Improving Project Management Efficiency: Cost-Efficiency Analysis

This assignment delves into the realms of project management efficiency, focusing on enhancing cost-efficiency based on a study published in the Journal of Intelligent Manufacturing. The primary objective is to analyze and implement improvements to project supervision costs using time-driven activity-based costing (ABC), as proposed by Yang and Hao. By examining the learning curve approach outlined in their paper, students will gain insights into evaluating and enhancing cost-efficiency based on real-world data and methodologies.

MANAGEMENT PROJECT
COST

TABLE OF CONTENTS
FORMATIVE ASSESSMENT........................................................................................................1
ACTIVITY 1....................................................................................................................................1
Factors which needs to considered while determining resource requirements......................1
ACTIVITY 2....................................................................................................................................1
A. Quote of Access IT Company...........................................................................................1
B. Quote of Vision IT Technical Consultants........................................................................1
C. Quotation of Total IT Solution..........................................................................................2
ACTIVITY 3....................................................................................................................................2
1. Reasons due to which scope and nature of budgetary planning activity needs to be
discussed with colleagues.......................................................................................................2
2. Significance of cash flow budget.......................................................................................2
3. Method through which availability of financials can be determined.................................3
ACTIVITY 4....................................................................................................................................4
Requirements to review internal control procedures..............................................................4
ACTIVITY 5....................................................................................................................................4
1. Strategies to minimise shortfalls of the management accounting......................................4
2. Process needs to consider for accessing financial plans.....................................................5
3. Comment on the statement provided and implications for expenditures...........................5
ACTIVITY 6....................................................................................................................................5
1. Information which included in personnel budget...............................................................5
2. Necessity for providing evidence in order to support conclusions.....................................6
ACTIVITY 7....................................................................................................................................6
Data required in P&L account for particular job and method for evaluating the information6
ACTIVITY 8....................................................................................................................................7
1. Preparing checklist which can be considered at the time of report writing........................7
2. Five errors which incur while preparing financial reports.................................................7
3. Need of appropriate reports and financial information for managing project....................8
4. Steps need to take while charges wrongfully added in BRS..............................................8
5. Calculation of net income...................................................................................................9

ACTIVITY 9....................................................................................................................................9
1. Ways to include project management sections while finalising accounts..........................9
2. Communication methods....................................................................................................9
3. Information needs from project and relation with costing...............................................10
ACTIVITY 10................................................................................................................................10
Significance of collecting as well as maintaining appropriate records................................10
ACTIVITY 11................................................................................................................................10
1. System which needs to chose...........................................................................................10
2. Comment on information provided in table.....................................................................11
SUMMATIVE ASSESSMENT 1..................................................................................................11
QUESTION 1.................................................................................................................................11
Preparation of Trial Balance sheet.......................................................................................11
QUESTION 2.................................................................................................................................12
Description of services cost analysis and ways for undertaking this analysis.....................12
QUESTION 3.................................................................................................................................12
Importance of variance.........................................................................................................12
QUESTION 4.................................................................................................................................13
Information included in cost-benefit analysis along with its advantages and drawbacks....13
QUESTION 5.................................................................................................................................14
Objectives of business purchasing policies as well as aspects involved in them.................14
SUMMATIVE ASSESSMENT 2..................................................................................................15
PROJECT 1....................................................................................................................................15
PROJECT 2....................................................................................................................................17
Budget...................................................................................................................................17
PROJECT 3....................................................................................................................................19
REFERENCES..............................................................................................................................31

FORMATIVE ASSESSMENT
ACTIVITY 1
Factors which needs to considered while determining resource requirements
A material which needed in order to meet something in the organisation and any
workplace is known as the resource. There are various kinds of resources included when an
entity is going to consider a new project in the workplace. Such resources include financial,
human, raw materials, equipment, processes, intangible assets etc (Mályusz and Varga, 2017). At
the time of determining that, which resources will be required in the project some aspects should
consider. Further, factors need to keep in mind are listed below:
 Very first thing to be considered is that businesses or projects are of the what type or
nature like professional, services, manufacturing, sales etc.
 Estimated users of those resources which are going to provide them for utilisation.
 Size of the company such as sole trader, limited, national, international etc.
