Managerial Accounting: Master Budget Analysis of Asperoment Limited

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Managerial Accounting
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Table of Contents
Executive Summary....................................................................................................................... 3
Introduction...................................................................................................................................4
A) MASTER BUDGET:......................................................................................................................5
B) BUDGET PROCESS:.....................................................................................................................8
C) BUDGETED INCOME STATEMENT 2019 OF ASPEROMENT LIMITED........................................12
D) COMPARISON BETWEEN BUDGETED INCOME OF 2019 AND ACTUAL INCOME OF 2018........15
Conclusion................................................................................................................................... 18
References................................................................................................................................... 19
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Executive Summary
Budgets play an essential role in the business enterprise of the modern era. Budgets are
prepared on the basis of managerial accounting after proper analysis if objectives of
enterprises, accurate identification of nature of projects and factors which needs to be
determined for controlling the activities related to budget and in preparation of the budget.
The master budget is the composition of all the lower level of budgets. In ASPEROMENT
LIMITED which is an ASX listed company use master budget to formulate the overall strategies
related to efficient and effective utilization to corporate governance of the enterprise. This
assessment is prepared to provide a basic understanding of the concept used in managerial
accounting in formulating a budget in ASPEROMENT LIMITED.
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Introduction
The report prepared above will deal with the managerial accounting and company selected is
ASX listed company to develop an analysis on the company. The report focuses on the master
budget and it includes all the component of the said topic. There is a detailed analysis of the
budgets as it includes all the component of the sales, forecasting, purchase and income
statements and also an interpretation of the targets for the future. It facilitates about
corrective actions for the future and also at the end of each period comparison is made to know
about the deviations and areas where risks are likely to have occurred. In an organization there
are various approaches for the work and the way activities are carried out and so mainly there
are top down and bottom approaches and which is suitable for the entity depend on the way it
is carried out. There is also analysis about which approach the organization must follow. It is
important the firm growth that ideas of others are incorporated into the direction of the entity
goal and objectives. Managerial and management accounting is considered to be an integral
part of the entity. It helps to make informed decisions so that goals can be achieved and also
helps in identifying, analyzing and communicating about the issues and ways to cater them.
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A) MASTER BUDGET:
A master budget is the combination of different -different divisional budgets prepared by the
different divisions in an enterprise. The master budget is basically prepared with a most
probable objective to achieve certain predefined targets in a particular period. It is a process of
continuous planning which initiates continuous improvement in the organization. In
ASPERMONT LIMITED master budget is prepared after taking financial planning, cash flow
statements, budgeted profit and loss account and balance sheet of the company into account.
Master budget in this ASX Limited Company is prepared for a period of one year (Chand, 2019).
At the end of that particular period, actual results are compared with the budgeted results to
analyse the variances involved and corrective actions are taken to reduce the variances. The
master budget is the sum total of various types of budgets such as financial budget, capital
budget, production budget, cash flow statement etc. The purpose of the master budget is to
predict the future operations in this enterprise. In ASPERMONT LIMITED master budget is
prepared to serve as a management plan which assists in the decision-making process in the
enterprise.
This budget is although prepared for a short term impact of this budget is on future long term
strategies. In most successful enterprises master budget is also used as a budget for planning
activities in expansions strategies. The master budget is used to evaluate the individual
performance level, coordination, and synchronization process among individuals, and integrate
activities performed at various different levels in ASPERMONT LIMITED. To achieve the desired
objectives master budget also serve as a medium of motivation and communication process
among individuals working in the enterprise. Therefore, for encompassing all other projects
master budget serves as the planning document.
In ASPERMONT LIMITED master budget provides a planning tool for improvement, implement
coordination among divisions and measures performances. A master budget is a process of
continuous improvement but is difficult to update and provides motivation to staff and aids
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management in advance planning. The master budget is expensive to prepare as compared to
other budgets and budgets prepared by these budgets are not flexible.
The element of the master budget are as follows:
 Operational budgets: In a public organization a plan is developed for planning the
expenditures that are required to maintain the functioning of business value operational
budget in a master budget includes sales budget, production budget, selling and
administrative expenses budget, overhead budget, direct material budget etc. In
ASPERMONT LIMITED operational budget includes direct labour cost & material costs
needed to run the business and used in the manufacturing process (Fowles, 2018).
 Capital budget: To evaluate the investment planning scenarios and appraisal
performance capital budgets are formulated. Capital budgets are used to acknowledge
the capital receipts and capital payments for a particular period in an enterprise. In
ASPERMONT LIMITED capital budgets are prepared to expand the future cash inflows
and controlling the future cash outflows. To forecast the cash related activities in an
enterprise capital budget are used.
 Production budget: Number of units manufactured in a particular period in an
enterprise is determined by the production budget. Production budget in ASPERMONT
LIMITED is used to forecast future economic activities in a planning environment and to
maintain an appropriate combination of the perfect mixture of different products in a
manufacturing process to formulate a product according to specified requirements.to
meet the sales targets and specified requirements in a manufacturing department
production budget is formed.
 Financial budget: Prediction of the budgeting process for both short term and long term
expenses is anticipated with the help of a financial budget. To achieve the long term
goals in ASPERMONT LIMITED financial budgets are prepared. To manage cash flows in
an efficient manner financial budgets are used. The financial budget includes cash
budget, budgeted financial statements, and budgeted balance sheet, schedule of
anticipated cash revenues from the customers and schedule of anticipated cash
outflows to suppliers (Chand, 2019).
