Financial Analysis: Budgeting Techniques for Pine Ltd. - Report

This report provides a comprehensive analysis of budgeting techniques applicable to Pine Ltd, a furniture manufacturing and sales company. It defines budgeting and explores various methods, including traditional, incremental, zero-based, and activity-based budgeting (ABB). The report highlights the advantages and disadvantages of zero-based budgeting and ABB, recommending ABB for Pine Ltd due to its efficiency in cost control and activity optimization. The report details the process of preparing a cash budget, including determining cash balances, forecasting sales, managing cash receipts and disbursements, and measuring cash balances. It also discusses overriding factors that influence cash budgets and emphasizes their importance in relation to other management accounting budgets such as sales, production, and purchases. The report concludes that effective budgeting and forecasting are crucial for strong internal operations and overall business success, providing insights for Pine Ltd's financial planning and decision-making.

Management Accounting

Table of Contents
INTRODUCTION......................................................................................................................3
a. Defining and explaining budgeting....................................................................................3
b. Identifying different types of budgeting methods which are available to Pine Ltd...........3
c. Stating the advantages and disadvantages of different types of budgeting methods.........4
D) Explaining process of preparing cash budget which illustration of data set of Pine
Limited...................................................................................................................................6
E) Overriding factors and importance of cash budgets in context with other budgets..........7
CONCLUSIONS........................................................................................................................8
REFERENCES...........................................................................................................................9

INTRODUCTION
In the resent times, business organization makes high level of focus on adopting
management accounting tools and techniques. This in turn provides assistance to business
unit in exerting control on cost and thereby maximizes profitability aspects. Budgeting and
budgetary control tools are highly significant which gives indication to the firm about areas
which demand for control. The present report is based on Pine Ltd which is one of the leading
companies that manufacture and sell furniture to the customers. In this, report will shed light
on the budgeting techniques which firm should employ for the purpose of controlling. It also
depicts the manner in which cash budgets are prepared by Pine Ltd.
a. Defining and explaining budgeting
Budgeting: It may be served as a financial plan that that reflects the amount which
will be spent by the firm during the specified time frame. Besides this, budget also indicates
the sources from which revenue or income will be generated by the firm. Hence, such
spending plan ensures business unit that it has enough funds for performing business
activities and functions. Hence, with the motive to avoid the situation of debt Pine Ltd lays
high level of emphasis on undertaking budgeting technique (Menifield, C2017). Thus, for
making appropriate forecast of financial requirements or need Pine Ltd prepare budgets.
Along with this, such technique also enables firm to take strategic action or measure by
making comparison of actual performance with budgeted aspects. Further, budgeting also
facilitates co-ordination among various departments and thereby ensures optimum use of
finance.
b. Identifying different types of budgeting methods which are available to Pine Ltd
Budgeting methods can be distinguished into two types such as incremental and
modern that business employs. Hence, by undertaking below mentioned methods Pine Ltd
can prepare budget such as:
Traditional budgeting
Incremental: Under such budgeting technique, business unit prepares financial
framework by considering past years budget. On the basis of such aspect, by adding some
percentage in both income and expenses firm can develop budget.
Modern budgeting method:

 Zero base budgeting: As the name implies, in such budgeting technique manager
starts with zero base and lays focus on re-evaluating every item of cash flow
statement. Thus, after justifying each source of income or expense company prepares
budget.
 Activity based budgeting: ABB is the most an effectual technique in which amount is
allocated by the manager on the basis of resources which are used in manufacturing
activities (Ohemeng, 2016).
Further, types of budget which Pine Ltd prepares with the motive to make optimum
use of financial resources are enumerated below:
 Master budget: It includes all the lower level budgets and thereby presents clear view
or picture of financial health as well as performance (5 Types of Budgets for
Businesses, 2017). In other words, it can be presented that master budget combines all
the factors such as sales, operating expense, assets and income streams.
 Cash flow budget: Such framework includes projected income as we as expenses
pertaining to specific time frame. This budget considers accounts payable as well as
receivable and thereby helps firm in identifying that it has enough cash or not.
 Operating budget: Under this category, business unit prepares several budgets such as
sales, production, material, labour, overhead, manufacturing and administrative.
Operating budgets are usually prepared by company on weekly, monthly or yearly
basis.
 Financial budget: This budgeting framework entails company’s strategy in relation to
managing assets, cash flows, income as well as expenditures.
 Static budget: It recognized as framework that does not change as per the factors like
revenue or sales volume. Thus, static budget incorporates estimated values in relation
to input and output.
Hence, by undertaking or developing above depicted budgets firm can ensure effective
allocation and use of financial resources.
c. Stating the advantages and disadvantages of different types of budgeting methods
Zero base budgeting
Advantages:

This budgeting technique helps business unit in assessing opportunities and cost effective
ways of performing activities. By doing this, firm can identify and thereby remove
unproductive activities (Understanding Zero based budgeting, 2017).
 Such technique assists in indulging effective co-ordination and communication within
the firm. Company also involves its personnel in decision making while preparing
budget as per ZBB and thereby enhances their motivational aspect.
Disadvantages:
 For preparing budget as per ZBB technique business unit requires highly skilled and
talented personnel. In the absence of same, firm would not become able to develop
suitable framework.
 Further, in ZBB, large number of personnel is required which in turn closely
influences productivity aspect.
Activity based budgeting
Advantages:
 ABB eliminates bottlenecks as well as unnecessary activities and thereby helps firm
in gaining competitive edge over others.
 It also assists firm in developing and maintaining effective relationship with
customers. As it removes unproductive activities and thereby helps in making control
on cost significantly. In this way, by controlling cost, firm can provide customers with
products or services at suitable price level.
Disadvantages:
 ABB is highly time consuming and complex process which in turn affects its
significance adversely.
 High and in-depth understanding is required for preparing budget as per ABB. On the
basis of such aspect, in the lack of having skilled personnel firm would not become
able to competent framework as per ABB (What Are the Disadvantages of Activity
Based Budgeting?, 2017).
By doing assessment, it has been identified that Pine Ltd should lay emphasis on
undertaking ABB technique which is highly significant over others. Moreover, such

technique helps in enhancing the efficiency of activities of organization to a great extent.
In this, overheads and other expenses are allocated on the basis of cost driver and helps in
preparing suitable framework. Thus, it assists in avoiding irrelevant activities and
develops suitable framework. By considering all the above aspects and benefits, it can be
stated that by using ABB is highly effective technique that assists in exerting control on
over-utilization of funds and thereby contributes in the attainment of organizational goals.
D) Explaining process of preparing cash budget which illustration of data set of Pine Limited
In accordance with preparing a cash budget as to maintain the cash inflows or
outflows of the organization there will be various steps in the process of making an adequate
budget for such business operations. Hence, such process of cash flow budget is as follows:
Determining an adequate cash balance: Every moth the cash flow begins with the
previous months cash balance which was left after making payments of all the dividend or
shareholders of company. Thus, there is need to make the adequate assumption that how
much money or cash will be generated by organization in coming time. Hence, it can be said
that with the help of such determination the cash was being presented to the managers at Pine
Limited and they will be beneficial in making further business operations.
Forecasting sales: There will be need of making the forecasted balance of sales
which aims at the numbers of sales will be generated by the firm in coming month. Hence,
with the help of such assumptions the required amount fro selling manufacturing will be
decided by the accounting professionals. Further, it can be analyzed by the managers in terms
of focusing the current level of sales and demand in the market.
Cash receipts: There is need to analyze the cash receipts to be gained by firm in
context with sales. Hence it can be said that such receipts will be revenue or profit gathered
by the firm. However, apart from cash received by the making sales there will be various
ways on which the organization has adequate cash receipts such as payments received from
debtors. Thus, mainly the receipts gains by the firm on the basis of sales generated by them
during the period (Ohemeng, 2016). Moreover, it can be said that Pine limited will be
beneficial if they analyze the adequate amount fund to be received by them in the coming
time than there will be deficit in the cash budgets and they will never get short of such cash
requirements.