 Geographical location
 Scope of the project or operations
ACTIVITY 2
A. Quote of Access IT Company
Cost of AIS = $84000 for 7 years
Additional cost = 6000 per year
Therefore, each year total cost of Access IT firm's quotation is worth of
Cost of AIS + additional cost = ($84000 / 7) + 6000
= $12000 + $6000
= $18000 per year
B. Quote of Vision IT Technical Consultants
Cost of AIS = $105000 for 10 years
Service cost = $500 twice a year
Total cost of quotation per year:
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= ($105000 / 10) + ($500 * 2)
= 10500 + 1000
= $11500 per year
C. Quotation of Total IT Solution
Cost of AIS = $65000 for 5 years
Additional cost = $22500 for 5 years
Total cost of quotation per year:
= ($65000 / 5) + ($22500 / 5)
= 13000 + 4500
= $17500 per year
Therefore, quotation given by Vision IT Technical Consultants is the most cost-effective
where total cost is worth of $11500 per year which least than other two quotations.
ACTIVITY 3
1. Reasons due to which scope and nature of budgetary planning activity needs to be discussed
with colleagues
Budgetary planning is one of the highly important aspect in each and every kind of the
project. On the basis of this procedure, overall financial estimations about the project can be
easily assessed and predetermined. While making plan of the budget, it is mandatory to discuss
with the relevant colleagues. The reason behind this is that, they provide adequate and
appropriate information about the project expenses. (Nicholas and Steyn, 2017). Due to which all
the colleagues follow the proposed tactics and meet objective of project easily and properly.
2. Significance of cash flow budget
In any kind of the project cash or liquidity has the very pivotal place which helps to run
and complete the tasks. The statement in which cash incomes as well as cash receipts are
included and which shows liquidity position to the manager is known as cash flow budget.
Further, importance of this budget is as follows:
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 It provides information to the manager that up to which level total incomes will be
incurred in the project at the end of a year. Apart from this, by considering this particular
statement total expenses which will occur in the project are also predetermined.
 At the end of upcoming year how much cash will be available with the company is
analysed through cash flow budget. On the basis of this, needs or requirements of
financials will be easily predetermined (Nordmeyer, 2016).
 Along with this, it shows that in next period company will be whether in profitable
situation or not. Therefore, correction and strategies can be made by the project manager .
Therefore, it can avoid financial shortfalls and boost up overall performance.
 The cash flow budget helps the manager in order to compare actual data generated at the
end of next year. Therefore, it can be assessed that whether entity meet budgeted values
and improve performance or not.
3. Method through which availability of financials can be determined
In the project or company financials are the basic requirement where it is necessary to
assess its availability within workplace. There are number of methods included which help to
ascertain financial availability which are such as follows:
 One of the very best tool is cash flow analysis for the company where receipts and
payments both values involved. In this, cash balance at the year ending is determined and
corrective actions taken for raising fund.
 Another method is profitability ratio analysis where all the incomes are measured after
taking base to the year ending revenue (Shen and et.al., 2017). It clearly indicates that, up
to which level company generates profit and required amount. The net income and
retained earnings are indication of the cash in the business or project.
 Liquidity ratios measure that company has up to which level cash at the end of an
accounting period. On the basis of this, availability of financials determined in an
appropriate and adequate manner.
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ACTIVITY 4
Requirements to review internal control procedures
The process in which internal aspects of the accounting or any other thing are reviewed
within project is known as the internal control. On the basis of this, all the element and resources
involved in completion of the project are assessed properly. One of the key requirement for using
internal control procedure is to analyse efficiency of the employees and workforce. If they not
perform well and less productive, then corrective actions made to boost up their existing level of
efficiency. Apart from this, it is required to analyse cost aspect that whether expenses are high or
proper as compared to budgeted. After reviewing this specific element, strategies made in order
to modify the conditions. With the project various kinds of issues and risks associated and to
determine them internal control process is highly needed (Internal Control Review, 2017).
Henceforth, in order to identify risks and eliminate them the mentioned process is required for
project manager.
ACTIVITY 5
1. Strategies to minimise shortfalls of the management accounting
The management accounting includes wide range of benefits which help to the
accountant in order to make effective financial decisions. However, it has some limitations also
which can be minimised by the accountant through below mentioned tactics:
 The accountant must enhance proper and effectual coordination among different
functions of the project. It helps to take highly effective decisions in the project and
reduce total cost of the activities. The reason is that, management accounting not focuses
on coordination as well as continuity.
