Manage Budgets, Project Costs & Financial Plans

This document provides guidance on managing budgets, project costs, and financial plans. It includes practical budget applications, budgeted profit & loss analysis, capital budgeting, and budget variance reports. The document also discusses factors influencing the budget, monitoring techniques, and risk analysis. The subject of the document is Finance.

MANAGE BUDGETS,
PROJECT COSTS &
FINANCIAL PLANS

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
PART D...........................................................................................................................................1
PRACTICAL BUDGET APPLICATION.......................................................................................1
1. Budget showing income for the period....................................................................................1
2. Budget showing expenses for the period.................................................................................1
PART E............................................................................................................................................3
BUDGETED PROFIT & LOSS......................................................................................................3
1...................................................................................................................................................3
2...................................................................................................................................................4
3...................................................................................................................................................4
4...................................................................................................................................................4
5...................................................................................................................................................4
6...................................................................................................................................................4
7...................................................................................................................................................4
CAPITAL BUDGETING................................................................................................................5
8...................................................................................................................................................5
9...................................................................................................................................................5
BUDGET VARIANCE REPORT...................................................................................................5
10.................................................................................................................................................5
11.................................................................................................................................................5
12.................................................................................................................................................5
13.................................................................................................................................................6
REFERENCES................................................................................................................................7
APPENDICES.................................................................................................................................8
1st Criteria.....................................................................................................................................8
2nd Criteria....................................................................................................................................8
3rd Criteria....................................................................................................................................9

PART D
PRACTICAL BUDGET APPLICATION
1. Budget showing income for the period
Particula
rs
Jan
uar
y
Feb
ruar
y
Ma
rch
Ap
ril
Ma
y
Ju
ne
Jul
y
Au
gus
t
Sept
emb
er
Oct
obe
r
Nove
mbe
r
Dece
mbe
r
Tot
al
Cash
inflows
Opening
cash
inflow
500
0
500
0
611
6
734
8.5
6
869
8.1
8
101
65.
3
117
50.
3
132
53.
4
1487
5
166
15.
1
1847
3.7
2045
0.9
137
746
Sales
revenue
100
00
102
00
104
04
106
12
108
24
110
41
112
61.
6
114
86.
9
1171
7
119
51
1219
0
1243
4
134
121
Service
Revenues
400
0
408
0
416
1.6
424
4.8
3
432
9.7
3
441
6.3
2
450
4.6
5
459
4.7
4
4686
.64
478
0.3
7
4875
.98
4973
.5
536
48.
4
Other
income
200
0
200
0
200
0
200
0
200
0
200
0
200
0
200
0
2000 200
0
2000 2000 240
00
Total
cash
inflows
210
00
212
80
226
81.
6
242
05.
5
258
52.
2
276
22.
4
295
16.
6
313
35
3327
8.2
353
46.
4
3753
9.6
3985
8.2
349
516
2. Budget showing expenses for the period
Cash
outflo
ws
Jan
uar
y
Febr
uary
Ma
rch
Ap
ril
Ma
y
Jun
e
Jul
y
Au
gus
t
Septe
mber
Oct
obe
r
Nove
mber
Dece
mbe
r
Tot
al
Materia
l
250
0
1530 15
60.
159
1.8
162
3.6
165
6.1
168
9.2
172
3.0
1757. 179 1828. 1865 211
18.
1

6 1 5 2 4 3 49 2.64 49 .06 1
Labour 200
0
2000 20
00
200
0
200
0
200
0
220
0
220
0
2200 220
0
2200 2200 252
00
Variabl
e
overhe
ad
150
0
1530 15
60.
6
159
1.8
1
162
3.6
5
165
6.1
2
168
9.2
4
172
3.0
3
1757.
49
179
2.64
1828.
49
1865
.06
201
18.
1
Fixed
overhe
ads
300
0
3000 30
00
300
0
300
0
300
0
300
0
300
0
3000 300
0
3000 3000 360
00
Other
expens
es
220
0
2288 23
80
247
5
257
4
267
7
278
3.7
289
5
3011 313
1
3257 3387 330
56.
8
Selling
and
Distrib
ution
800 816 83
2.3
2
848
.96
6
865
.94
6
883
.26
5
900
.93
918
.94
9
937.3
28
956.
074
975.1
96
994.
699
107
29.
7
Admini
stration
expens
es
400
0
4000 40
00
400
0
400
0
400
0
400
0
400
0
4000 400
0
4000 4000 480
00
Total
cash
outflo
ws
160
00
1516
4
15
33
3
155
07.
3
156
86.
9
158
72.
1
162
63.
1
164
60.
1
1666
3.2
168
72.6
1708
8.7
1731
1.6
194
223
Factors influencing budget
 Rise in price of material will be increasing the cost of product reducing the net cash
inflows.
 Fluctuations in projected sales level due to increased tariff rates may affect revenues.
2

