HI5017 Managerial Accounting: Asaleo Care Budget Report Analysis

This report delves into the realm of managerial accounting, focusing on budget development and analysis within the context of Asaleo Care. It begins with an executive summary highlighting the report's objective: to create a company budget. The report explores the master budget, encompassing various elements like production, sales, and direct labor budgets. It then examines two primary budgeting approaches: top-down and bottom-up. The report analyzes and compares these approaches, ultimately concluding that the bottom-up approach is more suitable for the company. The report emphasizes the importance of reducing expenses and increasing revenue to achieve profitability, which is crucial for the company's market growth. The report includes an introduction to managerial accounting, defines the company Asaleo Care, and provides a detailed comparison of the top-down and bottom-up approaches. The report also includes a comparison of the two approaches, highlighting their respective advantages and disadvantages. The report concludes with a discussion on the importance of budget preparation for effective decision-making and achieving organizational goals. Finally, the report provides references for further study.

Managerial Accounting

MANAGERIAL ACCOUNTING 1
Executive Summary
The main aim of this report is to develop the budget of the company. In this report, Asaleo
Care has been taken into consideration to develop the budget of the company. Master Budget
is the aggregation of all lower level of budget of different departments. Production, selling,
direct labour budget and many other budgets are the element of the master budget. Top and
Bottom down approaches are used to develop the budget of the company. As per the analysis,
Bottom-down approach is more suitable for the company. As per the evaluation of budget,
the company faced the loss in the previous year. The company has to reduce the expenses and
increase the revenue in order to earn the profit. The company will grow in the market as per
increasing the profit.

MANAGERIAL ACCOUNTING 2
Contents
Introduction...........................................................................................................................................3
About the company................................................................................................................................3
Master Budget.......................................................................................................................................4
Elements of Master Budget...................................................................................................................4
Top-down approach...............................................................................................................................6
Bottom-up approach..............................................................................................................................7
Comparison of Top-down approach and Bottom-up approach..............................................................8
Comparison.........................................................................................................................................12
Conclusion...........................................................................................................................................13
References...........................................................................................................................................14

MANAGERIAL ACCOUNTING 3
Introduction
Managerial Accounting is the provision of financial and non-financial information which is
beneficial for the manager to take the better decisions. This provision is beneficial in making
decision, develops a plan and controls the function to assist the management in the context of
implementation of an organisation strategy (Shields, 2015). Manager has to develop a budget
in order to organise an events in the company or to adopt the strategies. It is a fact that the
companies develop the budget before implementing the plan in the organisation in order to
operate effectively in the market (Karmakar, 2018). This report is based on the budget of the
company. Asaleo Care Limited has been taken into consideration in order to develop the
income statement budget of the company.
In the beginning of the report, the master budget of the company will be discussed. After that
the discussion is made on the two approaches of the budget such as top-down and bottom-up
approach. In the end of the report, the income statement budget is prepared with the income
statement of the company.
About the company
Asaleo Care is a leading company in personal care and hygiene products. The company
manufacture, distribute, sell and marketing the goods. The company manufacture the
consumer products such as Feminine Care, Incontinence Care, Baby Care and Professional
Hygiene product categories. Products of the company used in daily life of Australia, New
Zealand, Fiji and in the countries of Pacific. The main purpose of the company is to
manufacture hygiene, health and wellbeing product of everyday life. The company earned
the profit of $57.2 million in the year of 2017 (Asaleo Care, 2018).

