Management Budget Forecast Assessment: Financial Risk and Ethics

This report presents a comprehensive management budget forecast assessment, encompassing various financial aspects. It begins with a cash budget analysis for Maan Snack Bar, examining cash flow trends and their implications, including potential consequences of persistent deficits and strategies to address them. The report then delves into annual budgeted expenses, sales budgets, and financial statements such as income statements and balance sheets. It also explores financial risk and mitigation strategies, specifically for the BHP Billiton Group, addressing interest rate, environmental compliance, and commodity price risks. Furthermore, the report emphasizes the importance of ethics and codes of practice in budget forecasting, highlighting the benefits of ethical considerations. Key Performing Indicators (KPIs) and forecasting trends, including a graphical representation of a company's net profits, are also discussed. The report concludes by underscoring the significance of feasibility studies to compare projections with market growth and development.

MANAGEMENT BUDGET FORECAST
ASSESSMENTs ACTIVITY 2

TABLE OF CONTENTS
Task 2.1......................................................................................................................................4
Cash Budget...........................................................................................................................4
Analysis of facts derived from Cash Budget..........................................................................5
Action Plan for upcoming year..............................................................................................6
Task 2.2......................................................................................................................................7
Annual Budgeted Expense for the year 2016.........................................................................7
Expenditure milestones..........................................................................................................9
Type of verifiable data and sources that can provide information to prepare budget and
forecast...................................................................................................................................9
Task 2.3......................................................................................................................................9
Sales Budget for August.........................................................................................................9
Assumptions and parameters for accuracy, relevance and compliance...............................10
Task 2.4....................................................................................................................................11
Budgeted Income Statements...............................................................................................11
Bank Account.......................................................................................................................12
Budgeted Balance Sheet.......................................................................................................12
Task 2.5....................................................................................................................................14
Financial risk and its control for BHP Billiton Group........................................................14
Task 2.6....................................................................................................................................14
Ethics and code of practice related to budget forecast.........................................................14
Importance of ethics.............................................................................................................15
Task 2.7....................................................................................................................................16
Forecasting trends- example................................................................................................16
Graphical representation of XYZ Pty Ltd’ Net profits of 4 years........................................17
XYZ Pty Ltd’s Performance................................................................................................18

Task 2.8....................................................................................................................................18
Key Performing Indicators / Ratios......................................................................................18
Other Key Performing Indicators helpful for forecasting estimates....................................19
Importance of feasibility study to compare projections with market growth and
development.........................................................................................................................21
References................................................................................................................................23

Task 2.1
Cash Budget
Maan Snack Bar
Cash Budget for the month of July, August and September
July
( in $ )
August
( in $ )
September
( in $ )
Opening Bank Balance 10500 1430.6 -6124.978
Cash sales 11000 11500 12000
Receipts 880 920 960
Cash receipts from Account Receivables
Other – Merchandise 300
Total Receipts 11880 12420 13260
Cash available 22380 13850.6 7135.022
Payments 2970 3105 3240
Payment to creditors 2909.4 1800.578 927.55286
Salaries and wages 9335 9335 9335
Interest Payment 1177 1177 1177

Operating expense 1223 1223 1322
Loan Repayment 3335 3335 3335
Total Payments 20949.4 19975.578 19336.55286
Surplus / Deficit Closing Balance 1430.6 -6124.978 -12201.53086
Analysis of facts derived from Cash Budget
(a) Cash Position at the end of each month
Maan Snack Baar has a surplus of $ 1430.6 at the end of July and deficit of $ 6124.978 for
the month of August and deficit of $ 12201.53 for the month of September. This shows a
declining trend in the cash position of the Maan Snack Bar.
(b) Consequences of persistent cash position of the Maan Snack Bar
According to Balance and et al. (2015), negative cash balance denotes increasing
short-term expenditures or increase in a long-term profit making capacity. If the cash budget
of the Maan Snack Bar continues to deplete, it is an alarming situation where the company
will have to rethink its financing options, its sales tactics, its product quality and statistics,
etc, otherwise it may lead to liquidation of company’s assets for generation of liquidity as
well as funds for continuance of business.
(c) Objective of Preparing Organisational Budgets
Organisational budgets help business provide a structure to follow a certain path. As
per Adam and et al. (2016), it helps organisations to predict their cash flows, allocation of
business resources, estimation of financial outcome of any strategic decision to be executed,
and it is taken as a measure of judging sales performance, managing operational cost,
reassigning surplus and managing funds to meet deficits. Therefore there is a straight

