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Question:
Based on various case studies, you are required to plan, develop, finalise, monitor, and control budgets including:
Sales Budget
Purchase Budget
Expense Budget
Budgeted Income Statement
Production Budget
Performance Reports

 Sales Budget Selling Units Selling  Price Total Sydney 740 \$         260.00 \$  192,400.00 Melbourne 680 \$         220.00 \$  149,600.00 Brisbane 620 \$         200.00 \$  124,000.00 Gold Coast 710 \$         190.00 \$  134,900.00 Adelaide 550 \$         180.00 \$    99,000.00 Perth 420 \$         170.00 \$    71,400.00 Total sales 3720 \$  771,300.00

 Sales Budget Selling Units Selling  Price Total Sydney 740 260 =B3*C3 Melbourne 680 220 =B4*C4 Brisbane 620 200 =B5*C5 Gold Coast 710 190 =B6*C6 Adelaide 550 180 =B7*C7 Perth 420 170 =B8*C8 Total sales =SUM(B3:B8) =SUM(D3:D8)

 Purchase Budget Purchases Units Purchases Price of each unit Total Purchase October 6643 28 186000 November 10893 28 305000 December 2232 28 62500 Total 19768 84 553500

 Purchase Budget Purchases Units Purchases Price of each unit Total Purchase October =D13/C13 28 =B7 November =D14/C14 28 =C7 December =D15/C15 28 =D7 Total =SUM(B13:B15) =SUM(C13:C15) =SUM(D13:D15)

 Particulars Amount Proposed Sales \$  95,000.00 Fixed Expenses Manager`s salary \$    6,000.00 Depreciation of vehicles \$    1,000.00 Depreciation of fixtures and fittings \$    1,500.00 Stationery \$    1,100.00 Rent \$    1,000.00 Interest on Loan \$    2,500.00 General Expenses \$        800.00 Variable Expenses Advertising \$    2,500.00 Commission \$    1,900.00 Cartage \$        950.00 Discount allowed \$    2,375.00 Total \$  21,625.00

 Particulars Amount Proposed Sales 95000 Fixed Expenses Manager`s salary 6000 Depreciation of vehicles 1000 Depreciation of fixtures and fittings 1500 Stationery 1100 Rent 1000 Interest on Loan 2500 General Expenses 800 Variable Expenses Advertising =600+(B2*0.02) Commission =0.02*B2 Cartage =0.01*B2 Discount allowed =0.025*B2 Total =SUM(B5:B17)

 Budgeted Income statement Particulars Amount Revenue Sales 45000 Cost of Goods sold 6000 Gross Profit 39000 Operating Expenses Marketing 4900 Administration expenses 2500 Finance 1200 Total 8600 Net income 30400

 Budgeted Income statement Particulars Amount Revenue Sales 45000 Cost of Goods sold =8000+7000-9000 Gross Profit =B4-B5 Operating Expenses Marketing 4900 Administration expenses 2500 Finance 1200 Total =SUM(B10:B12) Net income =B7-B13
 July August September Opening Inventory Units 48 Total 720 900 810 Production 4380 5490 7200 Units 292 366 480 Per unit price Sales 6000 7200 9000 units 400 480 600 per unit 15 15 15

 July August September Opening Inventory Units 48 Total =0.1*C17 =0.1*D17 =0.1*E17 Production =B17-(B13+C13) =C17-(C13+D13) =D17-(D13+E13) Units =B14/15 =C14/15 =D14/15 Per unit price Sales 6000 7200 9000 units =B17/B19 =C17/C19 =D17/D19 per unit 15 15 15

 Flexible Budget BUDGET MODEL PARAMETERS: Selling price per unit, P \$15 Variable costs per unit, V N/A Fixed costs, F \$63,000 FLEXIBLE BUDGET Flexible When prepared: (After  19X2) Units sold, x 180000 Sales Revenue, Px \$2,700,000 Variable Costs,Vx \$54,000 Contribution Margin \$2,646,000 Fixed Costs,F \$63,000 Operating Income \$2,583,000 FLEXIBLE BUDGET PERFORMANCE REPORT Actual Flexible Variance When prepared: Units sold, x 195000 180000 15000 Sales Revenue \$2,925,000 \$2,700,000 \$225,000 Variable Costs \$57,000 \$54,000 \$3,000 Contribution Margin \$2,868,000 \$2,646,000 \$222,000 Fixed Costs \$62,500 \$63,000 (\$500) Operating Income \$2,805,500 \$2,583,000 \$222,500
Performance report for the quarter

The company has been performing well as per the given performance budget. This can be stated because the operating income of the company for the given quarter has come out well. The fixed cost of the firm has been restricted, and this has resulted in a high performance by the given firm.