MANAGERIAL ACCOUNTING 4
Master Budget
Master Budget is a collection of lower level budget of the company’s different departments.
This budget is made by the head of department and the top management of the company. It
includes the financial statements, cash forecast and a financing plan. The master budget of the
company is presented in either a monthly and quarterly format and sometimes it includes the
company entire year (Accounting Tools, 2018a). Explanatory text is included in the master
budget which reflects the strategic directions of the company. The master budget states the
strategies of the company which helps to achieve the specific goal. The management actions
of the company are needed to achieve the budget. The discussion of headcount changes is
also made with the presentation of master budget that are required to achieve the budget of
the company. Master Budget is the master planning tool which is used by the company to
direct the activities of the organisation as well as to analyse the performance of the various
responsibility centres. It is the responsibility of the senior management team to review the
master budget and incorporate the modifications until the appropriate budget which provide
the specific result. The company develops the low level of budget in order to develop the
master budget of the company. The company used the participative budgeting in order to
reach at the final stage of budgeting (Costello, Petacchi, and Weber, 2016). The master
budget of the company includes the direct labour budget, direct materials budget, production
budget, sales budget, selling and administrative budget and many others. After the master
budget is analysed, the accounting staff of the organisation implement the budget in order to
develop the financial reports of the company and the actual results.
Elements of Master Budget
Sales Budget

MANAGERIAL ACCOUNTING 5
The estimation of units in the sales as well as the estimation of earning from the sales is
called the sales budget. It is the first budget which is used by the company while developing
the master budget. Economic conditions, production capacity, market competition and selling
expenses have to be analysed by the management while developing the sales budget. All
these factors play an important role in the future performance of the company. The sales
budget states the estimation of the sale and the revenue collected from these sales. The sale
budget not developed to achieve the goals of the company but also provide a framework for
the company wide budget. Every budget of the company is based on the sales budget that is
why sales budget is the initial point for the master budget. It is necessary for the company to
estimate the number of products for selling and revenue which generate from selling
(Dummies, 2018).
Selling and Administrative budget
Selling and Administrative budget of the company is including the all budget of non-
manufacturing departments such as sales, marketing, accounting, facilities and engineering
departments. This budget of the company states the size of production budget and the
considerable attention. This budget is split into the segments such as sale and marketing
budget and administration budget. The information of this budget is not attained from any
other budget. Manager use the different tool to analyse the activity of the company in the
terms of cost and expenditure. The company uses the activity based costing analysis to
evaluate the cost of the activities that which activity contain more cost and which is less as
per the terms of expenditure. It is necessary for the company to estimate the activity level of
cost while developing the administrative budget.
Production Budget

MANAGERIAL ACCOUNTING 6
The financial plan that contains the number of units which is manufactured by the company is
called the production budget. It is a report in which the estimation has been done in order to
evaluate the number of units that a plant will produce in a period. It is necessary for the
manager to prepare the production budget in order to estimate the units which will need in
future period. The estimation of production units is based on the number of sale of the
company. The company also use this budget as a planning tool for future production
processes, and scheduling. Production manager of the company develop the production
budget in order to estimate the future demands and to ensure the workflow of production time
to time. The budget always states the estimated units of sales and the units of production
during the period. The sales budget and manufacturing budget of the company are used to
determine the revenue and expenses during the period.
Direct Labour Budget
The report which states the total direct labour cost and labour hours needed for the production
is called direct labour Budget (Accounting Tools, 2018b). The budget is prepared to estimate
the labour force requirement during the period. Direct Labour Budget is one of the elements
of master budget. This budget is prepared after the production budget of the company
because the estimation of production unit helps to estimate the labour requirement to produce
the product. The estimation of direct labour budget is depends on the direct labour budget of
the company. The calculation of direct labour budget includes the direct labour hours, cost
per direct labour hours and many others. This budget also helps to estimate the hiring needs
during the needs as per the production budget (Accounting Explained, 2018).
Top-down approach
It is a procedure in which the top management of the company develop the budget report. A
top-down approach is essential for the company to achieve the objective of the company. The

