Assignment on Business Finance pdf
Added on 2021-06-16
12 Pages3249 Words22 Views
1Business FinanceMOD003319
2ContentsIntroduction......................................................................................................................................3Part 1:...............................................................................................................................................3(i): Purpose of Budget Preparation...............................................................................................3(ii): Cost Drivers of the TownScape and application of traditional budgeting approach to plan for the future cost management....................................................................................................5(iii): Analysis of appropriateness of Traditional Budgetary System............................................6Part: 2...............................................................................................................................................7(iv): Understanding of the Alternative Budget Methods and their significant advantages and drawbacks over traditional approach...........................................................................................7(v): Potential Application of each Method for the Company.......................................................8(vi): Recommendations for the Best Budgeting Method for the Company.................................9Conclusion.....................................................................................................................................10References......................................................................................................................................11
3IntroductionThe present report is developed to provide an adequate understanding of the process ofbudget preparation and its significance for promoting the growth and development of a businessentity. The budget preparation enables to develop an expenditure plan that helps in gaining anestimate of the future needs of the business so that it can implement adequate strategies formeeting them properly. The report has specifically discussed the case of TownScape Plc that isregarded as an international manufacturer of street furniture. As analyzed from the case study,the company adopts the use of traditional technique of budget preparation. However at presentthe company is undergoing significant changes with undertaking new and revised contracts of upto worth £35 million and requires additional plant and manufacturing facility in the year 2018.The finance director of the company is concerned with the inappropriateness of the currentbudgeting system used by the company to meet its future aims and goals. The most significantproblem that the company is facing at present is that the change in the budget approach willbecome effective from the year 2019. In this context, the report presents the comparison of thetraditional budgetary system with the alternative budget methods such as rolling budgets, zerobased budgets and activity based budgets. The potential application of these methods to developthe budget more effectively is also analyzed in the report to identify the best possible method fordeveloping the budgets for the company in context (Malina, 2017). Part 1:(i): Purpose of Budget PreparationBudgeting can be stated as an important process of business planning by predicting thepotential growth prospects of a company. The purpose of budget is to develop a business modelthat helps in providing an overview of potential growth prospects of a company. The budgetingprocess enables to forecast the income the expenses and thereby estimating the futureprofitability position of a company. It helps in development of a financial framework that detailout the overall financial activities for facilitating the decision-making of financial managers. Itdevelops a proposed action plan for planning of future financial needs and also gains an estimate
4of the future financial risks that can impact its growth and performance (Moles and Kidwekk,2011). It helps in making a comparison between the actual business growth against theforecasted performance and thus determining the potential chances of its success. The deviationsfound in the actual performance as compared to the predicted can help in identification of theloopholes in the business strategy. As such, the business managers can implement specificactions for overcoming the issues identified to ensure the long-term growth and development ofthe company. The process of budget preparation in the company need to consist of the followingsteps: Stage 1:Development of Budget PolicyoThe step involves developing the budgeted period, time table and developing thebudget committee in order to provide a clear direction to the management fordeveloping the budgets. The budget is prepared for the period of 12 months andeach stage is monitored and evaluated by committee on a regular basis. Stage 2: Communicating the Guidelines of Budget to Relevant ManagersoBudget committee is responsible for disseminating the information obtained fromthe process to the relevant managers. This is essential to provide understanding tothe budget managers about the strategic plan that need to be undertaken forsupporting the company’s growth and development (Rasmussen, 2003). Stage 3: Identification of the Limiting FactorsoThe stage consists of identification of the significant problems or issues that cannegatively impact the company plan of future growth and development.Stage 4: Preparation of Budget oThe identification of the limiting factor is followed by determining the overallimpact of the issue identified on the future growth and development of a businessentity. This helps in identification of the issues for which the budget forecast needto be done for example, sale budget or any other.Stage 5: Developing the draft budgets for all other areas
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