Budget Preparation Methods and Analysis

This assignment delves into the process of budget preparation, highlighting two primary methods: top-down and bottom-up. It emphasizes the importance of gathering information from various sources such as historical data, statistical analysis, and input from individual units within an organization. The document also touches upon the advantages and disadvantages of each approach, ultimately aiming to provide a comprehensive understanding of how budgets are effectively formulated.

Managing Financial
Resources

Executive Summary

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Budget Preparation and Monitoring process..........................................................................1
RECOMMENDATION...................................................................................................................4
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Budget Preparation and Monitoring process
Budgeting and cost analysis is required in every organisation so that timely decisions can
be made for the requirement of funds by the company. Budgeting is required for carrying out the
operational tasks and activities of various departments so that they may be able to perform well
and accomplish set targets of the firm. The budget preparation and monitoring process can be
described below with various steps-
1. Estimates
The departmental managers of Morphy Richards Company are required to provide an
estimate to management regarding expected expenditures, sales, resources and level of
production to be achieved by having required funds for accomplishing objectives of the firm in
effective way. A formal report is prepared and imparted to budget committee for further approval
of the same (Agrawal, 2018). In this step, company examines historical trends of all revenues
and expenditures. Moreover, it evaluates market fluctuations to identify inflation rate, customer
demands and others for projecting future results.
2. Coordinating with departments
Budget committee will coordinate estimates with various units such as marketing, sales
and others so that resources can be fairly allocated to them and may achieve common goals of
the organisation with much ease. Thus, budget committee analyses requirements and allocate
funds available with it.
3. Budget communication
This is important part of the budget as the committee communicates approved budget
with various departmental managers of Morphy Richards Company so that they may incorporate
any changes in the same. Modifications are initiated if any by departmental units, then the same
is implemented by top management to meet their budget requirement.
4. Implementing budget
Second last stage of budget preparation process is concerned with implementing the same
after obtaining approval of departmental managers and budget committee. The top management
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implements it and services units are required to impart materials, labour and overheads to
successfully carry out the effectiveness of budget (Grossi, Reichard and Ruggiero, 2016). Budget
is implemented after all modifications are done.
5. Monitoring
Implementing budget by the management of Morphy Richards Company is primary
aspect but it should be monitored on continuous basis so that planned output can be compared
with actual output and deviations if any may be found. For attaining this, performance reports are
prepared so that feedback can be provided and improvements can be implemented to remove
deficiencies. Monitoring is essentially required so that planned budget may be met by
employees.
Budgets can be easily aligned to organisational planning, strategic goals by various ways.
These includes measurement of performance indicators, long-term vision, planning with
strategies in mind. Morphy Richards Company can easily achieve those aspects. These are vital
aspects or elements which are required for aligning budget with organisational goals. Starting
from performance indicators which includes financial metrics, customer metrics, process metrics
and many more. These KPI's (Key Performance Indicators) are required to be evaluated so that
budget strategy may be implemented in effectual way (Shkurkin and et.al, 2016). This is
important so that performance indicators can measure the success and failure of strategies of the
firm. There are financial and non-financial metrics which are used by the management to assess
success of budget and can be easily aligned for organisational achievement of goals quite easily.
Long-term vision of say period of 12 months or more should be prepared so that budget
can be aligned with business strategies. But business takes longer time which provides
incomplete picture and as such, alignment fails. It is required that annual budget should be
planned and completed within indicated time frame so that effectiveness can be extracted out of
it. Planning should be revisited so that strategies can be easily modified in accordance with the
planned output and alignment can be effectively processed.
Timing and time frame is important aspect of budgeting in the organisation so that
resources may be utilised to achieve production within stipulated time. Any delay or
shortcomings in the budget time frame, entire time frame gets disturbed and efficiency is
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affected badly. This is important aspect so that continuous monitoring can also be initiated to
judge accuracy of budgeted results with that of actual results and corrective actions can be taken
without any delay for achieving desired results in one shot.
The budget which is prepared for the coming period for departments should be achieved
within time frame otherwise results will significantly vary and no outcome will be produced
which will be spoilage of both resources and time of the company (Trenovski and Nikolov,
2016). Morphy Richards Company should achieve budget within stipulated time. Budgeting
timeline is essentially required so that resources can be scheduled to be utilised by various
departments of the company in effective way. Resources, time and money work on the same
