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Comparison Between the Budget and the Actual Results

   

Added on  2020-03-23

7 Pages1566 Words71 Views
Answer 1Answer aThe approximate forecast of the company which it looks to obtain in the future with regard to itsfinancial results is provided in a financial budget. This financial budget can be created ondifferent basis it may be annually, monthly or quarterly. At the end of the period the budget isthoroughly checked for finding out the various reasons for delegation in financial results.During the period actual results of the company is compared with the budget as it has beenforecasted for the purpose of taking actions on the actual results which is derived by thecompany. The purpose of comparison between the budget and the actual results is to understandthe issues faced by the departments of the company and hence to act for the purpose of resolutionof those issues. If the company opt for a static budget then assumption of the budget is make as per output of thebusiness and in case there is deviation of actual output with respect to the budgeted numbers thestatic budget would not be good. So for the purpose of evaluation of the profit centre thecompany realizes the importance of flexible budget which helps in understanding the line itemswise details of the income statement considering the same number of outputs and hence helps totake actions on the issues identified.For ex If a company budgeted 2000 units @ variable cost of $ 4/unit totaling to $ 8000 costswhile if actual production decreased to 1700 units @ variable cost of $ 4.1/unit ,total costamounting to $6970.Hence overall cost is lower , however, there is per unit cost has increasedhas company has to identify the reason for increase in variable cost.
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Answer bThe purpose of the cash budget is understood the sources and uses of estimated cashrequirement. Hence sales budget provides sources while production budget will provide the usesand for the purpose of production budget direct material budget is also required. Sales budgetThe sales budget estimates the expected sales revenue for a particular period. Estimated salesrevenue helps in understanding and estimating the cash inflows within the company. Favorableof unfavorable change in economic scenario will affect the estimated sales budget and hence thecash budget as well.Production budget The base on which production budget is created in the sales projection. Sales revenue used toproject the output quantity required production budget provides the estimate with regard tofinished goods to be kept hence change in production budget would eventually affect the cashbudget as cash outflow is linked to production budget.Material budget Production budget is the base for material budget as the output quantity required determines therequirement of the direct material estimate. In case of change in economic condition impactingdirect material cost would result in change in material budget and hence cash budget as well.Answer C
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Operating cycle refers to the time that has been taken by the company from acquisition ofinventory and receipt of cash after sale of that inventory purchased. On the other hand, cashcycle refers to the number of days that has been to convert the resources into cash. The operatingcycle and the cash conversion cycle are same but the operating cycle tests the operatingefficiency of the company. On the other hand the cash conversion cycle tests the company’sability in managing the cash flow of the company. The operating and cash cycle helps in managing the working capital of the company in anefficient manner. Through the help of these cycles, the management can determine the timeframe within money needs to be collected from the debtors and when the same needs to be paidto the creditors, Ratios like working capital ratio, cash conversion ratio, debt to equity ratio areused for better working capital management.Answer D“Accounting isn’t as important in the government organizations as it is in private enterprises,since the government does not have to worry about earning a profit”. We do not support theabove statement. Similar to a private organization, accounting is equally important forgovernment organizations as well. The government and its organizations are equally responsibleand answerable to the stakeholders i.e. the public for their activities. The profit that has beenearned by the government is used by them for the welfare activities and for developing theeconomy. It is important for them to stay competitive in the market; however they are notsupposed to run behind profit earning at the cost of the society. The funds that are collected bythe government are used for developing infrastructure and for the purpose of providing varioussubsidies to the general public. Thus, the profit that has been earned by the government is
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