 Apart from this, the accountant of project should make proper objective because in
management accounting objectivity is not better (Fregonara, 2017). When the objective is
framed then easily able to minimise and avoid drawback regarding to this aspect.
 Further, the accountant manager requires employing cost management strategies in the
project. On the basis of this, issue of the management accounting i.e. expensive can be
minimised and resolved in the proper direction.
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2. Process needs to consider for accessing financial plans
In order to assess efficiency of a team or section or company or division, financial plan
and information used by the analyst. There are different kinds of the procedures involved for
accessing such data. One of the best way is to consider financial statements of the entity under
which different types of the financials included. Along with this, data given after segregating
different divisions of the company in the financial disclosures. Another way in order to access
financial information is annual report of the enterprise. In this kind of report all the required data
included which is one of the best and reliable method (Papke-Shields and Boyer-Wright, 2017).
On the websites of firm also such kind of information provided which are highly authentic.
Therefore, to complete this particular task company's website should consider to the researcher.
3. Comment on the statement provided and implications for expenditures
In the company, various kinds of the employees and staff included who have the
important place while preparing budgets and taking business decisions. The present statement
indicates towards the operational staff who are highly able to identify and assess issues or
constraints relating to the budgets of job costing. As they provide information to the project
manager about raising issues of the costing then able to use corrective strategies. On the basis of
this, it can be clearly identified that organisation must consider and involve operational
employees at the time of framing budgets. After involving the staff of operating department
when management formulate budget then can estimate expenses in proper direction. Apart from
this, the operational workforce has knowledge that at which stage of product manufacturing or
project process more financial, raw materials or other resources required. Along with this, they
give information related to wastage of the products which lead to impose additional costs on the
overall project (Suk and et.al., 2017). When these all the data and scope of expenses considered
while preparing budget then effective and achievable budget can be formulated. Hence, costs
given by operational staff must be implicated by the organisation at the time of framing different
budgets.
ACTIVITY 6
1. Information which included in personnel budget
The estimation statement prepared in the company on the basis of employees and their
expenses is considered as the personnel budget. Key purpose of this particular kind of budget is
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to explain various types of costs associated with the workforce within an organisation after
segregating them on the basis of designation. When looking at the variance concept then it
reflects difference between actual and budgeted expenses of the employees. The reason behind
occurring large negative variance in this budget is that, affecting efficiency of the workforce in
an adverse direction. Along with this, sometimes workers may go on leave for long period.
Further, in the personnel budget wages and salaries provided to employees by the company is
included (Wang, Yang and Zhao, 2017). Apart from this, benefits, monetary rewards, various
allowances, bonuses, commissions etc. are also involved. After including and summing these all
the employee expenses an appropriate personnel budget is framed.
2. Necessity for providing evidence in order to support conclusions
Reporting is one of the highly pivotal part in the company under which all the financial
statements are disclosed in the market or industry. Further, financial reporting procedure is
completed on the yearly basis within an organisation. In order to complete this process, it is
mandatory to show evidence because through this it can be clearly defined that whether all the
accounting standards and principles are properly followed or not. In addition to this, evidence of
financial statements are notes or disclosures of the financials in which process, principles,
theories, rules and standards of the accounting are mentioned. On the basis of this, an auditor or
external party can easily understand about the accounting treatments. Further, with the help of
such evidence it must be assured that while preparing financial statements any kind of unfair
practices are not adopted.
ACTIVITY 7
Data required in P&L account for particular job and method for evaluating the information
The statement which presents profitability condition of the company or job is known as
the profit and loss account. For this different data required which are classified into two sections
like income and expenses. In order to prepare P&L for the specific job some information needed
among them basic is income generated within work in process. Further, expenses associated in
order to accomplish the job, are required to prepare P&L within company. When talking about
only expenditures then indirect costs are supposed to not considered. On the other hand, direct
expenses like material, labour etc. and other operating costs are taken into account. After
considering this kind of data net income for the particular job is determined (Yang and Hao,
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2017). Once the statement prepared then all the transactions are cross checked which helps to
ensure that used information are accurate. Along with this, internal auditing procedure is another
one of the best method for assuring that data is error free and appropriate.
