Opportunities	213
Simplification over Time	214
Budgeting Process Efficiencies	214
Participative Budgeting	215

Chapter 25 - Budget Reporting217

General Reporting Format	217
Revenue Reporting	219
Selling Price Variance	219
Sales Volume Variance	220
Overview of Cost of Goods Sold Variance Reporting	221
The Purchase Price Variance	221
Material Yield Variance	222
Labor Rate Variance	224
Labor Efficiency Variance	224
Variable Overhead Spending Variance	225
Variable Overhead Efficiency Variance	226
Fixed Overhead Spending Variance	226
Problems with Variance Analysis	227
Which Variances to Report	227
How to Report Variances	228

Chapter 26 - Budgeting Controls231

Budget Creation Controls	231
Budget Integration Controls	232

Appendix235

Answers to Chapter Questions241

Glossary256

Index261

Course Details

Author: Steven M. Bragg, CPA

Steven Bragg, CPA, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young. He received a master’s degree in finance from Bentley College, an MBA from Babson College, and a Bachelor’s degree in Economics from the University of Maine. He has been a two-time president of the Colorado Mountain Club, and is an avid alpine skier, mountain biker, and certified master diver. Mr. Bragg resides in Centennial, Colorado. He has written more than 300 books and courses, including New Controller Guidebook, GAAP Guidebook, and Payroll Management.

Publication/Revision Date: 6/9/26

Course Exam Questions: 70 (multiple-choice)

Program Delivery Method: Self-Study (NASBA QAS Self-Study)

Available Formats of Course Text: PDF or PDF plus printed copy sent in the mail

Course Level, Prerequisites, and Advance Preparation Requirements

License	Course Level	Prerequisites	Advance Preparation Requirements
CPA	Overview	None	None

* This program is appropriate for professionals at all organizational levels.

Sponsor ID Numbers

National Registry of CPE Sponsors ID: 107615

State CPA Board Sponsor ID Numbers (where applicable)

Florida Division of Certified Public Accounting: 0004761

Hawaii Board of Public Accountancy: 14003

New York State Board for Public Accountancy: 002146

Ohio Accountancy Board: CPE .51 PSR

Pennsylvania State Board of Accountancy: PX178025

Texas State Board of Public Accountancy: 009349

Learning Objectives

As a result of studying the course material, you should be able to meet the objectives listed below:

Specify the advantages and disadvantages of budgeting.
Specify the areas within an organization where there is a bureaucracy supporting the use of budgeting.
Identify the components of cost-volume-profit analysis, and how it can be used.
State the types of budgets that are included in the system of budgets.
Recognize the operating decisions that can impact the system of budgets.
Cite the sources of information for the revenue budget, and note how this budget is used.
Specify how different decisions can impact the amount of finished goods inventory on hand.
Identify how the production budget is compiled, and the issues to consider when constructing it.
Specify how the direct materials budget is compiled.
Identify the components of the direct labor budget, and how it is compiled.
Cite the line items used in the manufacturing overhead budget, and the nature of these costs.
State the sources of the cost of goods sold budget, and the reasons for changes in the expense.
Identify the sales and marketing activities that can affect revenue, as well as the methods used to compile and present the sales and marketing budget.
Specify how the research and development budget is derived, as well as how to review the budget for effectiveness.
Cite the line items usually found in the administration budget.
Identify the methods used to review capital budgeting proposals.
Specify the uses to which a headcount budget is put, and whether bonuses should be included in the budget.
State the components of the master budget, and the factors impacting budgeted asset and liability levels.
Identify the line items used in a nonprofit budget.
Cite the advantages and disadvantages of flexible budgeting.
Identify the situations in which costs can vary, and when they are more likely to be fixed.
State the nature of zero-base budgets and the process for using them, as well as the nature of conditional budgeting.
Specify the role of management in an environment where there is no budget.
Specify the focus of a rolling forecast, and the nature of a continuous budget.
Identify the procedural steps needed to create a budget, including those steps needed to prevent budget slippage and calculation errors.
Cite the methods available for improving the efficiency of the budgeting process, and of the budget model.
State the variances that can be used to compare a budget to actual results.
Identify the controls that can accompany a budgeting process, and what they are intended to accomplish.

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