Operational Budget

This document provides an overview of operational budgeting and its importance for businesses. It explains the process of creating a budget, including estimating income and expenses. The document also discusses the need for budget reviews and cost control. Examples and tips for effective budgeting are provided.

OPERATIONAL BUDGET

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1 and 3.a................................................................................................................................1
TASK 2............................................................................................................................................3
TASK 3............................................................................................................................................4
3.b.................................................................................................................................................4
CONCLUSIONS .............................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Budgeting refers to process creation of plan for spending the money. The plan about the
estimated incomes and its expenditures is known as budget. The creation of budget enables the
company to determine in advance whether the operations of company will be having sufficient
funds and profits after the end. Budgeting refers to balancing income with the expenses. The
budgeting is very important for every business as it helps the business organisations to forecast
about the future activities (Chohan and Jacobs, 2018). Corporations and businesses use it for
giving the business a direction to be followed. It enables company to keep its expenditures within
the budgeted levels to avoid overs spendings. It helps the company in comparing its results with
the actual levels of expenditures and income from the budgets framed by the business. The report
is based on the HMV Cycles that has made the budgets for the financial year and wants to
prepare the budget including the electric cycle sales.
TASK 1 and 3.a
The estimated budget of HMV Cycle for 2011 taking the budgeted figures of 2010 as base.
Account 2010 2011
Bike Sales 550000 583000
Electric Bike Sales - 75000
Merchandise Sales 125000 131250
Workshop Revenue 175000 192500
Total Income 850000 981750
Cost of Sales Bikes 330000 349800
Cost of Sales of Electric
Bikes - 45000
Cost of Sales Merchandise 80000 84000
Cost of Sales Workshop 20000 22000
Total Cost of Sales 430000 500800
Gross Profit 420000 480950
Operating Expenses
Wages 240000 243600
Bookkeeper Fees 15000 15000
Commission 12000 12000
Motor Vehicle Expenses 12000 12000
Telephone [phone]
1

Advertising 15000 15000
Sponsorship 6000 12000
Electricity/Gas 7200 7488
Rent 20800 20800
Repairs and Maintenance 1500 1500
Office Supplies 800 800
Insurance 2500 2500
New Staff - 1520
Superannuation 22800 22944
Total Expenses 359600 371152
Net Profit or Loss 60400 109798
Interpretation
In current year business will be selling the electric bikes that were not sold in previous
year. The budget for the 2011 is prepared considering the extended business. The budget
represents that the sales of non electric will be increasing in the next year. Also the electric sales
are estimated to generate revenues of $75000 on the cost of sales of $45000. The budgets are
based on the market analysis and other factors through which sales will be generated by
company. The revenues are expected as company has received order in advance for electric
cycles. It is essential for the companies to make thorough study before the estimates are made.
Cost of sales can further be negotiated as company is contracted with wholesaler of the bikes.
Company can purchase directly from the manufacturers that will make the electric bikes
available in reduced prices (Lopez and Witt, Wells Fargo Bank NA, 2019). This will be
increasing the transportation costs for bringing the bikes to the showroom. This will also involve
other cash expenditures for carriage inward and transit insurance. Aggregating these cost also the
actual purchase price will be lower than sold by the wholesalers. Therefore the negotiation
should be made on this area.
The sales of non electric bikes will also be increasing in next year by 6% with the rising
demand of bikes. The sales of company were higher than the budgeted figures. The
advertisement expenditures have brought new customers for company rising the sales.
Merchandise sales will be rising by 5% and also the cost of sales will be rising with the same
percentage for merchandise. Workshop sales will be rising by 10% and same proportion in cost
of sales (Almazan, Chen and Titman, 2017). The cost of sales is hard to reduce below this level
2

as best efforts are made and all the costs related with bikes are lower than incurred by the
competitors.
The overall revenues of company will be increasing to 981750 from 850000. AS against this cost
of sales have increased to 500800 from 430000.
Cash expenditures of the company include the charges of telephone, repairs and
maintenance,office supplies and the payment of salary to new staff. Where expenditures of
wages, bookkeeper, commission, expenses of motor vehicles , advertisement, sponsorship,
electricity, rent, insurance and superannuation are the revenue items. These are revenue items but
do not involve cash expenditures as all the payments are made usually through bank. The
sponsorship costs should be reduced as the company is already generating enough revenues from
previous sponsorship. Company can control cost of workshops by effectively using the ideal time
in workshops.
The new budgets are showing increased profits in comparison with previous year. The
cost of revenues items should be increased from previous year. The budgeted level shows that
bookkeeper fees may be raised even further due to increasing compliance requirements. The
expenditures for the advertisements should be raised as the cost were increased in previous year
also. The new electric bike will be increasing further the expenditures on investment.
TASK 2
The budget should be considered on the 5th of every month. The budget will be broken
down into the seasonal and peak periods. The budget is to be reviewed every month by the
accountants to ensure that the revenue levels are achieved and the expenditures are not moving
out of the budgeted figures. Company has to take effective controlling policies during the time of
political changes as the prices may rise. They have to consider that competitors do not adopt the
same promotional strategies. It has to achieve highest sales targets in first and last quarter as first
quarter the time of openings of schools and colleges (Gilman, 2016). The last quarter consists of
summer vacation. This is the period in which company achieves the highest sales targets.
Lowest sales will be faced in second quarter therefore, it has to manage the cash flows
accordingly for the fixed monthly expenditures. Apart from both the quarters sales are also at
hike during the Christmas and new year vacations. Ket performance indicator will be hitting the
sales level of 350000 in first quarter , 150000 in second quarter, 200000 in third quarter and
3