ACTIVITY 8
1. Preparing checklist which can be considered at the time of report writing
At the time of writing reports some things are necessary to keep in mind which make it
effective and better. Further, checklist in order to write report is stated below:
 Title Page
 Acknowledgements
 Contents of the main sections, figures and tables
 Abstract or executive summary
 Introduction
 Methodology
 Results and findings
 Discussion
 Conclusions and suggestions
 References
 Appendices
 Writing style
2. Five errors which incur while preparing financial reports
When an accountant prepare final accounts of the company then various errors come into
consideration. Among them five typical discrepancies are listed below:
 Errors of principle
 Incorrectly classified data
 Errors of omission
 Data entry errors (Day, 2008)
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 Preventing errors
3. Need of appropriate reports and financial information for managing project
Reports show actual scenario of the project and on the basis of that future decisions are
taken by manager in order to accomplish objectives. Proper and timely reports are needs for the
project managers in order to assess live status of the project along with costs or resources used.
Along with this, such reports provide information about the daily activities and expenses like
revenue, production, selling, promotion, research, administration etc. On the basis of this, it has
been analysed that how much amount is available within project (Attig and et.al., 2016).
Therefore, projects manager taken decision that whether financials needs to raise or not. Along
with this, in order to take effective decisions related to strategic as well as operations the
accurate and timely reports needed. Further, data or information which required for management
in order to manage financial includes expenses or costs associated with the project within
specific period of time. Along with this, efficiency of managers in order to utilise financial
resources is also known to manager because it helps to taken decisions for raising capital. Sales
which can be generated throughout the project is also required for the manager.
In order to manage financial resources of the project responsible department is financial
governance within working environment. Along with this, financial manager takes care of the
finance and monetary terms of the whole project.
4. Steps need to take while charges wrongfully added in BRS
In the bank reconciliation statement when charges are allocated in inappropriate manner
then it shows distort scenario. In order to manager this situation some steps should take which
are such as follows:
 Must cross-check some entries like: opening and closing balance, date of start and end of
the statement etc (Jung, 2017).
 Needs to check that whether all the transactions are recorded in Sage 50 or not.
 Necessary to check about the outstanding costs entries and treatments.
5. Calculation of net income
Net Income for the year ending June 31st 2015
Particulars Amount (in $)
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Sales 825000
Less: Cost of goods sold 260000
Gross profit 565000
Add: Interest earnings 15000
Total earnings 580000
Less: Operating expenses
Administration and sales expenses 180000
Depreciation 65000
Total operating expenses 245000
Operating income 335000
Less: interest paid on loans 35000
Less: Tax @ 30% 100500
Net income $199500
ACTIVITY 9
1. Ways to include project management sections while finalising accounts
In the project management various parts associated which help to accomplish tasks and
achieve goals. Such sections are included in the account's finalisation through costs and
expenditures incurred. At the step of selection and implementation procedure involvement of the
costs and expenses begin (Aragonés-Beltrán, García-Melón and Montesinos-Valera, 2017).
Further, level of expenses are involved of each section and step in the accounts and then total
cost of project is derived.
2. Communication methods
In order to communicate with project manager, direct email method will be used. To
communicate with stakeholders, face to face or email mode would be suitable. Apart from this, at
the section of project team and monthly project status meetings face to face and conference call
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will be the best mode of communication (Rajkumar and Sivasanskari, 2010). At the end, project
status report will be communicated through email.
3. Information needs from project and relation with costing
Cost of inputs used in several sections of the project management is highly required in
order to assess costing. In the step of project costing only sheet of expenses is needs which help
to know that how much amount incurred for accomplishing the whole project (Willis, 2015).
Hence, cost sheet needs from all the sections and used for determining level of total costs in the
project costing.
ACTIVITY 10
Significance of collecting as well as maintaining appropriate records
In the project management, proper and accurate records of the costs and other data is
highly required. Further, importance of such system is stated below:
 Proper records help to analyse total costs and expenses incurred in the workplace of
project. Along with this, debts as well as creditors associated with the project are also
tracked from collecting and maintaining the records.
 In order to decide that whether additional funding will be required or not, such records
are supportive.
 Helps to prepare effective and accurate financial statements within few times when all the
information are maintained (Financial and management accounts, 2016).
 In addition to this, it supports to control or eliminate unproductive expenses and enhance
cash in the project.
 In order to fulfil tax obligations using laws, collection and maintain effectual record is
helpful up to the greater extent.