Evaluation of the production manager’s performance for the quarter

The manager, as per the given report has been successful in performing well. He has made efforts to control the fixed cost and for this reason the operating profit has come out well.

Cash Budget
 Jan Feb March Beginning Cash Balance 7400 13749 18394 Add: Budgeted Receipt(previous months) 85344 65680 65220 Total cash available for use 92744 79429 83614 Less: Cash disbursements Purchases 52080 38280 37620 Advertisement 500 500 500 Salaries 8000 8640 8640 Rent 3740 3740 3740 Interest on Mortgage 475 475 475 General expenses 2400 2400 2400 Drawings 7000 7000 7000 GST 4800 Total Expenses 78995 61035 60375 Budgeted Ending cash balance 13749 18394 23239

 Jan Feb March Beginning Cash Balance 7400 =B19 =C19 Add: Budgeted Receipt(previous months) =((G5*0.4)*0.2)+((G6*0.4)*0.3)+((H7*0.4)*0.47)+(H7*0.6) =((G6*0.4)*0.2)+((H7*0.4)*0.3)+((H8*0.6))+((H8*0.4)*0.47) =((H7*0.4)*0.2)+((H8*0.4*0.3))+(H9*0.6)+((H9*0.4)*0.47) Total cash available for use =SUM(B4,B3) =SUM(C4,C3) =SUM(D4,D3) Less: Cash disbursements Purchases =(I6*0.2)+(I7*0.78) =(I7*0.2)+(I8*0.78) =(I8*0.2)+(I9*0.78) Advertisement 500 =B8 =C8 Salaries 8000 =1.08*B9 =C9 Rent 3740 =B10 =C10 Interest on Mortgage 475 =B11 =C11 General expenses 2400 =B12 =C12 Drawings 7000 7000 =C13 GST 4800 Total Expenses =SUM(B7:B14) =SUM(C7:C14) =SUM(D7:D14) Budgeted Ending cash balance =B5-B15 =C5-C15 =D5-D15

Budgeted Income statement

 Budgeted Income statement Particulars Amount Revenue Sales \$  420,000.00 Cost of Goods sold \$  296,000.00 Gross Profit \$  124,000.00 Operating Expenses Depreciation \$      1,600.00 Loan repayment \$      6,000.00 Cash expenses \$      1,200.00 Advertising \$    17,200.00 Office expenses \$      7,600.00 Rates and taxes \$      3,800.00 Bank charges \$          300.00 Commission on sales \$      4,900.00 Motor vehicle expenses \$      9,600.00 Salaries and wages \$    34,600.00 Pete private \$    31,200.00 Total \$  118,000.00 Net income \$      6,000.00

 Budgeted Income statement Particulars Amount Revenue Sales =30000*14 Cost of Goods sold =2400+295600-2000 Gross Profit =B4-B5 Operating Expenses Depreciation =0.2*8000 Loan repayment =500*12 Cash expenses 1200 Advertising 17200 Office expenses 7600 Rates and taxes 3800 Bank charges 300 Commission on sales 4900 Motor vehicle expenses 9600 Salaries and wages 34600 Pete private =600*52 Total =SUM(B10:B20) Net income =B7-B21

Cash budget

 2015 Beginning Cash Balance -4400 Add: Budgeted Receipt 420000 Total cash available for use 415600 Less: Cash disbursements Purchases 296000 Depreciation 1600 Loan repayment 6000 Cash expenses 1200 Advertising 17200 Office expenses 7600 Rates and taxes 3800 Bank charges 300 Commission on sales 4900 Motor vehicle expenses 9600 Salaries and wages 34600 Pete private 31200 Total cash required 414000 Budgeted Ending cash balance 1600