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 Sales budget: To evaluate the actual earning from actual sales, the sales budget is
prepared and in that budget budgeted sales and actual sales are compared to analyse
the desired results. No enterprise can track its performance targets without formulating
sales budget. In the development of sales budget management of ASPERMONT LIMITED
analyses various aspects related to economic conditions, completion scenarios
prevailing in the market, selling expenses and production capacity. Sales budget, in
other words, can be said that it is the expectation of management regarding its revenue
collected from sales.
 Expenditure budget: expenditure budget is the portion of the company’s master budget
which depicts the cost required to run a business enterprise. Expenditure budget is used
in the allocation of different expenditures to a particular project. In ASPEROMENT
LIMITED expenditure budget depicts the variations in expenditure from year to year and
the reasons for such variations are analysed by estimates made by management.
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B) BUDGET PROCESS:
The budget process is a process in which budgets are formulated and approved by an authority
ex: government, management team etc. budgets in any enterprise are prepared by the
department head that is responsible for preparation of budgets based on the estimated
practices formulated by the management team. In ASPEROMENT LIMITED when a large
financial planning process is developed by internal management then this practice is also
known as budget formulation practice.
Budget process fulfils various objectives in a particular enterprise such as defining objectives
and formulating plans based on information obtained from these goals, forming expectations
and measure whether target objectives as per expectations are achieved or not, creating the
new budgets after redefining objectives, monitoring outcomes and analysing variances, develop
measure to reduce variances, reconciling goals and data. A budget is prepared after taking
expenses and revenue of a particular period into account. Budgets are prepared to provide a
review about the financial condition of an enterprise.
Budgets formed in a budgeting process should indicate long-term future and immediate goals.
In APEROMENT LIMITED an instructive approach should be used by managers while formulating
a budget. Realistic expectations prepared on the basis of past experiences and circumstances in
a budget process should be reconciled by the actual results. Budgets prepared by managers
must separate financial and personal aspects of managers while formulating budgets. To handle
the adverse situations budgets needs to be formulated according to the conservative scenarios.
Budgets in a budget process are formed usually for weeks, months and annually.
Budgets once prepared must be reviewed regularly on a timely basis to detect mistakes and
anticipate changes which needed to be implemented. Goals, behaviours, and limitations
existing in the environment can only be reviewed with the help of budgets. Reconciliation of
budgets is essential for the success of the budgets in objectives, goals and behaviour scenarios.
In the budgeting process of ASPEROMENT LIMITED the following two approaches are used in
formulating budgets:
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 Top-down budget approach
 Bottom down budget approach
Discussion about the above two approaches used in ASPEROMENT LIMITED is as follows:
1. Top-down budget approach: In top-down budgeting approach, senior management is
responsible for the formulation of budgets. Top-down budget approach follows a
centralized approach. Once the budgets are formulated by the top management the next
task is to allocate the amount of expenditure to different departments and describing the
ways in which such expenditures should be spends (Johnson, 2017). Top-down approach is
tactical and limited area coverage approach which provides a lower impact to the overall
organization. Advantages of using top-down approach are as follows:
 Focused use of resources
 Complete phases for management application
 Identity management approach
 Centralized management practices.
There are certain disadvantages of top-down budget approach and some of them are as
follows:
 Costlier as compared to bottom-up approach in terms of implementation
 Limited coverage area
 The benefit of budgets will not be realized by the overall enterprise
 Development of custom adapters at an early stage is necessary.
2. Bottom down Budget Approach: This is the approach where the budgets are prepared by the
lower level managers and after preparation process approval of senior management is taken.
Bottom-up budget approach follows a decentralized approach. This approach is also known as
the participative budgeting because participation of managers is required at all levels. A
bottom down approach requires high deployment coverage in early phases. This approach
provides higher visibility to the organizational changes and these visible changes put a higher
impact on the entire organizational culture (Perry and Tucker, 2018).
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Advantages of using bottom down budget approach are as follows:
 Realization of benefits in the earlier phases
 Identity management skills
 Replace the manual processes by automating the processes
 For a large number of user’s management implemented passwords.
Disadvantages of using bottom down budget approach are as follows:
 Changes in the organizational culture when needed
 Require greater cooperation
 The strategy is driven by infrastructure
 Higher impact than earlier due to immediate changes in repository owners (Johnson,
2017).
SUITABILITY ANALYSIS: Based on the annual report interpretation of the ASPEROMENT
LIMITED regarding which approach among the above two approaches to be followed:
From the above description, it is clear that both approaches have their own advantages and
disadvantages. On the one hand top-down budget approach follows centralized approach
which means the responsibility of formulating the budget rests with the senior management
and due to this participation of lower level managers is limited in this process and in bottom-up
budget approach participation rate of lower level managers is high as compared top-up
approach and due to this changes motivation scenario is effectively implemented where
bottom-up approach is used in the budget preparation (Avekamp, 2019).
In top-down approach resource allocation is also difficult among the participants due to the less
participating rate of the staff. but bottom down approach requires higher cooperation skills
then top up approach and realization of benefits in the earlier stage is a basic practice in
bottom-up approach but not so in case of top-up approach. In top up bottom approach, a
practice to identify management skills is followed and not so in case of bottom-up approach. If
ASPEROEMNT LIMITED wants to take benefits at an initial level with an automation capability,
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then bottom-up budget approach must be used and if the company wants to cover the limited
physical area with a centralized approach in budget formulation then top up budget approach
must be used.
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C) BUDGETED INCOME STATEMENT 2019 OF ASPEROMENT LIMITED
BUDGETED INCOME STATEMENT 2019 OF ASPEROMENT LIMITED
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