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1 List the types of budgets you may have to prepare

List the typical budget cycle
Discuss the purpose of each of the following budgets
Cash budget
Labour budget
Production budget
Materials budget
Overhead budget


What are budget negotiation procedures used for
What is a milestone in relation to budgets
What are the steps involved in forecasting estimates
What factors need to be taken into consideration when preparing cash flow estimates
What might a budget spreadsheet report cover
List and describe each type of formatting for budgets
What duties are involved in establishing a timeline for budgets.

Budget Cycle Phases

Budgets are helpful for the business in tracking and managing their resources. Business generally uses numerous types of budgets to measure their spending and creating efficient strategies for increasing the assets and revenues. The below listed are the types of budgets that are commonly used by the business are as follows;

  1. Master Budget
  2. Operating Budget
  3. Cash Flow Budget
  4. Sales Budget
  5. Production Budget
  6. Financial Budget

The budget cycle comprises of four phases and they are

  1. Preparation and submission
  2. Approval
  3. Execution, and
  4. Audit and evaluation

The purpose of each of the following budgets are

Cash Budgets:

  1. Expected revenue:The purpose of cash budget is estimating the available cash or the amount that is expected to be in hand during the period of budget to cover the expenditure.
  2. Expected Expenditure:Another purpose of cash budget is covering the expected expenditure and providing the summary of everything the business would have to pay during the period of budgeting,
  3. Addressing the shortfalls:The purpose of cash budgeting is addressing shortfalls when the expected expenditure surpasses the expected revenue. The cash flow budget alerts the business of the upcoming problem by promoting the business to act proactively and seeking alternatives.

Labour Budget:

  1. The labour budgets is used to compute the number of labour hours that would be needed to manufacture the units itemized in the production budget.
  2. The labour budget is helpful in determining the number of employees that would be needed to staff the manufacturing area across the budgeted period.
  3. The budget offers information at the aggregate level and it is not used typically specific hiring and requirements of lay off.

Production Budget:

  1. The production budget is prepared to compute the number of units of products that should be manufactured and it is obtained from the combination of sales forecast.
  2. The production budget is helpful for the company in forecasting the level of production for the period when there is a fluctuation in demand.
  3. The production budget is prepared in forecasting the cost of having the goods manufactured by someone else.

Materials Budget:

  1. The direct material budget is prepared to calculate the materials that is required to be purchased during the time period to fulfil the need of production budget.
  2. The direct materials budget is prepared to attain the desired ending inventory for each material that is added to the required quantity to attain the needs of productions and the total sum is lowered to project the beginning inventory in order to ascertain the sum of materials to be purchased.

Overhead Budget:

  1. The purpose of preparing the overhead budget is that it contains all the manufacturing costs apart from the cost of direct materials and direct labour. The information that is contained in the manufacturing budget forms the portion of COGS line in the master budget.
  2. The purpose of preparing the overhead budget is converting the total costs into per-unit overhead allocation that is used to derive the cost of ending finished goods inventory.

Budget negotiations is contentious but forms the productive time in the company. Budget negotiations is considered as the productive as company can understand how it can work to work more harmoniously when each of the department manager can understand the needs and requirement of each of the department. Budget negotiations is used in taking decision regarding how each item would create an impact on the company’s bottom line.

The Budget Milestones helps in reconciling the complicated budget data and surveys in the easily understood graphs, charts and table. Each of the budget milestone report is customized as per the intricacies of the unique budget procedure and the charts of accounts. Budget milestone is regarded as the powerful tool for administering the budget amid the internal stakeholders, sharing of information with the line departments and communicating with public.

The steps involved in forecasting estimates are stated below;

Step 1: Defining Problems:

Problems definition carefully requires an understanding of the way forecast would be used. A forecaster is required to spend the time by taking to everyone that are engaged in the collection of data, maintenance of data base and using the forecasts for future planning.

Step 2: Collection of Information:

There always at least two forms of information that is required namely the statistical data and the accumulated expertise of the people that collect the data and using the data for forecasts. On a regular basis it is difficult to get sufficient historical data to be fit into the statistical model.

Step 3: Preliminary Analysis:

The preliminary analysis is conducted to understand whether there is any significant trend available or whether there is any seasonality importance. Hence, numerous tools have been developed to assist in preliminary analysis.

Step 4: Selecting and Fitting Models:

The best use of the model is reliant on the availability of the historical data, the strength of the relationships among the forecast variable and explanatory variable are used in forecasting.

