HI5017 Managerial Accounting: Budgeting Analysis for Actinogen

This report provides a detailed analysis of budgeting for Actinogen Medical, a biotechnology company listed on the ASX. It explores the elements of a master budget, including operational and financial budgets, and their sub-components like sales, production, and cash budgets. The report compares top-down and bottom-up budgeting approaches, discussing their relevance to goal setting, business forecasting, and company analysis. Recommendations are offered to improve the company's budgeting process and overall financial performance. Desklib offers a variety of resources, including past papers and solved assignments, to support students in their studies.

Running head: BUDGETING 0
Budgeting

BUDGETING 1
Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................2
Operational budget.......................................................................................................................2
Production Budget....................................................................................................................3
Sales budget..............................................................................................................................3
Direct Material Budget.............................................................................................................4
Direct Labour Budget...............................................................................................................4
Financial budget...........................................................................................................................4
Cash budget..............................................................................................................................5
Top down, Bottom Up Approach....................................................................................................5
Goal Setting..................................................................................................................................5
Business Forecasting....................................................................................................................6
Securities and the Company Analysis..........................................................................................6
Aim of approaches.......................................................................................................................6
Recommendation to the company................................................................................................7
Budgeted Income Statement............................................................................................................7
Recommendations and Conclusion..................................................................................................8
References......................................................................................................................................10

BUDGETING 2
Executive Summary
Actinogen Medical is a company which is listed on the ASX and the biotechnology company
which helps in developing the innovative technology and secures the treatments for the diseases
like Alzheimer’s disease and the cognitive decline associated with them. Currently the company
is having the share price of 0.056 and operating at the revenue of $3343180 with the team of
4000 members and the employees. Every company needs a budget to get an understanding of the
fact that where the company is performing at present and where it wants to reach in future to
have the competitive advantages over the others. For the purpose of preparing the budgets a
master budget is created to have a complete outlook of the performance of the company. the
current report of displays in detail the importance of the budget, the elements of the master
budget, the relevance of the two approach, that is top-down and bottom up approach and the
budget is showcased at the end of the report. The analysis is conducted in detail and the
necessary recommendations are also suggested to the company to improve the existing
performance and move ahead for the future operations.
Introduction
A master budget is the series of the interconnected budgets of production costs, sales budget,
purchases, income statement and it also includes the pro forma of the financial statements. The
budget is basically determined as the plan for the future course of action. A master budget acts as
a key driver in planning and controlling the management and the operations of the business.
Master budget has following components such as operational budget, and financial budget.
Further these budgets are classified into sub budgets that have their importance and the relevance
(Adam and Bevan, 2016).
Sales budget, production budget, direct material purchases budget, Direct Labor Budget,
Overhead budget, selling and administrative expenses cost of goods manufactured budget all are
the part of the operational budget whereas the cash budget, income statement and the balance
sheet are under the financial budget. The components of the master budget are not interconnected
which means that there is an internal flow form one budget to another budget (Arjomand Emami
and Salimi, 2016).

BUDGETING 3
A deeper analysis will give the idea of the fact that that what all activities and budgets are
prepared in the individual budgets or what policies are formulate by the company.
Operational budget
An operating budget is a mixture of all revenues and expenses over a definite period of time. The
time can be either a year or a quarter, used by the company, government, or organization to plan
its daily needs of the operations. The preparation of the operating budget is done in advance
even before the reporting period as a goal to plan what the business expects to achieve in near
future (Bishop, 2016).
Production Budget
The production budget is the budget that calculates the number of units required to be
manufactured by the company and is derived from the combination of forecasted sales and the
amount of the finished goods and services (Business Dictionary, 2018). The basic agenda behind
making the production budget is because the company needs to manage the resources of the
direct material and equipment and sometimes also termed as the push manufacturing system.
Majorly the production budget is presented in the form of month or quarter format. It becomes
very difficult for the company forecast the products with different variation therefore it is
customary to bring the products into the similar characteristics (Bortfeldt, et al 2015).
The basic calculation used by the production budget is the outlined below.
XYZ COMPANY
Production Budget
Forecasted unit Sales XXX
Add: Planned Finished goods ending Inventory
balance XXX
Total Production Required XXX
Less: Beginning Finished goods of Inventory

