Budget Relationship with Strategic Objectives

This article discusses the relationship between budgeting and strategic objectives. It explains how budgeting helps in setting goals and improving performance. It also explores the importance of budgeting in coordinating departmental activities and making decisions to achieve common goals.

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]
Educating for Excellence
Task A:
a) Budget relationship with strategic objective:
Creation of budget plans is not just a daily process of the company. It helps the CFO
and the managers of the company to offer a direction about the future performance of the
company and represents about the management objective of the company. When the entire
budgeting plan is done by the management, it is used by the company to give specific target
to each of the employee of the company in order to meet the specific objectives of the
company. Budget is basically a map to create the strategic plan and performance of the
company. While preparing the budget reports, an organization develops the objectives in
order to acquire the resources and use the best of the resources.
Budget helps the company to set the coordination among the various departmental
activities along with setting the activities of the company in a big picture which ultimately
helps the company to reach over the strategic objectives of the company. It offers the decision
making responsibilities and improves the responsibility of management to take the firm’s
performance at next level. All the decisions of the company are basically taken to reach over
the common and single goal of the company (Chapman and Lili-Anne, 2009). Hence, the
budget helps the company to improve the performance evaluation process through offering a
common base of decision that how well a company and its manager met individual goals and
offers a base to the company to reach over the common goal.
It encourages the overall performance of the company in order to become more
efficient and improve the overall efficiency level of the company at local and global level.
Budget is prepared through considering the previous performance and current demand of the
market which helps the company to reach over better decision and meet the strategic
objectives of the company.
b) Sales budget:
Sales budget of the company for March month is as follows:

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]
Educating for Excellence
Units
Price
per unit Value
Usual monthly production
Basic 150 250 37500
Standard plus 250 500 125000
Deluxe 200 750 150000
Super deluxe 100 1000 100000
Total monthly production 700 2500 412500
Special order
Basic 30 275 8250
Standard plus 50 550 27500
Deluxe 10 750 7500
Super deluxe 5 900 4500
Total special order 95 2475 47750
Total March 795 4975 460250
Type of screen Units
Basic 180 525 45750
Standard plus 300 1050 152500
Deluxe 210 1500 157500
Super deluxe 105 1900 104500
Total units 795 4975 460250
c) Total labor required:
On the basis over the production of the company, it has been found that total labour
hours of the company for standard sales and special sales would be 2625 hours.
Calculation of total
labour hour required
Units
labor per
unit
Total labor
hours
Usual monthly
production
Basic 150 2 300
Standard plus 250 3 750
Deluxe 200 4 800

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]
Educating for Excellence
Super deluxe 100 5 500
Total monthly
production 700 14 2350
Special order
Basic 30 2 60
Standard plus 50 3 150
Deluxe 10 4 40
Super deluxe 5 5 25
Total special order 95 14 275
Total March 795 28 2625
It explains that the labour hours of the company are just 2400 hours and since the
company is manufacturing extra units, 2625 hours would be required. In order to meet the
same, it is advised to the company to pay for overtime to labour to get the work done. If
overtime would be paid by Hassan then there would not be any issues.
d) Other issues faced by Hassan:
Hassan could face the issues of related to production since the special production is done
in this month only, from next month the space of the factory would be vacant and it would
incur extra expenses to the company. Below is the list of issues which could have faced by
Hassan:
Contingency Plan
Company name: Hassan
Person developing the plan:
Name: Position:
Risk identified: Economical breakdown, strategic risk, financial risk.

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]
Educating for Excellence
Strategies/activities to minimise the risk By when By whom
Better strategy planning in order to reduce the
strategically risk
At the starting
of financial
year
Top level
management
Diversification of business Can be done at
any time
according to
market
position
Board of
directors and
top level
management
Financial strategies in order to reduce financial
risk
At the starting
of financial
year
Financial
Manager
e) Checks to ensure the performance:
In order to measure that whether the budget level has been achieved by the company or
not, variance analysis study is done. Variance analysis study identifies the difference among
the actual figures and budgeted figures to evaluate whether the company has achieved the
budgeted target. At the time of variance analysis study, the difference is calculated by the
management and a depth analysis is done behind the variances in the company. Such as, in
case of Hassan, the below checks could be performed:
 Material price variance
 Material purchase variance
 Material yield variance
 Labour rate variance
 Labour hour variance etc