 Further, such kind of records help to know actual cost of project along with expected
benefits which will be generated at the end.
ACTIVITY 11
1. System which needs to chose
Cost Total costs of System 1: $300,000 + $45,000 = $345,000
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System 2: $140,000 + $55,000 = $19,5000
Total cost of system 1 is higher as compared to 2 and tangible benefits are lower in the
system 1. Further, the system 1 and 2 generates 49% and 69% tangible profit at the end of years
1-5. On the basis of this provided data, system 2 would be chosen which gives higher profit than
another system.
2. Comment on information provided in table
In the present table, some information provided for making decisions to chose which are
enough up to the certain extent. On the basis of such data, it is not possible to clearly identify
that which one system would be the most profitable at the end of year. The reason is that, costs
which given are of the starting years and benefits provided are of the year ending. During the
period of five years, various expenses will be incurred which are not given in the table (Hanson,
Robison and Black, 2017). Further, such costs will highly affect to the tangible profits.
Henceforth, information given in the table are not enough in order to make fruitful decisions.
SUMMATIVE ASSESSMENT 1
QUESTION 1
Preparation of Trial Balance sheet
Trial balance sheet
Particulars Debit Credit
Short-term loan payables 25000
Prepaid expenses 17000
Inventory 85000
Long-term loans payable 42000
Equipment 60000
Paid in capital 35000
PAYG tax withheld 15000
Accounts receivable 185000
Goodwill 15000
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Cash 60000
Retained earnings 50000
Accounts payable 15000
Depreciation 95000
Expenses payable 20000
Capital stock 15000
Total $517000 $217000
QUESTION 2
Description of services cost analysis and ways for undertaking this analysis
Those expenditures incurred within business entity or project in order to generate and
provide services to the relevant parties are considered as the services cost. In the workplace when
more amount of such costs are incurred then lead to affect overall project in adverse condition.
As the service expenses are high at the end or during the project then lead overall may go over
budget and affect financial performance negatively. On the basis of this, it can be said that
project manager must look at the position of service cost aspect. Apart from this, such kind of
costs are productive as well for the firm and project. The reason is that, service costs are
supportive in order to generate incomes from customers. In order to analyse this, cost centre is
responsible party where service expenses are involved (Kaplan and Atkinson, 2015). For making
effective and appropriate service cost analysis, it is necessary that all such expenditures are there
in accurate manner. In case, any of the expense relating to service is missed out then affects to
the proper analysis. Moreover, while undertaking this particular analysis within project or
workplace service cost sheet is prepared. Under this, direct, indirect, fixed, variable all the
expenditures involved. Further, base taken for effective service cost analysis is sales which
shows that up to which extent project able to manage these kinds of expenses.
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QUESTION 3
Importance of variance
Variance reflects difference among two types of data which are estimated or forecasted
and actually generated by the company. Significances of this particular analysis for project are
described below:
 It helps to make comparison between the budgeted data as well as facts and figures
occurred in the project with respect to costs and other financials.
 In order to assess business or project performance it is one of the effective and
appropriate tool.
 Along with this, with the help of variance project management team easily able to
determine factors influenced to every aspect of the whole project (Otley and Emmanuel,
2013).
 Through this it can be identified that due to which causes and reasons result differ from
the expected data in the project.
 Moreover, it is a supportive tool in order to make effective business strategies to meet
objectives related to the financials.
QUESTION 4
Information included in cost-benefit analysis along with its advantages and drawbacks
The method under which costs are compared incurred in the workplace of a company or
project with the benefits generated is identified as the cost-benefit analysis. Under this different
metrics are considered by the analysis and one of the widely undertaken metric is monetary
values. Therefore, costs associated with the project are firstly computed at the end of year and
then total profits are calculated. After completion of this step, compared with both the data and at
last analysed in proper direction. In this basic two information involved which are like costs and
benefits at the end of an accounting period (Chenhall and Moers, 2015). Under the first aspect
i.e. cost those values required are stated below:
 Direct and indirect expenses
 Intangible expenditures
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 Opportunity costs
 Expenses incurred for managing potential risks etc.
Along with this, various benefits which are included in the cost-benefit analysis are listed
below:
 Direct as well as indirect incomes
 Intangible benefits generated
 Incomes generated from enhanced employee
 Improved revenue from goodwill of the consumers etc (Johnson, 2013).