BUDGETING 4
Products to be
manufactured XXX
Sales budget
A sales budget is the budget that estimates the units of the sales and budgeting seems to be the
most important aspect from the point of view of the capital budgeting decisions the company is
required to make. The Sales Budget is mainly responsible for influencing other items of master
budget depending upon the nature off the item (Koochakpour and Tarokh, 2016). The same shall
be either in the direct form or indirect form. After the calculation whatever sales figure us arrived
used as the base to drive the other complimentary budgets. The examples of such budgets can
prove the reflection in the schedule of the receipt from customers, the production, and pro forma
income statement (Chernyatina Guzenko and Strelkov, 2015).
The basic idea that shall be kept in mind while designing the sales budget is that there are many
component budget that rely on the sales budget therefore the figure of the sales budget shall be
estimated with due care and diligence and the reliable forecasting techniques shall be
implemented to arrive at the sales figure, else the master budget will be responsible for rendering
the incorrect information and the planning and the control will be ineffective (Chron, 2018).
The example of the sales budget.
Quarterly
1 2 3 4
Sales Units xxx xxx xxx xxx
Price per unit xxx xxx xxx xxx
Total Sales XXX XXX XXX XXX
Direct Material Budget
Direct material purchases budget displays the opening and the closing of the beginning and the
ending of the inventory. It also showcases the direct material in the quantitative nature which is
further going to be utilized by the production departmental and also displays the cost during the

BUDGETING 5
specified period. The direct materials budget is calculated in the following manner (Cost
Analysis, 2018).
Budgeted Beginning Direct Material in
Units XXX XXX XXX
Add: Direct Material in Units Needed for Production XXX XXX XXX
Less: Budgeted Ending Direct Material in Units XXX XXX XXX
Working Note
Budgeted Production During the Period XXX XXX XXX
Multiply : Units of Direct Material Required per unit XXX XXX XXX
Direct Material in Units Needed for Production XXX XXX XXX
Direct Labour Budget
The direct labor budget is utilized to measure the number of labor hours which is required for
the production budget. A more complex situation arises when the number of the hours is
calculated and this budget secures the first position in solving such problem. The direct labor
budget is typically presented in either a monthly or quarterly format. The basic idea is to
amalgamate the units of the production and the number of hours to get the exact result (Counsell,
McBride and Simm, 2018).
Financial budget
The budget assists the organization in providing the relevant funds to the respective department
and manages the activities regarding the inflow and the outflow of the cash in an effective way.
Such budget is termed as the financial budget. Majorly the cash budget forms the part of the
financial budget. The preparation of the financial budget includes a detailed budget balance
sheet, income statement, and cash flow budget. A financial budget is an analytical technique
through which the long term goals are decided. The aim or idea behind the preparation of the
financial budget is to manage the cash flows in a suitable manner. This ensures better planning
and the control of the operations of the enterprise and the also supports the other budgets to be
prepared in the accessible way (Futagami and Konishi, 2018).

BUDGETING 6
Cash budget
A cash budget can be termed as the budget or plan of expected cash receipts and expenses
incurred during the period of the financial year. The cash budget is prepared mainly with the aim
of analyzing the inflows and the outflows of the cash to collect the revenues and the operating
expenses such as the loans receipts and the payments. In simper terms the cash budget is required
to project the future position of the business (Giaccone, Lascari, Peri and Rizzo, 2017). The
formation of the cash budget is done only when the sales, purchases and the expenditure budget
are taken into consideration. The managements uses the cash flow budget to get the idea of the
input and the output of the cash flows moreover the example of the cash budget is mainly related
to the payroll that needs it be paid daily or within the period and also the utilities must be paid.
To keep an eye over the spending and the savings will give the exact amount of the balance of
the cash the company is having in hand.
Top down, Bottom Up Approach
There are two approaches which are termed as Top-down and bottom-up approaches are widely
used in different areas of business, economics and finance. The only difference between the top-
down and the bottom-up approach is that the former one adopts the general to specifics style and
the reversal is from specific to general which is used by the bottom-up approaches. These
approaches are implemented either alone or in combination of each other in various areas where
there is applicability of such approaches. Budgeting, business forecasting, goal setting, Securities
analysis, Company analysis, and forecasting of the company under the economic conditions
(Guijarro, et at 2016).
In the process of the capital budgeting the top down approach starts with the firstly setting the
limits of the funds that needs to be spent at high level of aggregation and apart from this it is also
necessary to identify the total spending for each item differently in the accounting hierarchy.
Meanwhile the bottom up method also makes its path and gets implemented on the departmental
basis. This method is responsible for the higher targets than the one envisaged under the top-
bottom approach (Hastings, 2015).
The top down budget is the budget set with the mindset of not giving all the powers to the
ultimate budget holder and also to dig out the opportunities for the management to participate in

