Project Report: Analyzing Budget Management and Forecasting Techniques

This project report provides a comprehensive overview of budget management and forecasting. It defines budgets, explores expenditure and revenue lists, and differentiates between fixed and flexible budgets, along with fixed and variable costs. The report also covers the break-even point, various types of budgets, and the double-entry accounting system, contrasting accrual and cash accounting methods. It emphasizes the role of budgets in an organization, including monitoring, variance analysis, and the processes involved in preparing and documenting budget and forecasting estimates. Furthermore, it addresses stakeholder contributions, budget performance indicators, cash flow reasons, budgeting objectives, and provides relevant references. The report is designed to assist students in understanding and applying effective financial planning and management principles. This document is contributed by a student to be published on the website Desklib. Desklib is a platform which provides all the necessary AI based study tools for students.

Running Head: Manage budget and forecast
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Project report: Manage Budget and Forecast

Manage budget and forecast
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Contents
Define budgets..................................................................................................................3
Expenditure and revenue list............................................................................................3
Definition..........................................................................................................................3
Fixed and flexible budget.............................................................................................4
Fixed cost and variable cost..........................................................................................4
Breakeven point............................................................................................................4
Types of budget............................................................................................................4
Double entry account........................................................................................................5
Difference between accrual accounting and cash accounting..........................................5
Role of budgets in an organization...................................................................................5
Monitoring of organizational budget................................................................................5
Importance of variance analysis...................................................................................6
Preparing, document budget and forecasting estimates....................................................6
Stakeholder’s contribution in negotiating the budgets.....................................................7
List of the stakeholders.................................................................................................7
Budget performance indicators.........................................................................................7
Role of performance indicators....................................................................................8
Reasons of cash flow........................................................................................................8
Reasons behind cash flow reduction.............................................................................8
Budgeting objectives........................................................................................................9
References.......................................................................................................................10

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Que 1.1)
Define budgets:
Budget is an estimation of future cost, revenues and various other resources over a
particular period of time which reflects over the reading of the future financial goals and
condition of a company household or government. One of the best admiration tools of the
budgeting is the assistance of the company to achieve the qualified objectives, measuring the
performance of the company and copying the foreseeable the adverse situation of the
company (Weston and Brigham, 2015).
Businesses are required to analyze various revenues and the cost to analyze the future
prediction about the performance and the profitability of the company. Followings are the list
of the expenditure and revenue which must be considered by the business:
Expenditure and revenue list:
Expenditure List: Revenue List:
1. Direct labour
2. Overheads
3. Direct material
4. Machinery cost
5. Vehicle cost
6. Direct cost
7. Indirect cost
8. Withdrawals from the business
9. Payment of liabilities
10. Discount allowed (Lord, 2007)
1. Total sales
2. Revenue
3. Discount received
4. Amount received for the liabilities
(Simmonds, 2000)
Que 1.2)

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Definition:
Fixed and flexible budget:
Fixed budget is the budget which remains the same and constant irrespective of the
other level of the production or activities i.e. budget is prepared according got the standard
level of the production whereas flexible budget is the budget which is prepared differently
according to the different level of output or according to the capacity utilization.
Fixed cost and variable cost;
Fixed cost of an organization depict about the cost which is always constant whether
the production level of the company get rise or get down. Fixed cost of a company could be
rent of the building, salary, depreciation over the machinery etc. Whereas variable cost of an
organization depict about the cost which always get change with the changes into the
production level of the company (Radebaugh, Gray and Black, 2006). Variable cost of a
company could be direct material, direct labour, overheads etc.
Breakeven point;
Break even point is a point where the level of the expense and the level of the revenue
of a company is similar. At the level of the break even point there is no loss and no gain
situation. The breakeven point depict about the sales amount which could be in terms of the
sale units or in terms of the sales revenue. The profitability position of the company expresses
0 profits at the level of the breakeven point (Kaplan, and Atkinson, 2015). The break even
point is the main terms which are analyzed by every manufacturing company to identify the
position of the profits or loss of the company.
Types of budget:
Budget is an estimation of future cost, revenues and various other resources over a
particular period of time which reflects over the reading of the future financial goals and
condition of a company household or government. Following are some of the types of the
budgets:
1. Sales budget
2. Capital budget
3. Production budget

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4. Marketing budget (Code, 2010)
5. Project budget
6. Cash budget
7. Expenditure budget
8. Revenue budget
9. Performance budget
10. Zero based budget (Bromwich and Bhimani, 2005).
Que 1.3)
Double entry account:
Double entry accounting is the fundamental concept which underlies over the present
accounting and bookkeeping technique. This accounting type bases over the financial
transaction and depict that every transaction has double effect and affects two different
accounts. This is used to evaluate the equation of Assets – Liabilities = equity.
Difference between accrual accounting and cash accounting:
Basically the difference among the cash accounting and accrual accounting lies on the
basis of the timing when the expenses and the revenues are recognized. Cash method is
commonly used by the small businesses whereas accrual methods are used by the big firms to
manage the objectives of the business (Cadez and Guilding, 2008).
Que 1.4)
Role of budgets in an organization:
Budgets are prepared by the company to manage the revenue and expenditure level of
the business. These budgeting techniques are used by the companies to identify the level of
the capacity of the comapny and production according to that. Budgets help the company to
get the objective of the organization through identifying the various levels of the revenues
and the cost (Hansen, Mowen and Guan, 2007). Budgeting helps the company in planning,
developing and implementing new strategies to analyze the profitability position of the
company and help the company to get the profitable position.
Que 1.5)