 2015 Beginning Cash Balance -4400 Add: Budgeted Receipt 420000 Total cash available for use =SUM(B3,B2) Less: Cash disbursements Purchases 296000 Depreciation =0.2*8000 Loan repayment =500*12 Cash expenses 1200 Advertising 17200 Office expenses 7600 Rates and taxes 3800 Bank charges 300 Commission on sales 4900 Motor vehicle expenses 9600 Salaries and wages 34600 Pete private =600*52 Total cash required =SUM(B17,B16,B15,B14,B13,B12,B11,B10,B9,B8,B7,B6) Budgeted Ending cash balance =B4-B18

Budgeted Balance Sheet as of June, 2015

 Current assets Cash/bank 1600 Accounts receivable 6400 Raw materials Inventory 2000 Finished goods inventory Total current assets 10000 Fixed assets Land and buildings 60000 Machinery 8000 Net fixed assets 68000 Total assets 78000 Current liabilities Accounts Payable 8000 Total current liabilities Mortgage 40000 Less: -6000 Reserves and Surplus 6000 Shareholders’ equity 24000 Total equity and liabilities 78000

 Current assets Cash/bank 1600 Accounts receivable 6400 Raw materials Inventory 2000 Finished goods inventory Total current assets =SUM(B4:B7) Fixed assets Land and buildings 60000 Machinery 8000 Net fixed assets =SUM(B11,B12,B13) Total assets =SUM(B15,B8) Current liabilities Accounts Payable 8000 Total current liabilities Mortgage 40000 Less: -6000 Reserves and Surplus 6000 Shareholders’ equity 24000 Total equity and liabilities =SUM(B19,B21,B23,B24)

Budgets can be described as an essential component of the organization which helps in effective management of the various functions in an organization (Brigham et al. 2016).However there exists certain advantages and disadvantages of the budgeting process.

• The budget forms an essential aspect of the management as they help the organization to think about the future. The given budgeting procedure with specific guidelines for the managers helps them to divert their attention from the different mundane activities and concentrate on the strategic obligations of the organization.
• It helps in communication and coordination.  It brings together the various departments in an organization and goes a long way in building team rapport.
• The budgets also tend to act as guidance for action.
• Budgets go a long way in evaluating the performance of the organization. It forms an integral part of control and review in a firm and the actual performance may be monitored against it.
• Budgets go a long way in helping to identify considerable savings and maintain overhead costs. The company helps the organization to maintain a control system (Titman, Keown and Martin 2017).

The disadvantages of a budget are as follows:

• Budgets are bureaucratic in nature.
• They involve time and funds. Budgeting procedure can be described as a tedious one and therefore, it requires investment from the organization.
• The organization has to indulge in various efforts to form a budget. This effort could instead be invested in some other productive matter (Barr 2018).
• Experts argue that if the organization has already identified the Key Volume and Activity then why should the organization investing in the exercise of budgeting.
• The budgets are coercive and it is important for a firm to engage in good management and motivate the workforce.
The different kinds of budgets have been discussed as follows;
1. Plant Utilization Budget:

The plant utilization budget is prepared with respect to the working hours, convenient units of plant facilities and other related components of the production budget. It helps in loading on each process, costs, cost centers, dove tails other related aspects.

1. Production Cost Budget:

A prediction costs budget is a budget which is also known as a manufacturing budget and consists of primarily materials budget, labor budget and factory overhead budget.

1. Direct Material Budget: of the

This budget consists of the cost of the direct materials purchased for the organization. This budget assists the purchase department in preparing a schedule of their total purchases and helps them to fix the maximum and minimum level of inventories.

1. Capital Budgeting:

Capital Budgeting can be described as the planning and development done for the purpose of maximizing the long term profitability of the business.  It lays down a plan for the capital outlays. They are very important as it helps an organization to make effective capital budgeting decisions. It also has an effect on the long impacts on the company`s cost structure.

1. Zero Base Budgeting:

The zero based budgeting is a budgeting process which helps the firm to prepare a new budget for the firm from the scratch. The managers need to justify the reason behind putting each cost in the appropriate section (Lasher 2013). The given budget has various advantages in the sense that it motivates the members to form cost effective ways of task performance.

1. Performance Budget:

The performance budget has been originated in USA and is based on functions, programs and activities. It is based on a work plan which expresses the achievement of various levels of the organization.

1. Sales Budget:

The sales budget is a functional budget which helps to forecast the sales in an organization. It represents the total sales along with the physical quantities as well. The primary purpose of a sales budget is to estimate the sales and developed a plan accordingly.