Common Types of Budgets

Step 5: Using and assessing the forecasting model:

Once the selection of model is done and the parameters has been estimated the model is useful in making forecast. The model performance can be used adequately in evaluating the data for the forecast for forecast period that have become available.

In preparing the cash flow there are certain key factors that need to be taken into the consideration. These factors include;

  1. Important internal factors such as price change can create an impact on the present period. Business are required to consider price changes based on the seasonality at the time of making sales prediction.
  2. Another factor in preparing the cash flow is identifying the pattern of debtor remittances. The predicted sales for the period should be considered or broken down into cash receipts and when the cash would be received from the customers.
  3. Another important factor is determining the cash outflows that one can estimate from the total outflows for the year. The selling price of the product and price should be included to cover the amount of expenditure.

Budget spreadsheet report covers categorized revenues and expenditures that covers the specific areas in the accounts receivables and accounts payable. The budget reports represent the actual transactions that occurs during the giver time period for which the report is applicable. The budget report categorizes the actual revenue and the expenditure that includes the expenditure such as salaries, wages and benefits that is paid to the employees under the expenditure section. While the revenue section comprises of the sources of income such as the proceeds that is obtained from the sales and services typically for several businesses.

The types of budget formats are stated below;

Static Budget: This is regarded as the classic format of budget where the business creates model of its anticipated results and financial position for the next year. The business later makes the attempt of forcing actual results during the period to align with the models of budgeting as close as possible.

Zero-base budgeting’s: Zero-based budgeting is another format of budgeting that consist of determining the outcomes required by the management and creating the package of the expenditure which will lend support for each outcome.

Flexible budgeting: The flexible budget format enables the business to enter into the different level of sales in the model that would later adjust as per the planned expenditure level in order to match the level of sales that is entered. This approach is considered as the useful approach when the level of sales is difficult to estimate.

Incremental Budget: Incremental budgeting is regarded as the easy method of updating the budget model because it assumes that anything that has happened in past can be rolled forward in future. This approach leads to simplified budget updates.

Rolling Budget: A rolling budget is regarded as another form of budget that requires new budget period to be added as soon as the most recent accounting phase has been completed. This budget regularly extends uniform distance in the future.

The duties involved in establishing the timeline is stated below;

  1. Ensuring a workable timeline is created for designing and implementing the innovative assessment system. The responsibility ranges from managing the tension between the quality execution and continuous improvement to scale the program accordingly.
  2. Recognizing the phase of work: Under this phase preplanning of the system design is made. Furthermore, the responsibility ranges from evaluation of the timeline and application of the timeline.
  3. Final consideration of Timeline: By working through the considerations business would be well positioned to create the timeline that would ensure in maintaining quality at the feasible pace.

Budget Negotiations

Trend analysis formats refers to the procedure through which business data over the period of time identifies the consistent results of the trends. The trend format helps in understanding the trend of the business of how it has performed and project where the present business operations and practices would result in. The trend format helps in identifying the areas where the business is performing or how a business can duplicate the success.

While monitoring budget outcomes there are certain things that need to be considered and the same is listed below;

  1. Making Monitoring the Priority:Making the budget the top priority items helps in meeting the agenda. Holding the separate budget monitoring meeting or setting time with the individual team members explores the major variance in detail.
  2. Focusing on the main issues:An effective way of monitoring the budgeting is sticking with the highlights and bigger issues. A business would want to acknowledge the smaller budget that proceeds as per the plan. The management should concentrate on the relevant budget issues.
  3. Considering the threat areas:While the monitoring the budget outcomes it is necessary to consider what is incorrect in the budget and things that are wrong. This helps in locating the business deficiencies and undertaking appropriate corrective measures of reducing or eliminating such threats.   

Sales budget for the year ended 30 June 20xy

Particulars

Sales Volume

Sales price

Total sales

Sales

Plain

               45,000

 $          8.40

 $        378,000

Chocolate

               45,000

 $          7.35

 $        330,750

Jam

               28,500

 $          5.25

 $        149,625

Total

            118,500

 

 $        858,375

Combined marketing, administration, and financial expenses budget by month for September and October

Particulars

September

October

Advertising (for lunch specials)