Cash disbursement: These are mainly the cash which are being payable or the fixed
amount of expenses which are not the part of the operational activities but have to be made
by the firm all comes under the disbursement. Hence, there can be fixed or direct amount of
payment fro the telephone bill expenses, rent expenses and other relevant payments.
Measuring the cash balance at every end of month: it is to be estimated by the
professionals of the organization after making reduction of all the payments and adding all
the receipts for the month there will be deficit or surplus amount of balance remained in the
end of the month. Hence such amount must be carried forward as the opening cash balance of
the month. Thus, Pine Limited need to measure such balances.
However, here are the illustrations of the cash budgets fro the Pine Limited such as:
E) Overriding factors and importance of cash budgets in context with other budgets
By considering the overriding factors which can be known as the deficit balance in the
budgets forecasted by the organization. Hence, this can be due to excessive amount of
payments or expenses incurred during such period as well as increase in the production costs.

However it can be due to reduction in the sales of the products or services in the market as
per not having adequate demands.
Importance of cash budget:
In terms of various management accounting budgets such as sales, production,
purchase as well as activity based budgeting which in turn based on the requirements of
adequate amount of funds or capital to make the fruitful operational performances. Hence,
there will be some importance of cash budget which will be fruitful for Pine Limited in
making adequate forecast such as:
Assumptions: By analyzing other budgets the chances of having the authenticated
results will be reduced and there will be adequate information which was being facilitate to
the managers in regards will with increasing the sales or reducing it. Hence, Pine Limited will
be beneficial if they make the adequate assumption based on the requirements of the funds
for the various pieces of work in the organization. However, the adequate information will be
beneficial for the managers in having the proper knowledge relevant with the demands in the
market fro the products and services as well as the cost over production to be increased or
decreased.
Evaluating results: By presenting the report of budgets the most authenticated
outcomes are presenting cash flow budgets. Hence, it examines the overall requirements of
cash in the tasks as well as the operational the available sources for such requirements. With
the helps of adequate outcome the managerial professional will be able to make the fruitful
decision which in turn helps Pine Limited in making the adequate information (5 Types of
Budgets for Businesses, 2017).
Adjusting expectations: after having the adequate information’s which are relevant
with the requirements of funds and capital for such business operational activities the
managers or accountants of Pine Limited will be able to make the adequate analysis of future
growth as well as can be able to make the decision which are relevant with the investments.
CONCLUSIONS
On the basis of above mentioned report it can be said that firm’s internal operations
will be strong and adequate as if there will be fruitful budgets and forecasting were made
over very piece of work. Hence, there has been discussion based on Pine Limited and the

managers of the company were suggested various ways on which they can be able generate a
fruitful business functions. Further the report has present the cash budgets and various
budgets in context with providing the adequate information about the internal strength of the
business.
REFERENCES
Menifield, C. E., 2017. The basics of public budgeting and financial management: A
handbook for academics and practitioners. Rowman & Littlefield.
Ohemeng, F. L. K., 2016. 5 Reforming the Ghanaian Budget System from Activity-based
Budgeting to Performance-based Budgeting: Eureka, or another Reform Illusion?. Public
Budgeting in African Nations: Fiscal Analysis in Development Management. p.114.
Understanding Zero based budgeting. 2017. [Online]. Available through:
<https://accountlearning.com/zero-based-budgeting-stages-advantages-disadvantages/>.
5 Types of Budgets for Businesses. 2017. [Online]. Available through:
<https://www.fool.com/knowledge-center/5-types-of-budgets-for-businesses.aspx>.
What Are the Disadvantages of Activity Based Budgeting?. 2017.
[Online]. Available through: <http://www.finweb.com/financial-planning/what-are-the-
disadvantages-of-activity-based-budgeting.html#axzz4yVs4Skr2>.