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Monitoring of organizational budget:
The monitoring over the budget could be dome through a company by using the
following ways:
1. Variance analysis
2. ABC costing
3. Analysis over the market
4. Competitive analysis
5. Company’s performance (Hoque, 2002).
Importance of variance analysis:
Variance analysis is a tool to analyze the financial and operational data of the
company which aims to analyze, determine and identify the causes of the variance. Variance
analysis helps the company to analyze the reason through which the difference has been
occurred among the actual amount and budgeted amount (Horngren, 2009). Variance analysis
is a study which assists the company to make control over all the excess cost of the company
and help the company to become more competitive and profitable in the market.
Que 1.6)
Preparing, document budget and forecasting estimates:
The process of preparing, document budget and forecasting estimates are as follows:
1. Budget formation:
At this level, the budget is formulated by the company according to a draft
preparation. Executive’s proposals of budget and supporting budget reports are the
main document which is required at this level.
2. Budget approval:
At this level, the budget is approved by the company through the top level
management. Business law, budget committees and reports of legislative reviews are
the main document which is required at this level (Kaplan and Atkinson, 2015).
3. Budget execution:

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At this level, the budget is executed by the company according to the total
sales and revenues of the company. In year reports, supplementary budgets and the
midyear reports are the main document which is required at this level.
4. Budget oversight:
At this level, the budget reports are audited by the auditors according to the
legislative. It requires the action which has been taken by the managers to make
correct audit findings. In year reports, audit reports and the legislatives are the main
document which is required at this level.
Que 1.7)
Stakeholder’s contribution in negotiating the budgets;
Stakeholders of a company are the main part of the company. Their consent makes an
impact over the budgeting techniques and the reports of the company. The stakeholders must
be included into the negotiation of the budgets due to the fact that the organization is a part of
them and thus they are required to make a decision about the performance puff the company
and they are also required to set the business of the company accordingly (Hoque, 2002).
List of the stakeholders:
1. Shareholders
2. Customers
3. Suppliers
4. Banks
5. Financial institutions
6. Employees etc.
Que 1.8)
Budget performance indicators:
Budget performance indicators of a company are as follows:
1. Sales by product
2. General and administrative expenses

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3. Operating expenses
4. Labour
5. Material
6. Payroll and PRE
7. Sales expenses
8. Marketing expenses
9. Cost of goods sold (Simmonds, 2000)
Role of performance indicators:
Performance indicators are the factors which are analyzed by the companies to
analyze the performance of the company and the position of the company in terms of the
actual and budgeted figures. The performance indicators are required by the company to
achieve the goals and objectives of the company through making the better decision about the
performance and the profitability position.
Que 1.9)
Reasons of cash flow:
Cash flow of a company could be raised through the various revenues and the
expenses such as sales revenues, discount, commission, material cost, labour cost, overheads,
manufacturing cost, assets purchase, sales of assets etc.
Reasons behind cash flow reduction:
The cash flow of the company could be reduced through the following factors of a
company:
1. Low profits
2. Worst situation
3. Too much stock
4. Over investment in capacity
5. Seasonal demand
6. Overtrading

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7. Allow too much credit to the customers
8. Worst market condition
9. Higher competition (Ward, 2012)
The above factors cause the problem of low cash flows. Company is required to make
a control over these problems.
Que 1.10)
Budgeting objectives:
Budgeting is mainly prepared by every company in periods to analyze the
performance and profitability position of the company. In budgeting, the future is predicted.
Budgeting is mainly prepared by the company for the following objectives:
1. Planning:
This helps the company to make better plan for the company so that the objectives
could be achieved easily and in less time.
2. Coordination:
This helps the company to coordinate all the related factors of the company so that the
objectives could be achieved easily and in less time (Ward, 2012).
3. Performance review:
This helps the company to review the performance of the company so that the
objectives could be achieved easily and in less time.
4. Resource allocation:
Budgeting helps the company to re allocate the expense in such a manner that the
objectives could be achieved easily and in less time (Zimmerman and Yahya-Zadeh,
2011).

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References:
Bromwich, M. and Bhimani, A., 2005. Management accounting: Pathways to progress. Cima
publishing.
Cadez, S. and Guilding, C., 2008. An exploratory investigation of an integrated contingency
model of strategic management accounting. Accounting, organizations and society, 33(7),
pp.836-863.
CODE, S.M., 1990. Strategic management accounting.
Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.
Hansen, D., Mowen, M. and Guan, L., 2007. Cost management: accounting and control.
Cengage Learning.
Hoque, Z., 2002. Strategic management accounting. Spiro Press.
Horngren, C.T., 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education
India.
Horngren, C.T., Sundem, G.L., Stratton, W.O., Burgstahler, D. and Schatzberg, J.,
2005. Introduction to management accounting. Upper Saddle River, New Jersey: Prentice
Hall.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Lord, B.R., 2007. Strategic management accounting. Issues in Management Accounting, 3.
Radebaugh, L.H., Gray, S.J. and Black, E.L., 2006. International accounting and
multinational enterprises. New York, NY: John Wiley & Sons.
Simmonds, K., 2000. Strategic management accounting.
Ward, K., 2012. Strategic management accounting. Routledge.
Weaver, S.C., Weston, J.F. and Weaver, S., 2001. Finance and accounting for nonfinancial
managers. New York: McGraw-Hill.
Weston, J.F. and Brigham, E.F., 2015. Managerial finance. Hinsdale, IL: Dryden Press.
Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and
control. Issues in Accounting Education, 26(1), pp.258-259.