1. Production Budget:

A production budget consists of the total volume of production whereby the operations has been divided by days, weeks and months (Zietlow et al. 2018). This helps the department to estimate the correct way of identifying the production of the goods.

1. Cash Budget:

The cash budget can be described as a critical budget whereby the organization determines what the cash requirements of the given period are.

1. Flexible Budget:

The flexible budget is asked on the concept of a fixed budget whereby certain changes are made to the fixed budget in a manner such that the organization can inculcate its costs in the budget.

A master budget can be described as an amalgamation of all the lower level budgets that a company produces with respect to its various functional areas. The master budget also comprises of the financial statements and cash forecasting. The given budget is either prepared on a monthly basis or a quarterly basis (Saunders 2014). The primary purpose of a master budget is to help an organization in achieving its specific goals. Various master budgets also consist of headcount changes which are needed to be made in order to achieve the budget goals.

The budget can be described as a central planning tool which the management makes use of in order to determine the key activities of an organization and to judge the performance in various centers (Finkler et al. 2016). Or the formation of a master budget, the organization should use a participative budgeting technique.

The given budgets form a part of the master budget:

• Direct labor budget
• Direct materials budget
• Ending finished goods budget
• Production budget
• Sales budget
• Selling and administrative expense budget

Financial risk can be described as the risk which is faced by the shareholders of a particular organization. The various shareholders fear that they will lose out on money which they have invested in the given organization. This happens in cases where the organization`s cash flows are inadequate to meet the financial obligations of the firm (Brooks 2015). When any company makes use of debt financing, the given creditors are paid first and the shareholders become insolvent in case the firm is unable to pay to the organization. Financial risk can also be described as the possibility where an organization defaults on its bonds and due to this the bondholder loses out on their money.

The given measures may be undertaken to avoid uncertainties

1. Preparing a damage report.

This report may help the firm to understand the how a particular happening of an event may cause problems to an organization and what would be the degree of impact on the firm.

1. Avoiding the emotions

A business is a rational organization and for this reason, it is very important for the firm to realize that they cannot make business decisions based on emotions.

1. Focusing on long term objectives

The long term objectives of an organization take it towards its futures and this makes it very important for the firm to focus on the long term well being of the organization in order to meet its goals.

1. Clarity in communication of challenge

The communication of the challenge forms an essential aspect of the organization

1. Collaboration is the key

It is very important for a firm to collaborate in the times of the need.

References

Barr, M.J., 2018. Budgets and financial management in higher education. John Wiley & Sons.

Brigham, E.F., Ehrhardt, M.C., Nason, R.R. and Gessaroli, J., 2016. Financial Managment: Theory And Practice, Canadian Edition. Nelson Education.

Brooks, R., 2015. Financial management: core concepts. Pearson.

Finkler, S.A., Smith, D.L., Calabrese, T.D. and Purtell, R.M., 2016. Financial management for public, health, and not-for-profit organizations. CQ Press.

Lasher, W.R., 2013. Practical financial management. Nelson Education.

Saunders, A., 2014. Financial markets and institutions. McGraw-Hill Higher Education.

Titman, S., Keown, A.J. and Martin, J.D., 2017. Financial management: Principles and applications. Pearson.

Zietlow, J., Hankin, J.A., Seidner, A. and O'Brien, T., 2018. Financial management for nonprofit organizations: Policies and practices. John Wiley & Sons.

Cite This Work

My Assignment Help (2020) Advantages And Disadvantages Of Budgeting [Online]. Available from: https://myassignmenthelp.com/free-samples/fnsorg501-budgeting-for-shareholders-equity-and-accounts-payable
[Accessed 04 August 2024].

My Assignment Help. 'Advantages And Disadvantages Of Budgeting' (My Assignment Help, 2020) <https://myassignmenthelp.com/free-samples/fnsorg501-budgeting-for-shareholders-equity-and-accounts-payable> accessed 04 August 2024.

My Assignment Help. Advantages And Disadvantages Of Budgeting [Internet]. My Assignment Help. 2020 [cited 04 August 2024]. Available from: https://myassignmenthelp.com/free-samples/fnsorg501-budgeting-for-shareholders-equity-and-accounts-payable.

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