BUDGETING 7
the process of the budgeting. On the contrary the bottom up budget provides the participation
opportunity to every member.
Goal Setting
The idea of the goal setting often is closely intertwined with budgeting. The goals are important
from the perspective of the employees; otherwise they cannot perform unless there is any motive
or the purpose (Jaafar, Bakar and Awaluddin, 2015).
On the other hand the bottom up methods for the budgeting is little bias in case of the
underestimating revenues and the overestimating expenses and the other relevant requirements.
For the purpose of the business forecasting the bottom up approach is necessary and required
heavy assistance from the top level management.
Business Forecasting
On a top down basis, sales are bifurcated on the basis of the broad categories and the products
are broken down into the narrow categories and certain special items are also evaluated carefully.
A bottom up methodology certainly helps the management in making the projections for the
specific projects and the geographic sales and the region (Zhu and Zheng, 2018).
Securities and the Company Analysis
Likewise for the purpose off the security and analysis an independent projection of the specific
products can be done on the basis of the product lines and the divisions. For the company
analysis the maintenance of the securities is necessary and hence the company is using both the
top-bottom and the bottom up approach easily for the future directions and the details (Tie,
2015).
The advantages of the top down budgeting includes the executive team is fully concentrated and
the company takes the full control over the budget allocations. Also this approach keeps
everything centralized and it streamlines the business accounting operations by ensuring that the
company will perform and stay on the financial track. There are times that small costs can create
a big impact on the performance of the business and hence the company is required to the keep
all things under one umbrella and therefore in the top bottom approach the company follows the
policy of centralized rule (The balance small business, 2018).

BUDGETING 8
Aim of approaches
The main aim of the bottom up budgeting is to increase the motivation due to the ownership o
the budget. It should contain the better information and the communication of the information to
the employees, as it is familiar with the departmental sets of the budgets.
The understanding and the commitment of the managers increased as the bottom up budgets are
helpful in taking the business decisions. With the implementation of the bottom up budgets
infuses the better communication between the departments internally. The senior managers can
maintain their focus on the strategy whereas the employees can figure out the implementation of
such strategies (Year, 2019).
Even after having certain advantages there are some disadvantages as well that the results in the
upheaval of the budgeting process. The dysfunctional budgets may not be in line with corporate
objectives as managers do not have the perspective of the strategic nature and the entire attention
will be on division and the internal departments (Study, 2018).
Recommendation to the company
After analyzing the above characteristics of each approach in detail it is advised to the
management that the company shall follow bottom up approach as it helps in facilitating the
decision making and the moreover each department is responsible for setting up their own
budgets and the therefore it becomes less cumbersome on part of the management to deal with
their own sets of the responsibilities. The individual decision of the department’s will not hamper
the performance of the other departments and hence it is the best approach for the company to
work upon the system (Shcherbin and Tamulevičienė, 2016). Since the management asks the
lower level management, their suggestions and the inputs the need to develop an effective
promotion is require and at the same time this approach acts as an element of the super
motivation to the lower employees and also it gives the confidence an increases the ability of the
employees to work towards the common goal and this is what is required at present in case of the
Actinogen Medical Limited as the budgeted situation is more than the actual scenario of the
company and therefore, the company shall follow the approach of the decentralization and
therefore the company is advised to follow the bottom up approach as it ease downs the
operating level of the business (Ren, Qiu Wang and Lin, 2016).