remaining in the last quarter of year. The operating trends shows that the budgets will not show
much variances in the cost of sales. Fluctuations can be seen mainly in the cash expenditures and
other small revenue items.
The budget time line is one quarter or 3 months. Budget is to be achieved by the company
in 3 months and reviewed in preceding month of the quarter ending. Preparation of budget will
include cost accountant that will provide information about the quantitative facts. Finance
manager which will guide regarding the availability of funds and the allocation of resources will
me made concerning the general manager of company. All the activities will be monitored and
governed by the general manager of company.
Particulars
Budget
Review Feedback
2010 2011
Bike Sales 550000 583000 5 weeks The Marketing managers will be
looked for the level achieved within
guven tine framesElectric Bike Sales - 75000 3 weeks
Merchandise Sales 125000 131250 6 weeks
Workshop manager will be required
to answer the variations
Workshop
Revenue 175000 192500 6 weeks
Total Income 850000 981750
Cost of Sales
Bikes 330000 349800 3 weeks
It will be required to be reviewed by
the purchase manager
Cost of Sales of
Electric Bikes - 45000 3 weeks
Cost of Sales
Merchandise 80000 84000 5 weeks This is required to be reviewed by
the assistant managers looking the
workshops and merchandise
Cost of Sales
Workshop 20000 22000 5 weeks
Total Cost of
Sales 430000 500800
Gross Profit 420000 480950
5th of
every
month
Feedback will be taken by the
general manager regarding the
variations
Operating
Expenses
4

Wages 240000 243600 8 weeks
All these will be reviewed by the
administrative and finance manager
with the reasons of variations
Bookkeeper Fees 15000 15000 20 weeks
Commission 12000 12000 8 weeks
Motor Vehicle
Expenses 12000 12000 4 weeks
Telephone [phone] weeks
Advertising 15000 15000 9 weeks
Sponsorship 6000 12000 5 weeks
Electricity/Gas 7200 7488 5 weeks
Rent 20800 20800 20 weeks
Repairs and
Maintenance 1500 1500 8 weeks
Office Supplies 800 800 20 weeks
Insurance 2500 2500 20 weeks
New Staff - 1520 12 weeks
Superannuation 22800 22944 10 weeks
Total Expenses 359600 371152
Net Profit or Loss 60400 109798
5th of
every
month
These will be reviewed collectively
by all the managers collectively
giving reasons
TASK 3
3.b
Review of previous budget.
Account Budget Actual
Sales 550000 573985
Merchandise Sales 125000 127500
Workshop Revenue 175000 163250
Total Income 850000 864735
Cost of Sales Bikes 330000 344391
Cost of Sales Merchandise 80000 78395
Cost of Sales Workshop 20000 23150
Total Cost of Sales 430000 445936
Wages 240000 219850
Bookkeeper Fees 15000 16450
Commission 12000 8653
Motor Vehicle Expenses 12000 15535
5

Telephone [phone]
Advertising 15000 17541
Sponsorship 6000 6000
Electricity/Gas 7200 8215
Rent 20800 20800
Repairs and Maintenance 1500 1234
Office Supplies 800 652
Insurance 2500 2862
Superannuation 22800 20885
Total Expenses 359600 342527
Net Profit or Loss 60400 76272
Company has shown variance in all the three revenues. Variances are positive in bike and
merchandise sales where negative in workshop revenues. The variances are seen in cost of sales
and company will have increased control over its activities so that the cost can be controlled. If
these are not raised to the required level. This is essential for the business enterprise to control
the costs. The variance in the cost are to be controlled by the company as it may decrease the
profits. The variances in revenue items are also seen for the fees of bookkeeper and motor
vehicle expenses. The budget should be increased considering the variances in current year. The
resources are also to be reduced for the current year over the expense that are not involving high
cost.
CONCLUSIONS
The study have shows that conclusions has been made for the business enterprises. The
budgets help the organisations in controlling the cost of company. They help the managers to
keep their business in a defined direction. The budgeting helps the company in proper allocation
of resources.
6

REFERENCES
Books and Journals
Chohan, U.W. and Jacobs, K., 2018. Public Value as Rhetoric: a budgeting
approach. International Journal of Public Administration. 41(15). pp.1217-1227.
Lopez, G. and Witt, L.R., Wells Fargo Bank NA, 2019. Systems and methods for interactive
financial categorization and budgeting. U.S. Patent 10,402,896.
Almazan, A., Chen, Z. and Titman, S., 2017. Firm Investment and Stakeholder Choices: A Top‐
Down Theory of Capital Budgeting. The Journal of Finance. 72(5). pp.2179-2228.
Gilman, H.R., 2016. Democracy reinvented: Participatory budgeting and civic innovation in
America. Brookings Institution Press.
7