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It is always a joy for me whenever I have the opportunity to participate in the Steemit contest weekly and today I will be participating in the crypto academy community contest. Stay tune below.

When we talk about budgeting, I have come to understand that it is a very vital tool for our financial planning because it helps us to know how to allocate our resources effectively and not only that but also help us to achieve our financial goals at the end of the day. When we talk about Budgeting, it means a plan most especially a detailed one that will cover your income and your expenses over a certain period of time and this detailed plan can actually help us to make wise decisions when it relates to our finances.

Understanding Budgeting

I will also like to talk about budgeting extensively so that we can understand budgeting much more. Budgeting is really a very important approach to our financial planning. When you want to budget, it means you will estimate your future income and not only income but also your expenses so that you can be able to make use of the financial resources available to you. It serves as roadmaps for us that will help you to track your financial performance over the long period of time.

Not only that it gives you plan, it also helps you to avoid some bad habits that might affect our finances. By engaging in budgeting, you will be able to avoid overspending, and be able to attend to some emergency financial needs that might want to come in the future. I will call it that budgeting helps to prepare us for uncertainty and at the end of the day helps you to achieve investment plans.

Types Of Budgeting

We have various types of budgeting but because of my explanation, I will pick only three below;

• Operational Budgets: The first is the Operational Budgeting as it helps us to narrow our financial planning depending on our daily activities. Majorly I will say Operational Budgeting focus on only short term of our financial goals and planning.

• Capital Budgets: When It comes to Capital Budgeting, it deals with the long term goal of either of our investments or financial goal. In capital Budgeting, it deals with long term expenditure. Take for example you are planning to get equipment or buy an infrastructure in a couple of months, the ideal type of budgeting for it is the Capital Budget.

• Flexible Budgets: The last one I will talk about is the flexible budget. This is the most common type of Budgets that we practiced in our day to day financial goals. Like the name, flexible. It is prone to adjustments depending on several factors that might want to prone the change..

The Role of Costing

Now in a bid for me to explain the relationship that exist between Budgeting and Costing, I will like to first of all establish what is the role of costing. When it comes to costing, well I will say it is not the same thing like budgeting but kind of complement budgeting. What do I mean by that? Costing focus on giving you a more detailed insight to know the financial consequences of either a product or a financial goal.

In essence, you will be able to know all the cost involved. When it comes to the costing method, we have the job costing, we have the process costing and also the activity based costing. Costing helps us to achieve an accurate price and also helps us to point out either the potential of profits or loss so that we will be able to make more wise and strategic financial decisions at the end of the day.

The Relationship Between Budgeting and Costing

Now back to the main question. Both Budgeting and Costing work together like I said earlier. In fact I will say both of them depends on each other. Budgeting needs costing to effectively function and then costing also needs budgeting to function effectively. I have been able to point out 4 vital points of the relationship that exist between Budgeting and Costing.

• Resource Allocation: The first is the resource allocation. With budgeting, you will be able to know the amount of funds to allocate to your financial activities while costing will now make sure that those funds you allocated are wisely and effectively used and costing achieve that by giving you the detailed expenses involved for the financial activities.

• Cost Control: The second point is the cost control. One of the things I have noticed that helps us to achieve is to know which particular area of our financial activity is taking too much of expenses or expenditure as it were so that if there is a need for budget adjustments, it can be carried out.

• Pricing and Profitability: The third point is Pricing and Profitability. When we are able to carry out effective costing, it will help us to know which particular price range to set for our product and that must be in agreement to the budget set for the target revenue. This is mostly used in Businesses.

• Performance Evaluation: The last one is the Performance Evaluation which I mentioned earlier. With both costing and budgeting, we can compare our actual cost with the budgeted plan so that we can know the level of our financial performance and at the end of the day enhance our decision making.

Practical Applications

In a bid to buttress my explanation above, I want to give a practical application example of which both budgeting and costing is used together. Take for example I have a company and my company is planning to launch this particular product. I will need to prepare a budget that will actually contain both the estimated profit I will make from launching the product and also the production cost for even manufacturing thay particular products.

I can make use of costing method to actually break down my production cost for that particular product I want to launch. This will include a very detailed prediction expenses list as this will help me to also know the level of profit I will make from the product comparing it to the amount I have spent on the production cost at the end of the day.

Like I said earlier, budgeting goes a long way to help us in our financial planning and there is a lot of importance that comes with budgeting for determining costs which I will be listing below;

Importance Of Budgeting In Determining Costs

• Accurate Cost Estimation: The first I will make mention of is the Accurate cost estimation. With budgeting, you can be able to know and have an accurate estimate of the potential cost for a particular financial goal either you want to get a product or finish a product. Budgeting helps to break down expenses that you will need to achieve those financial goals at the end of the day and make it so accurate.

