Document on Budgeting docx

Added on -2020-02-18

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BUDGETING
Table of ContentsQUESTION 1..................................................................................................................................1(a).................................................................................................................................................1(b).................................................................................................................................................1(c).................................................................................................................................................2(d).................................................................................................................................................3(e).................................................................................................................................................3QUESTION 2..................................................................................................................................4(a).................................................................................................................................................4(b).................................................................................................................................................4(c).................................................................................................................................................4(d).................................................................................................................................................5(e).................................................................................................................................................6References........................................................................................................................................7
QUESTION 1(a) The flexible budget is also called flex budget helps to fulfil the objective of cost control.It makes the annual budget more efficient. It works on dual mode because it not only comparespast performance with the present performance but also helps to ascertain and revised (ifnecessary) expenses (Collier, 2015).It is generally prepared at the end of the accounting period in order to compare the actualperformance with expected performance. For example –sale of the business is $10miliion in2015-16 which increases to $12million dollar in 2016-2017 then it shows a favourable change of$2million. However, if company spend $1miliion on expenses in 2015-2016 which is increasedto $1.2million in 2016-2017, then it shows unfavourable changes of $200000 (Libby,Rennekamp, and Seybert, 2015). Firms may prepare flexible budget according to the different scenario of business whichis also known as pro forma analysis. For example- a restaurant makes a flexible budgetdisplaying profit and expenses if they get 1000 bookings in a year. Also, it prepares a flexiblebudget if they get 800 bookings and 500 bookings. Each and every budget shows the differencein not only earnings but it also on items related to expenses. For creating a useful budget, theorganization needs to ascertain all the factors which affect its business (Chen, TAN, and Wang,2013). (b) Certain budgets are prepared before making cash budget. It includes -:Sales budget – The sales budget is prepared first because cash budget relies on the information given bysales budget. It is started by estimating sales revenue generated by the company’s salesdepartment. Many tools are used by the management to estimate sales like economic prediction,industry data, stats etc. Sales budget shows categorization of cash and credit transactions on thebasis of which further budgets are prepar5red. (Keune and Keune, 2016). Purchase budget – After getting information from sales budget and finished goods, production budget ismade. It shows how much quantity is manufactured in a given period of time. The cash budget is1

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