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]
Educating for Excellence
Task B:
Cash collection budget (current)
Nov-
18
Dec-
18 Jan-19
Feb-
19
Mar-
19 Apr-19
May-
19 Jun-19
Total Sales
Revenue
12000
0
14000
0
12000
0
12500
0
12500
0
12000
0
12000
0
11000
0
Total cash sales 72000 84000 72000 75000 75000 72000 72000 66000
Credit sales (1st
month amount) 35000 30000 31250 31250 30000 30000
Credit sales (2nd
month amount) 16800 19600 16800 17500 17500 16800
Total Cash
collection
12380
0
12460
0
12305
0
12075
0
11950
0
11280
0
Cash collection budget (1st policy)
Nov-
18
Dec-
18 Jan-19
Feb-
19
Mar-
19 Apr-19
May-
19 Jun-19
Total Sales
Revenue
12000
0
14000
0
12000
0
12500
0
12500
0
12000
0
12000
0
11000
0
Total cash sales 96000
10000
0
10000
0 96000 96000 88000
Credit sales (1st
month amount) 16800 14400 15000 15000 14400 14400
Credit sales (2nd
month amount) 8400 9800 8400 8750 8750 8400
Total Cash
collection
12120
0
12420
0
12340
0
11975
0
11915
0
11080
0
Cash collection budget (2nd policy)
Nov-
18
Dec-
18 Jan-19
Feb-
19
Mar-
19 Apr-19
May-
19 Jun-19
Total Sales
Revenue
12000
0
14000
0
12000
0
12500
0
12500
0
12000
0
12000
0
11000
0
Total cash sales
10800
0
11250
0
11250
0
10800
0
10800
0 99000
Credit sales (1st
month amount) 7000 6000 6250 6250 6000 6000

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]
Educating for Excellence
Credit sales (2nd
month amount) 3600 4200 3600 3750 3750 3600
Total Cash
collection
11860
0
12270
0
12235
0
11800
0
11775
0
10860
0
a) Budget development coordination and approval process:
While preparing the budget, it is important for the financial manager to follow the
proper process so that the main objectives of budget planning could be done. Below is the
process of budget development:
1. Establish a budget committee
2. Appoint a budget officer
3. Prepare the proposed budget list
4. Public notice
5. Budget approval
6. Publication
7. Budget heading
8. Adoption
9. Budget files and levy certified (Dunk, 2011)
At the time of preparing the budget, it is required for the budget committee to take
approval on budget from the top level management in order to ensure that every part has been
considered by the committee. Once, the committee get ensure about the budget, they propose
the budget in front of top level management. If top level management approves the budget
then only it
b) reason to change the format of communication:
In an organization, usually the flow of communication moves from upwards to
downwards in case of order and information flow. However, sometimes it is important for the
managers to know about the issues faced by lower level management and their subordinates

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]
Educating for Excellence
so that the better planning could be done accordingly. There are various other reasons such as
whistle blower, idea from lower level management, issues faced by the subordinates etc in
which the flow of communication is changed (Dunk, 2011).
In case of budget related information, flow is changed when managers want to grab
information about the market demand and the changes into the production process. In this
case, the flow of information is from downward to upwards.
c) Optimal policies analysis and recommendation:
On the basis of current policy and proposed 2 other policies by Hugo, it has been
measured that the current policy of the company is better as in this, the flow of cash is better
as well as it helps the company to manage the efficiency level in the company.
d) Feedback:
On the basis of overall performance and further question asked by the company, it has
been recommended to the company to manage a better budgeting process so that the main
motto of the company could be achieved. Along with that, it has also been found that flow of
communication from downwards also help the business to make better decision and reach
over the goal. However, it must be ensured by the managers that the flow of information is
reliable.

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]
Educating for Excellence
References:
A.S. Dunk, "Product innovation, budgetary control, and the financial performance of
firms." The British Accounting Review, Vol.43.2, pp. 102-111, 2011.
C. S. Chapman, and K. Lili-Anne. "Information system integration, enabling control and
performance." Accounting, organizations and society Vol. 34.2, pp, 151-169, 2009.