Cash Budget Analysis for Wooden World Ltd

This assignment analyzes the cash budget of Wooden World Ltd. over three periods. It examines key components like cash paid to creditors, labor costs, overhead expenses, and principal paid to the bank. The analysis highlights trends in cash flow and identifies areas where the company may require additional financing. Recommendations are provided for variance analysis and improving financial management practices.

BUDGETING

Table of Contents
Introduction......................................................................................................................................3
Body of Project and Analysis..........................................................................................................3
Operational Budget......................................................................................................................4
Financial Budget..........................................................................................................................5
Conclusion and Recommendations..................................................................................................7
References........................................................................................................................................8

INTRODUCTION
Operating budgets is engaged in providing better estimates regarding sources and volume in
context with future expenditure, operational activities, project, expenditures on equipment,
salaries and so on. Operating budget assists companies in palling daily business operations
(Lowe & Tinker, 2015). It assists in managing existing expenses by tracking costs and finding
significant saving areas. It projects future expenses by making an evaluation of past expenses
and further planning according to them to save more (Silva, Fortunato & Bastos, 2016).
Operating budget also help in making a reduction in debts while working towards an objective of
forming financial services. Hence, an operating budget is a significant component of the
business. This is the type of budget that looks at all associated costs while operating in business
(Sandalgaard & Nikolaj Bukh, 2014). By taking the cost per unit of generated product or service
into consideration can assists in ensuring charges of the company to run the operations properly
and smoothly.
BODY OF PROJECT AND ANALYSIS
Wooden world limited is engaged in designing and selling top quality furniture, home interiors
and kitchen appliances. The cited company is engaged in making a modernist design for a range
of furniture and appliance as per the individual requirement and its products are environmentally
friendly too. The products and services of the company will be provided at an economical range
while ensuring quality measures. Wooden world Concept is to provide various furnishing
products at affordable prices, and it can be further attained by mixing quality, value, standards,
design, function and sustainability. The Wooden world will offer a diversified portfolio of their
products and services to the consumers can have various options in front of them, and they can
get products and services as per their needs and requirements. Company’s major aim is to assist
more individuals to get a better lifestyle at home.

Operational Budget
Year 1 Year 2 Year 3
$ 000 $ 000 $ 000
Sales 4000 5000 6000
Cost of Sales 2500 3000 3400
Gross Profit 1500 2000 2600
Gross Profit % 38% 40% 43%
Overheads
Salary for Staff 250 300 320
Premises (Repair and maintenance) 100 150 200
Transport Expenditure 500 800 1200
Selling and promotion 250 200 200
General expenses 150 180 180
Depreciation 100 80 60
Total overheads 1350 1710 2160
Net Profit/(Loss) 150 290 440
Tax on profit/(loss) 45 87 132
Profit after tax 105 203 308
Analysis:
Banaian & Nelson (2014), asserted that operational budget assists in assessing the details relating
to operational expenses and income of a company. By preparing the budget, it could be assessed
that whether it will be possible to attain profit through operations of the company. From above
analysis, it can be established that Wooden World Ltd. is having increasing trend in gross profit
as well as sales. As these figures are based on approximations, changes should be made as per
the actual performance of the company.

Financial Budget
Production Budget
Year 1 Year 2 Year 3
Forecasted unit sales 20000 35000 50000
Planned ending inventory units 500 800 1200
Total Production 19500 34200 48800
Opening Inventory 0 500 800
Units to be manufactured 19500 33700 48000
Sales Budget
Year 1 Year 2 Year 3
Total sales 4000000 5000000 6000000
Units Produced 19500 33700 48000
Sale price per unit 205.1282 148.367953 125
Capital Expenditure Budget
Particular Amount in $
Plant and furniture 400000
Office and Equipment 300000
Machinery 250000
Computer Equipments 80000
Vehicle 200000
Total 1230000
Note: The above-specified expenditure will be done in the first year, and further investment will
be made in year 5, in accordance with the percentile of enhancement in operations as well as
profits of the company.

Cash Budget
Year 1 Year 2 Year 3
Opening Cash Balance 700000 1635000
Borrowed from Bank 600000 1300000
Paid up share Capital 1000000
Cash Receipt from sales 3500000 4200000 5500000
Amount received from receivables
Total cash receipts 4500000 5500000 8435000
Fixed asset purchased 800000
Cash paid to creditors 2500000 2850000 3200000
Labour Cost 300000 350000 400000
Overhead Cost 200000 230000 230000
Amount paid to payables
Principal Paid to Bank 400000 100000
Interest 35000 55000
Total cash paid 3800000 3865000 3985000
Closing Balance 700000 1635000 4450000
Analysis:
The main parts of the financial budget are production budget, sales budget, capital expenditure
budget and cash budget (Alviniussen & Jankensgard, 2015). The specified assessment has been
done for Wooden world Ltd. in order to take an appropriate decision regarding its operations.
The cash budget is prepared to assess the future requirement of cash for operating daily
transactions as well as capital expenditure. Above study depicts that the company will require
borrowing money in order to provide smoothness in the functioning of the organization.

CONCLUSION AND RECOMMENDATIONS
Above study depicts that budgets have vital importance for every organization. The reason
behind the same is they provide approximated figures regarding the operations of an
organization. A bright future of wooden world ltd. could be assessed from above study, as the
budget reflect increasing trend in gross profit as well as sales.
The company is recommended to apply tools such as variance analysis in order to compare
actual expenditure with budgeted figures. The same will assist the company is ascertaining the
areas which are required for focus in a significant manner. Moreover, it will provide guidance to
the company is ascertaining the strong as well as weak areas of the company.

REFERENCES
Alviniussen, A., & Jankensgard, H. (2015). Enterprise risk budgeting: bringing risk management
into the financial planning process.
Banaian, K., & Nelson, P. J. (2014). Smart Budgeting for an Era of Limits. Center of The
American Experiment.
Lowe, T., & Tinker, T. (2015). The short-term business forecasting: an analysis of a firm's sales
budgeting process. International Journal of Critical Accounting, 7(5-6), 440-451.
Sandalgaard, N., & Nikolaj Bukh, P. (2014). Beyond Budgeting and change: a case
study. Journal of Accounting & Organizational Change, 10(3), 409-423.
Silva, J. O. R. D., Fortunato, G., & Bastos, S. A. P. (2016). Operating cost budgeting methods:
quantitative methods to improve the process. Production, 26(4), 675-687.