Cost-benefit analysis has some advantages as well as demerits when the company or
project manager considers in the workplace. Further, merits and limitations of this are such as
follows:
Advantages:
 The cost-benefit analysis method can be applied in both kinds of project like new and old.
 Apart from this, CBA is on the basis of accepted social principle due to which
performance of individual project can be assessed in an appropriate manner. This particular mentioned tool encourages to the manager in order to develop new
techniques within workplace. Due to this, social benefits can be also evaluated properly
as well as accurately (Cost Benefit Analysis: Meaning, Merits and Demerits, 2017).
Drawbacks:
 Very basic limitation of CBA is that, when projects are of the long-term then fails to
make proper and appropriate analysis of the costs and profits generated.
 It not takes into account various aspects for long period of time which include inflation
rate, interest, cash flows variance, present value of the money etc. Therefore, the manager
has to consider alternative ways which are tools of capital budgeting.
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QUESTION 5
Objectives of business purchasing policies as well as aspects involved in them
The method which refers within organisation in order to acquire raw materials or any
goods and services for accomplishing objectives in the market is considered as business
purchasing. When a company wants to produce more number of finished products then use more
business purchasing policies. Under the procurement policy process, ten steps are involved
through which raw materials are purchased. Objectives of the business purchasing policies are
described below:
 Purchasing is the economic function due to which key purpose of this is to enhance profit
of the company or project.
 Another objective is that, consistent or continuous market survey where price of the raw
materials fluctuate over the periods up to the higher extent.
 Further, with the help of business purchasing project manager able to control over the
financials in proper and accurate direction (Shawal, 2016.).
 Moreover, for providing information as well as assistance to the top level of managers as
well as associated departments this method is helpful.
Apart from objectives, some elements or aspects associated with the business purchasing
policies which are stated below:
 Centralisation or decentralisation system
 Ways to purchase the raw materials like; volume (large or small), seasonal or contract
made on the basis of annual and sub-contracting.
 Delegation of power regarding to purchase the materials
 Procurement policies of the materials
 Proper and effective communication
 Responsibilities of the employees involved in purchasing policies
 Code of conduct as well ethics of purchasing
 Effective public relations (Turner, 2016)
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 What, when, why and how to purchase for producing finished goods and services.
SUMMATIVE ASSESSMENT 2
PROJECT 1
Fred's Shed Work Breakdown Structure
Task
number Task description
Predecessor
relationship
Time (in
days) Resources
Costs
(in $)
1 Meeting at house - 1 Both parties 900
2 Winning design 1 3 Shed designer 1800
3 Plan of human resources 2
Fred for planning
the shed
3.1 Electrician: Eddie 1 800
3.2 Plumber: Bob 1 800
3.3 Glazier: Gary 1 800
3.4 Fencing contractor: Tony 1 800
4
Submission of development
application and construction
certificate 3 2 Local council 1900
5 Wait for approval 4 3 Local council 900
6 Preparing construction site 5 5 Fred and his team 6970
7 Booking a council inspection 6 1 Fred 1200
8 Booking of concrete truck 7 1 Fred 1600
9 Pouring concrete 8 3 Team of Fred 2500
10 Strip the formwork 9 2 Team 1860
11 Payment progress 10 1 Mr. Jones 8000
12 Delivering and installing 11 800
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12.1 Connecting main power 2 Eddie 600
12.2
Connecting water and installing
toilet 2 Bob 700
12.3 Installing window 2 Glazier 950
12.4 Finishing phase of shed 3 Fred and his team 2650
13 Clearing site 12
13.1 Removing rubbish if any 3 1600
13.2 Temporary site amenities 4 1870
Total
42 days
or 6
weeks
$40,00
0
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PROJECT 2
Budget
Budget is the estimated price which is calculated through the revenue and expenses that
was generated at the future period (Nicholas and Steyn, 2017). Moreover, it is re-evaluated on
the periodic basis. It can be prepared for any person, organization and nation that makes financial
transition. It is an external tool that is required by the manager for the management part. It is the
integral part for firm running in effective and efficient manner. It is made based on the
assumption of the cost, sales and economic outlooks of the market. For this purpose, potential
expenses of the company are addressed and monitored. There are 5 types of budget for the
organization, these are cash-flow, master, operating, financial and static budget.
