This report discusses and analyzes various aspects of budget and budgetary control system with numerical data based on a case study. It also provides recommendations for implementing corrective measures.
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Running head: BUDGET AND BUDEGTARY CONTROL Budget and Budgetary Control Name of the Student: Name of the University: Author’s Note:
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1BUDGET AND BUDGETARY CONTROL Executive Summary: This report is prepared to discuss and analyze various aspects of budget and budgetary control system with some numerical data based on a given case study. Budget is a process of forecasting or making financial plans for some future courses of actions. The main objective of the budget is to apply a control over the actual performance of the business by comparing the actual performance and the budgeted figures and by taking corrective measures for the variances and deviations. In this report, some of such key variances from the actual figures have been analysed and some strategies have been recommended for implementing corrective measures.
2BUDGET AND BUDGETARY CONTROL Table of Contents Introduction:....................................................................................................................................3 Budget and Variance Analysis:.......................................................................................................3 Recommendations:..........................................................................................................................5 References:......................................................................................................................................6
3BUDGET AND BUDGETARY CONTROL Introduction: Budget is a process of forecasting future operating and business activities along with an estimation of the cash inflows and cash outflows. The objective of the budget is to implement a controlling mechanism over the actual operational performance of the business. The process of budget and budgetary control starts with the estimation of the future financial activities and it is applied to compare the budgeted figures with the actual figures and computation of variances. The last stage is to investigate and find causes behind such deviations and to implement certain corrective measures (Kaplan and Atkinson 2015). In this report, based on the budgeted and actual figures of some key financial activities such a budget monitoring processes have been applied. Budget and Variance Analysis: Actual result of financial activities might not always be equal to the budgeted figures. Hence, there might be some deviations from the budgeted figures. Those differences between actualandbudgetedfiguresareknownasvariance(Kyei,KwaningandFrancis2015). Comparing the budgeted figures with the actual figures from the profit and loss statement, variances for every revenue and expenses components of the budget statement can be computed as follows in dollar value as well as in percentage of the budgeted figures.
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4BUDGET AND BUDGETARY CONTROL The company made estimation about the revenue from food sales for a total amount of $67,750 where the actual sales have been $78,610. Hence, the company have over achieved their budgeted figures and 12.54% favourable variance can be marked for that. In beverage sales, also, the company is having a 7.63% of favourable variance and in function sales; they are having 19.2% of favourable variance. Therefore, in terms of revenue they have exceeded their total revenue by $33,390, which is almost 14.06% of the budgeted figure of revenue. The reason behind excess sales revenue might be because of excess demand in the market for the products of the company. Managing expenses is a key aspect of the budget and budgetary control (Clarkeet al. 2019). It can be observed from the above variance analysis that, the company have incurred $13,623 more than their budgeted expenses in food costs. This is the greatest unfavourable variance for the company in dollar amount, and in percentage, it is almost 28.61%. In beverage
5BUDGET AND BUDGETARY CONTROL costs, they have incurred $8,982 more than their budget estimate. These unfavourable variances in cost of goods sold might be because of increase in input costs and mismanagement of the input materials. This is also a significant unfavourable variance. In wages payment also, an unfavourable variance of 4.26% can be noticed. The excess payment of basic wages which lead to an unfavourable variance might be because increase in base salary structure. Recommendations: The company is having favourable variances in terms of revenues, which is a good sign for the company.If the increase in sales revenue is due to charging more prices per unit to the customer for the products, then it might affect the demand for the company in long term. Hence, theprice structure should be revised and a reasonable price should be chargedfor the products. It can further be recommended,to revise the contracts with the suppliers to decrease the input costsand to implement a better inventory management system to reduce waste and to decrease overall cost of input materials (Aduda and Ndaita 2017).They also can go for new suppliers for their input materials with well negotiated price for their supplieswhich in turn may reduce their input materials costs.
6BUDGET AND BUDGETARY CONTROL References: Aduda,J.andNdaita,B.S.,2017.ManagementAccountingSystemsChangesand PracticesAdoptedbyLargeManufacturingCompaniesinNairobiKenya.ORSEA JOURNAL,3(2). Clarke, B., Collier, P., Munir, R., Oliver, G., Robinson, P., Steenkamp, N. and Zwikael, O., 2019. Strategic management accounting: CPA program. Kaplan, R.S. and Atkinson, A.A., 2015.Advanced management accounting. PHI Learning. Kyei,E.,Kwaning,C.O.andFrancis,D.,2015.BudgetsandBudgetaryControlasa ManagementToolforGhanaMetropolitanAssemblies.JournalofFinanceand Accounting,3(5), pp.159-163.