relationship among organizational budgeting and its attainment of objectives. It helps the
business to keep track of its strategic decision and planning so as to enhance its revenues,
improve its profitability, reduce cost and overall performance.
(d) Stakeholders and consulting methods to promote understanding, goodwill and
ongoing cooperation
Business owners, decision makers, suppliers, customers and employees are the
primary stakeholders who shall be consulted for the purpose of augmenting understanding
and cooperation and increasing the goodwill value. There are many consulting methodologies
to promote understanding, goodwill and ongoing cooperation which can be adopted.
According to the words of Pinheiro, (2014), few of such methodologies include focused
workshops, brainstorming sessions and social interaction activities. This brings these
stakeholders together to better understanding and enhanced cooperation between each other,
which eventually helps build goodwill of the business.
Action Plan for upcoming year
 Increase in cash sales: As per the words of Cox (2014), cash sales can be
increased by bulk sales customers by selling more quantities even for lesser margins,
also greater promotional activities may lead to broader network of clients, and making
attractive offers to retail clients may lead to generation of higher cash inflows. Higher
cash flows, better credit periods, higher net profits are some evidence that supports
future financial improvements.
 Reduction in cash payments: Cash payments can be reduced by giving new
suppliers an opportunity, who can give longer credit periods or discounts on cash
payments, chose last dates for huge payment settlements, reduced overstocking, late
invoices from suppliers, better negotiations, improving tax compliances, etc.
 Saving in overall labour cost: Overall labour costs can be saved by cross
training new employees, investing in technology and machinery with higher
production capacity, outsourcing certain activities, best employee retention, regular
reviews, Commission based payroll, reduced perquisites, etc.
 Improvement in operating expenditure: Operating expenses can be improved
or reduced through controlling the wastage and providing an order of products by
assessing the sales of the previous year. The same will result into ordering the product

which is in demand and reduce the chances of having dead stock. Further appropriate
budgets such as marketing budget etc. should be prepared so that we know the extent
to which we have to spent on same.
Task 2.2
Annual Budgeted Expense for the year 2016
Maan Snack Bar
Annual Expense Budget for coming the year 2016
Particulars Monthly
( in $ )
Budgeted
Annual
( in $ )
Expected Fee 450000
Marketing Expense
Fixed Advertising 7800
Variable Advertising 18000
Total Marketing Expense 25800
Financial Expense
Fixed Interest paid 2400 28800
Bank charges 300 3600

Total Financial Expense 32400
Administration Expense
Accounting Staff Cost 9000 108000
Stationery 380 4560
Depreciation of office
equipment 9500
Depreciation of motor vehicle 14400
Rent 3000 36000
Travelling Expense 30000
Work Cover ( 108000 x 4 % ) 4320
Superannuation ( 108000 x 9.5
% ) 10260
Telecommunication 2000 24000
Total Administration Expense 241040
Total Annual Expenses or Cost 299240
Profit / ( Loss ) 150760

Expenditure milestones
In the current situation expenditure milestones are expected to be set up based on
certain characteristics like specific - in terms of figures so as to measure at the year-end, there
should be deadlines so as to mark it timeliness, progressive nature and doable and
significance which does not portray a bigger picture and encourage procrastination.
According to the views of Klychova and et al., (2014), generally, expenditure milestones are
set up based on past experiences, practices, industry standards and adopted practices in past.
Therefore it is assumed that the assumptions and practices remain constant without any
change in the coming year 2016.
Type of verifiable data and sources that can provide information to prepare budget and
forecast
Type of verifiable data and sources for budget preparation and forecast are statements
of financial institutions, vouchers, receipts and invoices, documents of purchase orders and
from suppliers, statutory returns and taxation returns. As per the views of Brigham and et al.,
(2013), other sources like industry norms and standards, competitor’s statistics, market
scenario and economic trends also help budget and forecast.
Task 2.3
Sales Budget for August
Sales Budget of Streama of August
Particulars Apple Orange Total
Sales for July 2000 8000 10000
Selling Price in July ( in $ ) 20 40

Sales Revenue for July ( in $ ) 40000 320000 360000
Sales for August 1920 9280 11200
Selling Price in August ( in $ ) 22 37.6
Sales Revenue for August ( in $ ) 42240 348928 391168
Sales Commission paid ( in % ) 2 4
Sales Commission Paid in August (in
$ )
844.8 13957.12
Net Sales Revenue of August
( Sales Revenue - Sales
Commission )
41395.2 334970.88 376366.08
Assumptions and parameters for accuracy, relevance and compliance
According to the opinion of Chen and et.al, (2013), certain assumptions and
parameters that help to get more accuracy and compliance with regard to budgeting and
forecast are the previous and existing cash as well as business returns from the commercial
activities; behaviour of the existing and new competitors helps to plan, budget, forecast and

execute strategic decisions; the expenditure limits marked by the business helps keep track of
cash flows due any changes; statistics of market growth and market share helps decide best
options; levels of productivity of business outputs and the regulatory as well as governmental
stability.
Task 2.4
Budgeted Income Statements
Particulars Amount ( in $ )
Sales 110000
Cost of Goods Sold 25000
Gross Profit 85000
Selling and Admin Expenditure ** 14300
Income from Operations 70700
Interest -
Income Tax expense 2000
Net Income 68700
** Selling and Admin Expenditure:
Advertising 5500 + Courier 1100 + Office Supplies 550 + Insurance 1650 + Rent 5500 = $
14300

Bank Account
Particulars Amount ( in $ )
Opening Bank Balance 20000
Add:
Estimated Sales Revenue 110000
130000
Less:
Estimated Wages (20000 + 5000 ) 25000
Estimated Selling and Admin expenses 14300
Estimated PAYG paid 2000
41300
Estimated Closing Bank Balance 88700
Budgeted Balance Sheet
Budgeted Balance Sheet as on year ending 30th June