MANAGERIAL ACCOUNTING 7
senior management of the company develops the master budget on the basis of expense s pf
the different departments. This budget is developed for the entire organisation and for the all
department of function. Once the budget of the company is prepared by the senior
management, the amount is allocated to the individual departments for the smooth
functioning. It is the responsibility of those departments to take care about the budget and
make the expense as per the created budget. This budget is prepared by the top management
of the company, it does not include the lower level departments to develop the appropriate the
budget. The lower level department is not included in this budget which helps the company to
save the time. It can be said that the top-down approach is a time saving approach. Lower
level people concentrate their own work and implement the budget appropriately as per the
created budget which helps to achieve the objective (Carey, Knowles, and Towers-Clark,
2017).
Bottom-up approach
It is a procedure in which the lower level of departments develops the budget as per their
expenses. The process starts from the managers of individual departments and finish at the
approval of senior management. The lower level of department creates the budget report and
then sends it to the senior management for the approval. The budget is approved or either sent
back for the revision and modification. After modifications of the budget, the master budget
of the company is prepared from the various departments budget in order to meet the
objective of the company. In this process, the senior management of the company take the
decision on the basis of the lower level department budget and opinions. This approach is
appropriate to develop the budget because the manager of every department shares the
opinions and suggestions. The each department of the company creates their own budget due
to which the understanding is increases between the departments and the lower level of

MANAGERIAL ACCOUNTING 8
managers because they are directly involved in the process (Weygandt, Kimmel, and Kieso,
2015).
These two approaches are adopted by the companies in order to develop the budget of the
year. The budget of the company is prepared for every department of the company as per the
expenses. The nature of approaches is similar but the procedure is different which is analysed
by comparing these approaches.
Comparison of Top-down approach and Bottom-up approach
(Source: Smartsheet, 2018)
Basis of difference Top-down Approaches Bottom-down Approaches
Meaning It is a procedure in which the
budget is prepared by senior
management
It is a procedure in which the
budget is prepared by the
different departments of the
company
Presence Only senior management is
involved
Senior management and the
manager of the other

MANAGERIAL ACCOUNTING 9
departments is involved
Time consuming This process is more time
consuming
Less time consuming process
More beneficial It is beneficial but not more
appropriate
It is more appropriate
because manager of
departments gives opinion
Interference Senior management makes
the decision
Senior management check
the report of other
departments
Flexibility It is more flexible It is less flexible
Large process It is a big process It is a small process
Permission Senior management takes the
all decision
Manager of different
department takes the
permission from the senior
management
Changes Changes is not made due to
the decision of senior
manager
Changes is made by the
senior management while
providing the approval on the
report
As per the above discussion, it has been seen that both the approaches is used to develop the
budget for the company. But as per the comparison of the approaches and the nature of the
company, bottom-down approaches is more beneficial because the opinion of every
department is considered. Different department develop their own budget as per their

MANAGERIAL ACCOUNTING 10
expenses so that the appropriate budget is prepared for the smooth operation. Each and every
employees gives their suggestion as they are directly involved in the process. In Top-down
approach, the only senior management takes the decision which is not appropriate sometimes
because of lack of communication. That is why, Bottom-down approaches is suitable for the
company to develop the budget.
Statement of Profit or Loss of Asaleo Care Limited
Particulars Actual Budgeted Variance
30th June
2018 2019
$000 $000
Revenue From Continuing
Operations
Sales of Goods 2,67,245.00
2,93,969.5
0 -10%
Other Revenue from ordinary
activities 245.00 269.50 -10%
2,67,490.00
2,94,239.0
0 -10%
Other income - - -

MANAGERIAL ACCOUNTING 11
Expenses
Cost of sale of goods
-
1,68,406.00
-
1,81,878.4
8 -8%
Other Expenses from ordinary
activities
Distribution
-
33,912.00
-
34,590.24 -2%
Sales and Administration
-
29,783.00
-
30,378.66 -2%
Other
-
20,862.00
-
21,279.24 -2%
Impairment losses
-
1,39,956.00
-
1,42,755.1
2 -2%
Finance Costs
-
6,695.00
-
6,828.90 -2%
(Loss)/Profit before income tax
-
1,32,124.00
-
1,23,471.6
4 7%
Income tax benefit/(expenses) 30,665.00 31,278.30 -2%
(Loss)/Profit for the period
-
1,01,459.00
-
92,193.34 9%