 $              81

 $          81

Rent

 $        1,000

$ 1080

Electricity

$ 275

$ 275

Depreciation on cooking equipment

$ 30

$ 30

Cleaning fees

$ 160

$ 160

Bank charges

$ 15

$ 15

Wages – Kitchenhand staff

$ 2000

$ 2000

Wages – Clerical staff

$ 1500

$ 1500

Stationery

$ 10

$ 10

Canteen consumables

$ 105

$ 105

CASH BUDGET for the quarter ended Sept

Particulars

July

Aug

Sept

Opening balance

 $          10,000

 $        13,680

 $        15,110

cash sales

 $             9,500

 $        11,000

 $        12,000

Accounts receivable

 $          71,820

 $        73,710

 $        84,105

Total cash receipt

 $          91,320

 $        98,390

 $     111,215

Total cash available for receipt

Less- cash payments

Cash purchase

 $          11,760

 $        13,440

 $        13,920

Accounts payable

 $          43,680

 $        47,040

 $        53,760

Wages and salaries

 $             8,000

 $          8,000

 $          8,000

other operating expense

 $          12,000

 $        12,000

 $        12,000

interest

 $        24,000

Net GST payable

 $             2,200

 $          2,800

 $          2,582

Closing balance

 $          13,680

 $        15,110

 $        (3,047)

CASH BUDGET WORKINGS

1. Cash collections from customers

Month Cash Collected

Month of sale

July

Aug

Sept

Sale

 $          13,500

 $        12,150

 $        12,825

Sale

 $          58,320

 $        61,560

 $        71,280

Total

 $          71,820

 $        73,710

 $        84,105

2. Cash payments to suppliers

Month Cash paid

Month of purchase

July

Aug

Sept

Purchase

 $          43,680

 $        47,040

 $        53,760

Total

 $          43,680

 $        47,040

 $        53,760

3. GST workings

 

GST collected (payable)

July

Aug

Sept

Cash sales

 $             9,500

 $        11,000

 $        12,000

Receivables

 $          85,500

 $        99,000

 $     108,000

Total income

 $          95,000

 $     110,000

 $     120,000

GST Payable

 $       8,636.28

 $    9,999.90

 $  10,908.98

GST paid(refundable)

July

Aug

Sept

Cash purchases

 $          11,760

 $        13,440

 $        13,920

Accounts payable

 $          47,040

 $        53,760

 $        55,680

Other expenses

 $          12,000

 $        12,000

 $        12,000

Capital expenditure

 $        10,000

Total expenses

 $          70,800

 $        79,200

 $        91,600

GST refundable

 $       6,436.30

 $    7,199.93

 $    8,327.19

Net GST payable

 $       2,199.98

 $    2,799.97

 $    2,581.79

Crispy Crisp Ltd Purchases budget (units) for the quarter ending 30 September 20xx

Particulars

July

August

September

Total

Opening Units

         48,000

     44,000

         52,000

   144,000

Purchases

         56,000

     63,000

         62,600

   181,600

Units used

         60,000

     55,000

         65,000

   180,000

Closing units

         44,000

     52,000

         49,600

COGS budget (UNITS and DOLLARS) for October 2013

Particulars

October

November

Opening inventory

 $        2,062,500

COGS

 $        1,250,000

Used

 $        2,250,000

 $  2,125,000

Ending inventory

 $        1,062,500

Particulars

Value

Comment

Material Cost variance

70

Unfavourable

Labour Cost variance

435

Favourable

Objective of JB-Hi Fi:

The main objective of JB-Hi-Fi are depicted a follow.

  • The company aims in improving the level of revenue from operation
  • Reducing any kind of further litigation in their operations due to spillage
  • Improvement in safety measures and maximising the level of returns from investment

Identifying stakeholders:

The major stakeholders of the organisation are suppliers, shareholders, employees, government, and management.

Performance indicators:

The performance indicator of JB-Hi-Fi is mainly considered as inventory turnover ratio, creditors days, fixed charge ratio, interest cover, gearing ratio, and return on invested capital.Breakdown the budget into seasonal period

The financial risk and contingency planning:

The major finical risk is from the declining revenue that is incurred by the company over the period. In addition, the increment in expenses could also have an adverse reaction to the budget prepared for JB-Hi-Fi. The contingency plan is relatively focused on minimise the expenses incurred from operations, while increasing the level of returns from investment. The decline in sales is compensated by declining cost of sales for reducing the level of expenses and maintaining the level of profits for the organisation.

Process of implementation of budget:

The budget implementation process relevantly consists of Budget formulation, budget approval, budget execution and budget oversight, which fulfils the requirements of budget implementation. Therefore, the prepared budget implementation will mainly help JB-Hi-Fi to improve the level of returns from operations, while increasing its profits.

References

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