Area to which the budget is applicable
 Master Budget: Here complete financial activity and health are highlighted. It is the
integration of assets, income, operations and sales.
 Operating Budget: For the income and expenses it is the analysis and forecast for the
particular-period. It can be prepared at any time duration.
 Cash-Flow Budget: It is the projection how income and expenditure is to be made. It
helps to manage the cash in more appropriate ways.
 Financial Budget: It is required by the firm in order to maintain assets, cash-flow,
expenses and income. It shows the physical condition of the company that is the
financial-health.
 Static Budget: It is an unaltered budget which has very limited changing factors. It does
not depends on the revenues collected and sales.
Primary function of the budget
There are three aspects on which budget relies these are forecast on the expenditure and
income, decision-making tools and for monitoring business performance. As it helps in
developing the spending plan for the money so there is insurance that there is amount of money
left even after spending. It helps in maintaining the balance between the loss( expenditure) and
the money left to be spend.
Supported by data from which department/ areas
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Through this management is greatly affected as the pre- developed plan is better for
achieving coordination. For this purpose the executives of the company have to take decision by
considering all the factors that are related to the company. It also helps to restrain the collective
efforts of the organization. It widens the thinking level of the individual so that better planning
and task can be completed. Through this organisational structure weakness can be identified and
focus on the problems related to the communication, responsibilities and relationship can be
maintained.
Users including those outside of management.
In order to include the outside of management, there is requirement of assurance of the
finances, monetary fund your actual commitments, decision taken for the financial-decision and
for the future projects. These may include creditors, customers, communities, government,
partners and suppliers. All these are required for the making the budget and for the formulation
of the future strategic planning of the company. It is also required so that future development can
be made without impacting the current business decision of the company.
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PROJECT 3
Financial statements: After completion of the financial-period or fiscal-period the
statements are prepared. There are various things included in it such as P&L, position and
income statements (Kaplan and Atkinson, 2015). Through this an financier and investors can
gain the finance related details to evaluate and measure the financial-performance. Moreover, it
is required as it focuses on the financial-conditions, operating results, cash-flows and
Shareholders’ Equity. As mentioned above, it is used to evaluate or measure the P&L statements
so that at the end of the fiscal year financial-position of the company can be identified.
Objectives
There are 5 main objectives that are required to prepare it these are:-
 Determining the outcomes of firms entire operations
 It ascertains about the position of the company (financial condition)
 It assist managers to make planning related to it so that proper utilization of the funds can
be made.
 Managers of the company can make profitability related decision after preparing the
financial-statements.
 Through this short as-well-as long-term solvency of concern can be made. Through this
individual have ability to pay one's debts.
It can be prepared through the ledger accounts. However, there are terms required for its
preparation these are balance-sheet, cash-flow, income and retained earnings statements. All
these highlights the purpose of the financial accounts. These are explained below:
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Income Statements
Under the income statements there are two terms these are the P&L and Trading
statements.
Trading statements: It is prepared with the help of the trading-activities or from the purchase
and sales made by the entity. Under this, either the product is sold or purchased. The difference
between the goods-sold and net-sales defines the gross-profit and loss. For this purpose the cost
of goods and profit made is calculated. In order to calculate the price of the goods sold the
following formula is used, along with this there is an example which illustrate the use of the
formula.
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Requirement of the trading-accounts: There are various advantages provided by it such as
 It provides in depth knowledge of the gross-profit made by the organization. Through this
success of the company can be defined.
 Direct expenses of the company that is purchase or manufacturing of products for the sale
can be easily understood through this.
 It also prevents from the future losses so that necessary corrective action can be taken
against it.
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In order to calculate the trading-accounts there is requirement of the stock, sales, purchase, direct
expenses and gross profit and loss. Gross P&L can be calculated as following:
Illustration of the trading-accounts is shown:
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P&L Statements
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There are various indirect-expenses that happen in the firm which needs to separated firm
the direct-expenses (Johnson, 2013). These can be administrative, depreciation and maintenance
charges and financial expenses. Moreover, there are income other than sales of the company as
other sources which needs to be eliminated. In order to calculate the P&L statements following
format is used:
Importance of P&L statements:
Debit-items:
 Through this selling and direct expenses can be calculated such as advertisement,
travelling, sales, selling, salesman-commision and many more.
