Budgeting Basics and Beyond

13.1. Budget Process

For budgeting, capital expenditures may be classified as normal or special. Normal expenditures are routine, less costly, and made to maintain current operations. Each project typically does not involve a large cash outlay. The normal capital expenditure should meet the needs of the manager's division or department. An example is a minor replacement of machinery.

Special capital expenditures are unusual, costly, and made for a specific purpose, such as the purchase of a new machine to manufacture a product for a special job of a one-time nature.

Major capital projects typically are planned and proposed by operating managers and must be approved by upper management. The manager must properly budget and package the capital expenditure. These expenditures must be classified by category, class, need, consequence, and feasibility. Capital expenditures may be required or optional. In the case of minor capital expenditures, the division and department managers may have the authority to approve them on their own.

The four steps in the capital expenditure budgetary process are:

1. Approving the project

2. Approving the estimate

3. Authorizing the project

4. Follow-up

The capital expenditure proposal should contain a description, starting date, completion date, source information, and advantages and disadvantages of the proposal.

Some capital expenditures are minor and not subject to detailed planning. Examples are low-cost machinery and minor renovations. These minor expenditures ...