• Resource Allocation: The second one is the aspect of the Resource Allocation. After estimating the cost, you can now know the amount of resources that you can allocate for various financial activities so that you will be able to avoid waste and unnecessary spending. Most of the time this is very important for a construction company.

• Cost Control and Monitoring: The third one I will like to talk about is the Cost Control And Monitoring. With budgeting, you can know the number of costs you engaged in so that it can be measured. When you are able to compare your actual expenses together, this can help you to know whether you are still within the financial limits so that it can help you to avoid overspending.

• Pricing Decisions: Most of the time, I have come to discover that the issue we have is our pricing decision most especially when we are going after a project. With budgeting, you can be able to set accurate prices for each financial activities so that you can know the exact cost of goods or services. When you have accurate budgeting, it helps to give a good profit margin.

• Strategic Planning: Of course this will not be complete if I did not mention the aspect of strategic planning. With budgeting, I will be able to know budgeting for my Long term financial planning and this will help you to achieve your financial goals. You will be able to make wise decisions and have this financial preparedness.

• Mitigating Financial Risks: The next importance I will mention is budgeting helps you to deal with Financial Risk. They are real. It helps you to notice financial risk most especially that is related to when there is high expensive towards a particular financial goal or activities. You can be able to cut away unnecessary expenses.

• Improved Decision-Making: Lastly which I will be using to round up is the aspect of helping to improve your decision making. With all the importance I have mentioned earlier, it all makes us influence our financial decision making positively and so to help get maximum results from our financial goals and activities.

I will be preparing below the cost for the preparation of the cake using both the direct cost and the indirect cost as it was explained in the lecture class.

Assumptions:

• The budget is for 100 cakes
• Direct Costs involved
• Indirect Costs Involved
• 4% Adjustments for both direct and indirect cost.

Direct Costs

• Direct Costs: They are the cost that is for the making of the cake. They are directly related to the making of the cake.

Direct Costs listed below;

• Baking Powder
• Butter
• Eggs
• Sugar
• Flour
• Vanilla Extract

Adjustment (4%):

• 4% of $63.00 = $2.52
• Total Direct Costs (After Adjustment) = $63.00 + $2.52 = $65.52

Indirect Costs

• Indirect Cake: Are the cost that is for the production of the cake but not directly for the making of each cake.

Indirect Cost listed below;

• Rent/Utilities
• Packaging (Boxes)
• Electricity
• Labor (Baker)

Adjustment (4%):

• 4% of $138.66 = $5.55
• Total Indirect Costs (After Adjustment) = $138.66 + $5.55 = $144.21

Total Budget for Cake Preparation

Now what I will be doing is that I will add both the direct Costs and also the indirect costs together. I mean the 4% adjustments cost done as this will now help me to get the overall budget.

So this is the budget that will allow me to make a preparation for the 100 cake above and it contains all the necessary expenses I need to attend to including the direct and the indirect costs I mean.

I will also be following the same method I used earlier for the preparation of the 100 cakes for this hairdressing service also.

Assumptions:

• The Hairdressing Session is 50 Hairdressing section
• Direct Costs involved
• Indirect Costs Involved
• 3% Adjustments for both direct and indirect cost.

Direct Costs

• Direct Costs: They are the cost that is for the making of the hairdressing session. They are directly related to the making of the hairdressing session.

Direct Costs listed below;

• Shampoo (per liter)
• Conditioner (per liter)
• Styling Products
• Disposable Towels
• Gloves and Masks

Adjustment (3%):

• 3% of $305.00 = $9.15
• Total Direct Costs (After Adjustment) = $305.00 + $9.15 = $314.15

Indirect Costs

• Indirect Cake: Are the cost that is for the production of the hairdressing session but not directly for the making of each session.

Indirect Cost listed below;

• Miscellaneous (Cleaning)
• Rent (Shared)
• Utilities (Electricity & Water)
• Equipment Maintenance
• Labor (Hairdresser)

Adjustment (3%):

• 3% of $808.34 = $24.25
• Total Indirect Costs (After Adjustment) = $808.34 + $24.25 = $832.59

Total Budget for Hairdressing Service

Now what I will be doing is that I will add both the direct Costs and also the indirect costs together. I mean the 3% adjustments cost done as this will now help me to get the overall budget.

Thank you for this lecture, looking forward to more interesting and benefiting lectures in the more weeks to come

I invite @lovelystar , @newekemini5 and @okere-blessing to drop a very constructive comments on this post and also to participate in this contest.