 Variable expenses are increased in proportion to the increase in sales.
Monitoring
Company will be closely monitoring the production activities for ensuring that the
wastage is reduced to minimum. It will be establishing internal controls to ensure that activities
and operations are conducted in the specified manner.
Risk analysis and contingency plan
The rise in prices will affect the budget increasing the prices of product. This may affect
the sales of company. Company in such contingencies will make bulk purchases by receiving
negotiation power and getting discounts.
PART E
BUDGETED PROFIT & LOSS
1.
Memo
MEMO
Performance Report
To,
Board
Sports Bar
20th May, 2020
The performance of the company for the year has been significant. It has not been able
to achieve budgeted level of revenues. There is variance of 8% seen in the revenues which was
seen due to economic influence. Company has favourable variance in cost of sales of 12% due to
low demand in the market of raw materials. This has helped the company in increasing gross
profit. All the other variances have been favourable as the managers have effectively managed
the costs and eliminating unproductive expenses.
Management
xyz
2.
In monitoring company is required to ensure that the operation are being run in the
specified manner. There are issues in waste control activities against the targeted levels. It may
3

affects the budgeted profits when the requires sales are not achieved and cost have remained the
same.
3.
The budget reflects that company will have continuous increase in cash levels which will
stabilise from may. It could be seen that the company will achieve continuous growth generating
higher profits.
4.
The given budget reflects that it will go negative at the estimated sales level and
expenses. If the trend is continued negative cash flows will be increasing every month. It shows
that inflows are not increasing as against the expenses.
5.
Sales = 320000
Selling price = 20
Bottles Sold = 320000 / 20
= 16000 bottles
6.
Cost of Goods Sold = 192000
Bottles Sold = 16000
Variable cost per bottle = 192000 / 16000 = 12
7.
Break even Fixed Cost
Selling price - Variable
cost
Fixed Cost 163500
Selling price 20
Variable cost 12
Break even 163500 / ( 20 -12)
a) BEP units 20437.5
At desired profits
Desired profit 40000
Selling price 20
4

Variable cost 12
Break even units 20437
[40000/(20-12)]+20437
b) Required Bottles 25437
CAPITAL BUDGETING
A B C D
Payback period 3.4 3.5 3.2 3.8
ARR 33% 24% 32% 26%
NPV 49665 50000 131818 42727
8.
Given the virtually unlimited funds Proposals A, B & C pass the criteria.
9.
Given virtually limited funds company should accept Proposal C.
BUDGET VARIANCE REPORT
10.
Report shows that the variances are adverse and there is adverse variation of 20% in sales
and 48% in operating profit even after a favourable variance in gross profit due to significant
increase in advertising cost.
11.
Company should is required to put more focus over cost of sales by adopting cost
efficient strategies as advertising is essential for promoting the sales.
12.
Report shows healthy performance as the sales are higher than the budgeted and it has
maintained effective control over cost of goods sold. The efficient management of operational
activities has helped in achieving profits higher than budgeted.
13.
Company is required to increase its production as the meeting demand on immediate basis
cost high to company. it should focus over its operational expenses reducing costs..
5

APPENDICES
Capital budgeting.
1st Criteria
Payback period
Computation of Payback period
A B C D
Year Cash
inflows
Cumula
tive cash
inflows
Cash
inflows
Cumulat
ive cash
inflows
Cash
inflows
Cumula
tive cash
inflows
Cash
inflows
Cumulat
ive cash
inflows
1 30000 30000 120000 120000 95000 95000 60000 60000
2 80000 110000 170000 290000 95000 190000 60000 120000
3 100000 210000 110000 400000 95000 285000 60000 180000
4 90000 300000 90000 490000 95000 380000 60000 240000
5 80000 380000 60000 550000 95000 475000 60000 300000
Initial
investme
nt
230000 450000 300000 230000
Payback
period
3 3 3 3
0.2 0.5 0.2 0.8
Payback
period
3 yr & 4
mnths
3 yr & 5
mnths
3 yr & 2
mnths
3 yr & 8
mnths
2nd Criteria
Accounting Rate of Return
Computation of Average rate of return
A B C D
Year
Cash
inflows
Cash
inflows
Cash
inflows
Cash
inflows
6

1 30000 120000 95000 60000
2 80000 170000 95000 60000
3 100000 110000 95000 60000
4 90000 90000 95000 60000
5 80000 60000 95000 60000
Average
profit or
cash
inflow 76000 110000 95000 60000
Average
initial
investmen
t 230000 450000 300000 230000
average
initial
investmen
t [(initial
investmen
t + scrap
value) / 2]
ARR 33% 24% 32% 26%
3rd Criteria
NPV
Computation of NPV
A B C D
Year PV
facto
r @
Cash
inflo
Discoun
ted cash
Cash
inflo
Discoun
ted cash
Cash
inflo
Discoun
ted cash
Cash
inflo
Discoun
ted cash
7

10% ws inflows ws inflows ws inflows ws inflows
1 0.909 3000
0
27272.7 1200
00
109091 9500
0
86363.6 6000
0
54545.5
2 0.826 8000
0
66115.7 1700
00
154545 9500
0
86363.6 6000
0
54545.5
3 0.751 1000
00
75131.5 1100
00
100000 9500
0
86363.6 6000
0
54545.5
4 0.683 9000
0
61471.2 9000
0
81818.2 9500
0
86363.6 6000
0
54545.5
5 0.621 8000
0
49673.7 6000
0
54545.5 9500
0
86363.6 6000
0
54545.5
Total
discount
ed cash
inflow
279665 500000 431818 272727
Initial
investme
nt
230000 450000 300000 230000
NPV
(Total
discount
ed cash
inflows -
initial
investme
nt)
49665 50000 131818 42727
8