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 Financial, office, administrative, depreciation, maintenance and other expenses can be
calculated through the P&L statements.
Credit items:
 Here revenue and incomes are mentioned. Other things which may be included are FD,
interest on investment.
It is required so that knowledge of the net P&L can be calculated. It can be easily compared to
the previous statements and future can be ascertained. Other expenses incurred can be calculated.
Example is mentioned below:
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Balance-sheet:
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It is prepared on the basis of the particular-date, mostly at the time of the fiscal year so
that accounting position of the organisation can be determined. It comprise of the assets,
liabilities and proprietorship at particular-date of the entity. Assets are the financial-position list
of the company. It is calculated through the simple statement equation where
Assets = liabilities+ Owners' Equity.
Where Assets can be defined as the items owned by the firm, liabilities are the payment
and equity is the amount owned by the shareholders of the company. Assets are of two sorts,
current and non-current. The former one is about the items that firm has purchased over certain
period of time which will be utilized or used as cash in 1-year (Jung, 2017). Under current asset,
accounts-receivables, cash, Prepaid-insurance, inventories, liabilities and temporary-investments
are involved. Non-current assets are the necessary items which are purchased by the company at
one time and are owned by the organisation. These are building property, bonds, demographic
position, long-term-investments, office-equipment and stocks of the company. Similarly as
asset, liabilities is current and non-current. Payment obligations that are to paid by the company
are part of the current liabilities, it is paid within 1 year. For example, equipment supplier.
However, the other is the amount which firms has to pay more than one time, these can be debt,
bondholder, etc. Equity is another source for the assists. Shareholders or owner's rights is also
known as equity. Formulated by the paid-in capital and retained earnings.
Importance of the balance-sheet
These are the important statements as they detailed about the firm's financial-standings. If
the assets and liabilities lies around 1 or below it they are in bankruptcy danger and if above it
they are having improved financial health. Further, these details about the additional loan can be
taken by the company or not. It also aid investors to make investments in those companies and
what profit they may earn from the company. If high cash assets are there the funding is also
large. Example of the Company's balance-sheet.
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Cash-flows Statements
These are the modification made in the cash-balance. It is used for the finance, investing
and operations of the organisation. After that cash-basis report is prepared. It should be directly
received from the ledger account. For example:
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It is needed because it shows the inflow and outflow of the organisation at the particular-
date or time period. It shows the sources from where funds can be collected, for proper cash
planning and maintaining, forecast efficiency of a firm, amount of cash spend and received.
Further, it shows the profitability and viability.
Statements of Retained Earnings
It shows the retained earning from the beginning to end of accounting period. It can be
prepared using beginning retained earnings, net income and dividends paid at the time of the
accounting period.
It is important for the shareholders, boards, investors and creditors. Based on the
company performance they make investment in the company and through this performance can
be measured.
Accounting terms used:
P&L: Profit and loss.
FD= Fixed deposit.
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REFERENCES
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Attig, N. and et.al., 2016. The global financial crisis, family control, and dividend policy.
Financial Management. 45 (2). pp.291-313.
Chenhall, R. H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, Organizations and
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Fregonara, E., 2017. Methodologies for supporting sustainability in energy and buildings. The
contribution of Project Economic Evaluation. Energy Procedia. 111. pp. 2-11.
Hanson, S. D., Robison, L. J. and Black, J. R., 2017. Financial Management for Small
Businesses: Financial Statements & Present Value Models. Michigan State University.
Johnson, H. T., 2013. A New Approach to Management Accounting History (RLE Accounting)
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Jung, C., 2017. Public 6 finance and financial management. Public Administration and Policy in
Korea: Its Evolution and Challenges. p.118.
Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.
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Nicholas, J. M. and Steyn, H., 2017. Project management for engineering, business and
technology. Taylor & Francis.
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Shen, Y. K. and et.al., 2017. Costing Methods for a Cluster-Randomized Cost-Effectiveness
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Leonean Children with Moderate Acute Malnutrition (MAM). The FASEB Journal. 31(1
Supplement). pp. 786-55.
Suk, S. J. and et.al., 2017. Quantifying combination effects of project management practices on
cost performance. KSCE Journal of Civil Engineering. 21(3). pp. 603-615.
Turner, R., 2016. Gower handbook of project management. Routledge.
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incentive contracts in project management. Journal of Intelligent Manufacturing. 28(3).
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