BUDGETING 9
Budgeted Income Statement
ACTINOGEN MEDICAL LTD (ACW) CashFlowFlag INCOME
STATEMENT Actual Budgeted Variance
%
change
Fiscal year ends in June. AUD in thousands except per share data. 2018-06 2019-06
Revenue 91897 101086.7 -9189.7 -9.1%
other incomes 3251283 3576411.3 -325128.3 -9.1%
Gross profit 3343180 3677498 -334318 -9.1%
Research and development 528418 538986.36 -10568.36 -2.0%
Corporate administration expenses 696654 710587.08 -13933.08 -2.0%
Research & development expenses 7741706 7896540.12 -154834.12 -2.0%
Share-based payment expenses 239514 244304.28 -4790.28 -2.0%
Amortisation expense 353500 360570 -7070 -2.0%
Depreciation expense 2540 2590.8 -50.8 -2.0%
Total expenses 9562332 9753578.64 -191246.64 -2.0%
Earnings before interest and taxes
-
6219152
-
6076080.64
-143071.36
2.4%
Finance costs 11457 11686.14 11919.8628 102.0%
Income before taxes
-
6230609
-
6087766.78
-
154991.2228 2.5%
Taxes 0 0 0
Earnings after tax
-
6230609
-
6087766.78
-
154991.2228 2.5%
Recommendations and Conclusion
From the above budget presented it can be stated that the revenue in case of the actual scenario is
$91897 whereas in case of the budgeted revenue is $101086.7 as it has been increased by the 10
% as per the requirement of the question. However the budgets are prepared to get the idea of the
fact that where the company is at present and where it wants to reach in future. As per the
requirements of the question it can also be determined that the expenses were increased by 2%
for the budgeted year and the variance as shown is the difference of the 2%. Currently the
company is following the moderate approach and therefore it is earning through the revenue less
and the supporting income are playing an important role. Thee major expense of the company are
the research and development expenses and the finance costs which shall be reduced on part of
the company by doing in house research and providing the medical training to the employees as
well as the interns. Further, the company shall also formulate the policy to keep aside minimum
funds in the form of the emergency funds so if at a later stage the company requires to do any

BUDGETING 10
investment it can invest the funds into the potential areas (McVay, 2016). There is hardly any
impact on the tax expense and therefore the company shall not take much load in case of the kind
of expense. Apart from this since the company is following the policy of the bottom up approach
it shall give the access of this budget to each department so that the necessary measures that are
required to be taken at the individual level can be taken by the departments keeping in mind their
needs and preferences. Since the cost of goods sold are nil the company is not dealing into any
direct materials and labor and hence the cost itself gets reduced on part of the company in case of
the direct costs. The remaining analysis of the indirect costs will give an overview of the impact
of the indirect materiality and this also facilitates the operations of the company by showing
them the path of future in well advance to work upon the discrepancies.
From the above analysis it can be stated that the overall performance of the company is
satisfactory yet the company needs to work upon the expenses like research and development as
it is covering almost 25% of the revenue and hence the management shall focus on training of
the employees and enriching he skills of the interns to get the equivalent output what it got in
case of the research and development. The funds from the research and development team can be
distributed in the purpose of training and development to increase the level of understanding and
to avail the future benefits for longer duration.

BUDGETING 11
References
Adam, C.S. and Bevan, D.L., 2016. 8 The Cash-Budget as a Restraint: The
Experience. Investment and Risk in Africa, p.185.
Arjomand, M., Emami, K. and Salimi, F., 2016. Growth and Productivity; the role of budget
deficit in the MENA selected countries. Procedia Economics and Finance, 36, pp.345-352.
Bishop, W., 2016. Integrating IPE into an Academic Health Sciences Center: A Bottom-Up and
Top-Down Approach. International Journal of Health Sciences Education, 3(2), p.2.
Bortfeldt, J., Biebel, O., Flierl, B., Hertenberger, R., Klitzner, F., Lösel, P., Magallanes, L.,
Müller, R., Parodi, K., Schlüter, T. and Voss, B., 2017. Low material budget floating strip
Micromegas for ion transmission radiography. Nuclear Instruments and Methods in Physics
Research Section A: Accelerators, Spectrometers, Detectors and Associated Equipment, 845,
pp.210-214.
Business Dictionary, (2018) Production budget [Online] Available form
https://study.com/academy/lesson/direct-labor-budget-definition-example-formula.html
[Accessed on 20th January 2019]
Chernyatina, A.A., Guzenko, D. and Strelkov, S.V., 2015. Intermediate filament structure: the
bottom-up approach. Current opinion in cell biology, 32, pp.65-72.
Chron, (2018) How to Prepare a Sales Budget [Online] Available form
http://www.businessdictionary.com/definition/production-budget.html [Accessed on 20th
January 2019]
Cost Analysis, (2018) DIRECT LABOR COST BUDGET [Online] Available form
https://smallbusiness.chron.com/prepare-sales-budget-41276.html [Accessed on 20th January
2019]
Counsell, C., McBride, A. and Simm, J.D., 2018. Drought resilience and climate change
analysis: Moving from a top-down to bottom-up approach in the UK.