continuum and as such, it is required that timing should be associated while preparing budget so
that effectiveness can be generated out of the same. Actual budgeting process of Morphy
Richards Company is that top down approach is followed by it. Considering time frame, budget
is communicated to employees to achieve goals.
There are various key costs that are involved in the budget which are capital, operational,
staff costs etc. These expenditures play crucial role for Morphy Richards Company while
estimating costs and revenue for the coming period for garnering efficiency in the best possible
way. Operational costs are directly associated with daily tasks such as organising training for
employees, initiating marketing campaign by the organisation (Awoonor‐Williams, Phillips and
Bawah, 2016). These expenses should be listed in the budget so that costs may be controlled in
effective manner and revenue for the purpose may be attained quite easily. Other cost is capital
one which includes purchasing furnitures for office, expenditures for purchasing computers and
premises which are fixed costs.
On the other hand, staff costs includes paying compensation to employees, recruitment
expenses etc. This is important about how much time will be provided by workers and as such,
salaries can be computed likewise and included in the budget. Apart from costs, key revenues
includes operating and non-operating revenues. Operating one is which is accomplished from
sales made by the company and non-operating revenues includes interest and rent revenue which
are not achieved from business operations. There are variable drivers which drives costs and
revenues of the Morphy Richards Company. This includes competitors' change in policies and
strategies, suppliers' to provide materials at new price or high price etc. This is required so that
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organisation may implement variables while preparing budget so that effectiveness can be
produced.
There are other costs such as fixed and variable costs which are essentially required by
the firm to analyse for effectiveness of budget preparation and monitoring process. Fixed costs
are those which do not vary in accordance to the level of output (Callistus and Clinton, 2016). In
simple words, fixed costs are required to be incurred irrespective of the revenue made by firm or
not. It includes expenses such as rent, building, equipments. Thus, it can be analysed that
company has to incur these costs whether production volume is accomplished or not. Total fixed
costs remains same at all levels of output.
On the other hand, variable costs are completely different from fixed costs. As the name
suggests, variable expenses vary with level of output. In simple words, if production volume
increases or decreases, the same effect can be seen on variable costs. It includes wages paid tpo
labourers. The main essence of such costs is that it is purely based on production volume and
while budget preparation process, organisation can estimate variable costs and can even reduce
the same if not required. By implementing this in the budget, several variable expenditures can
be minimized and desired revenue may be achieved. Key factors drive costs are supply of labour,
transportation expenses, location of the market and many more (Gordon, Osgood and Boden,
2017).
There are various sources from where information can be easily gathered for preparation
of budgets. It includes top management formulates projections on priority basis which is also
known as top down approach. This is so called as projections are made by senior management
and it is not decentralised with middle and lower management. On the other hand, another way
of gathering budget information is that decentralises information gathering to units or
departments. In simple words, organisation engages advice from departments so that budget may
be prepared.
The main difference between these two approaches is that top down approach need less
time to gather information as it is collectively made by the management. While, other approach
needs more time for execution and it leads to time consuming process. Thus, these two
approaches are used to gather information in effective way so that budget may be prepared in the
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best possible way (Fragoso and Enríquez, 2016). Moreover, information is gathered from
historical data, statistical data and gaining information from individual units.
RECOMMENDATION
CONCLUSION
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REFERENCES
Books and Journals
Awoonor‐Williams, J. K., Phillips, J. F. and Bawah, A. A., 2016. Catalyzing the scale‐up of
community‐based primary healthcare in a rural impoverished region of northern
Ghana.The International journal of health planning and management.31(4).
Callistus, T. and Clinton, A., 2016. Evaluating barriers to effective implementation of project
monitoring and evaluation in the Ghanaian construction industry. Procedia
engineering.164. pp.389-394.
Fragoso, L. P. and Enríquez, C.R., 2016. Western Hemisphere: A survey of gender budgeting
efforts. International Monetary Fund.
Gordon, V., Osgood Jr, J. L. and Boden, D., 2017. The role of citizen participation and the use of
social media platforms in the participatory budgeting process. International Journal
of Public Administration. 40(1). pp.65-76.
Grossi, G., Reichard, C. and Ruggiero, P., 2016. Appropriateness and use of performance
information in the budgeting process: Some experiences from German and Italian
municipalities. Public Performance & Management Review. 39(3). pp.581-606.
Shkurkin, D. V and et.al, 2016. Modernization of the Sphere of Tourist and Hospitality Industry
of the South of Russia as a Growth Factor of Socio-economic Stability of the
Region. International Journal of Economics and Financial Issues. 6(1S).
Trenovski, B. and Nikolov, M., 2016. Cost-benefit analysis of performance based budgeting
implementation.
Online
Agrawal, 2018 Steps for Budget Preparation (5 Steps) [Online] Available Through:
<http://www.yourarticlelibrary.com/accounting/budgeting-accounting/steps-for-budget-
preparation-5-steps/52790>
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