Managerial Accounting Report: Ausquest Limited Budget Analysis

This managerial accounting report comprehensively examines the elements of a master budget, comparing top-down and bottom-up budgeting approaches. It provides recommendations for an ASX-listed organization like Ausquest Limited, advocating for a top-down approach. The report analyzes Ausquest Limited's income statement to prepare a budgeted income statement, emphasizing marketing strategies to achieve budgeted income. It includes detailed formats for various budget components such as sales, production, direct materials, direct labor, manufacturing overhead, selling and administrative expenses, finished goods, cash, and budgeted financial statements like income statement and balance sheet. The report discusses the role of a budget committee in the budgeting process and the importance of continuous monitoring and adjustments. The analysis provides a valuable framework for understanding budgeting and financial planning in a business context.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
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Name of the University:
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Executive Summary:
The report has covered a brief description of the different elements included in a master
budget. The second segment has focused on comparing the top-down and bottom-up approach
of budgeting and accordingly, recommendations need to be provided regarding the suitability
of one particular approach for an ASX listed organisation. The income statement of Ausquest
Limited is taken into consideration for preparing the budgeted income statement so that the
cash inflows generated could be used for covering up the estimated cash outflows. By enforcing
appropriate marketing strategies, it would become easy for Ausquest Limited in achieving the
budgeted income by increasing the overall demand for its products in the market. Moreover, it
has been analysed that the successful organisations follow the top-down budgeting approach,
as it is a suitable communication tool for communicating messages to the staffs so that they
could perform accordingly. Therefore, this approach would be suitable for Ausquest Limited so
that it could conduct its business operations effectively.

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Table of Contents
Introduction:....................................................................................................................................3
Requirement a:................................................................................................................................4
Requirement b:..............................................................................................................................14
Requirement c:..............................................................................................................................18
Requirement d:..............................................................................................................................19
Conclusion:....................................................................................................................................20
References:....................................................................................................................................22

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Introduction:
Managerial accounting includes the procedures for creating reports and documents,
which would assist the management in undertaking decisions for ensuring smooth business
operations. From the perspective of the managers, it helps in identifying whether any project or
department is performing well up to the desired expectations (Alsharari, Dixon and Youssef
2015). The master budget is an aspect of managerial accounting, which is the aggregation of all
lower-level budgets produced by the different functional areas of an organisation and it takes
into consideration the budgeted financial statements, financing plan and cash forecast.
The report intends to cover a brief description of the different elements included in a
master budget. The second segment would focus on comparing the top-down and bottom-up
approach of budgeting and accordingly, recommendations need to be provided regarding the
suitability of one particular approach for an ASX listed organisation. For meeting this purpose,
Ausquest Limited is taken into consideration, which is involved in exploring and evaluating
mineral resources in Australia and Peru. The organisation explores for a group of minerals like
copper, iron oxide, zinc, gold, base metal deposits and others (Ausquest.com.au 2019).
Moreover, the third segment would involve the preparation of the budgeted income statement
of the organisation for 2019 based on the data of the income statement in 2018. Finally, the
report would emphasise on providing opinion regarding the changes in financial performance in
the year 2019.

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Requirement a:
Master budget could be defined as the strategic plan of management for the future of
the organisation (Beattie 2014). All aspects of business operations are charted and they are
documented for future estimations. Thus, with the help of master budget, the management of
an organisation could coordinate the activities related to sales, production, purchasing and
other divisions to monitor business progress along with undertaking corrective measures, if
needed. The budget is prepared annually and it is reviewed generally in each month. More
precisely, all business aspects are represented in this document. The master budget contains a
group of elements, which are elucidated briefly as follows:
Figure 1: Elements of the master budget

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(Source: Carlsson-Wall, Kraus and Lind 2015)
Sales budget:
A sales budget projects the selling volume in units and the projected earnings from the
sale of such units. A sales budget is often segregated into first, second, third and fourth quarter
estimates. The crucial components of a sales budget include projected unit sales, price per unit
and allowance for returns and discounts. The budgeted gross sales are computed by multiplying
the estimated sales per unit with the selling price per unit. For computing the budgeted net
sales, the projected sales returns and discounts are deducted from budgeted gross sales
(Boučková 2015). For preparing a sales budget, it is necessary to consider the existing economic
conditions and production capacity specific to the business. In addition, it is essential to confer
with sales staffs at different levels in various positions.
Table 1: Sales budget format
(Source: Langfield-Smith et al. 2017)
Production budget:

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The production budget computes the units of products that are required to be
manufactured and it is derived from a mix of sales forecast and the planned volume of finished
goods inventory to be in hand. This is usually identified in the form of safety stock for covering
any unexpected rise in demand (Cokins 2014). This type of budget is prepared mainly for push
manufacturing system, which is utilised in environment related to material requirements
planning. It could be extremely troublesome in developing a comprehensive production budget,
which incorporates estimation for each variation on a product that an organisation sells.
Therefore, it is necessary to aggregate the estimated information into wider product categories
having identical characteristics.
Table 2: Production budget format
(Source: Langfield-Smith et al. 2017)
Direct materials budget:

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The direct materials budget computes the materials to be purchased within specified
timeframe so that the requirements of the production budget could be fulfilled appropriately.
This budget is depicted in either quarterly or monthly format in the yearly budget (Cooper,
Ezzamel and Qu 2017). For any business organisation involved in selling products, this budget
might include maximum proportion of costs incurred by the organisation and therefore,
compliance needs to be ensured with adequate care. In opposition, the outcome might
erroneously denote excessively low or high cash needs for funding material purchases.
However, it is not possible to compute the direct materials budget for all inventory
components, as the calculation would be enormous. Thus, the managers need to either
compute the approximate inventory amount needed denoted as the sum for total inventory or
a detailed level based on the type of the commodity.
Table 3: Direct materials budget format
(Source: Langfield-Smith et al. 2017)
Direct labour budget:

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The direct labour budget is used for computing the total labour hours needed to
manufacture the units itemised in the production budget. In this context, Fullerton, Kennedy
and Widener (2014) remarked that a complex labour budget would help in computing the
number of labour hours needed along with division of information in terms of labour category.
With the help of this budget, the management of a business organisation could estimate the
number of staffs needed for the manufacturing area across the budget period. Hence, the
management could estimate hiring needs, likely overtime and layoffs. However, since
information is provided at an aggregate level, it is not used mainly for lay off and particular
hiring needs.
Table 4: Direct labour budget format
(Source: Langfield-Smith et al. 2017)
Manufacturing overhead budget:
This budget includes all manufacturing expenses except the costs relate to direct labour
and direct materials, which are itemised distinctively in the direct labour budget and direct
materials budget. The information included in this budget becomes part of the cost of sales
item in the master budget. The information included in this budget is among the most essential

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of the different departmental budget models, as it might constitute of a large part of the overall
amount of business expenses (Herschung, Mahlendorf and Weber 2017).
Table 5: Manufacturing overhead budget format
(Source: Langfield-Smith et al. 2017)
Selling and administrative expense budget:
This budget constitutes of the budgets of all non-manufacturing departments of a
business organisation like marketing, sales, engineering, accounting and facilities departments.
In fact, this budget could rival the production budget size and therefore, it deserves significant
attention (Jack 2015). The selling and administrative expense budget is represented typically in
either quarterly or monthly format. This might be divided into segments for particular sales and
marketing budget as well as a distinctive administrative budget. Thus, the managers use the
general level related to corporate activity for ascertaining the suitable expenditure level.

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Table 6: Selling and administrative expense budget format
(Source: Langfield-Smith et al. 2017)
Finished goods budget:
The finished goods budget computes the cost of finished goods at the end of each
budgeting period. It takes into account the unit quantity of finished goods after each budget
period is completed (Klemstine and Maher 2014). However, the actual source of such
information is the production budget. The main aim of this budget is to provide the amount
related to inventory asset, which tends to appear in the budgeted balance sheet. This is then
utilised for ascertaining the amount of cash required for investing in assets. When an
organisation is monitoring closely the cash balances on ongoing basis, the finished goods
budget needs to be created along with regular updates.

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Table 7: Finished goods budget format
(Source: Langfield-Smith et al. 2017)
Cash budget:
Cash budget could be defined as a budget or plan related to expected cash
disbursements and receipts in a particular period. More specifically, the cash budget is a
projection of the cash position of an organisation in future (Jiles 2014). Thus, the management
of an organisation utilises the cash budget so that it could manage its cash flows effectively. The
management needs to ensure that they have adequate cash balance to settle its due
obligations. For instance, payroll needs to be paid in every two-week period and utilities should
be paid in each month. Hence, with the help of cash budget, the management could forecast
loopholes in the cash balance of the organisation along with correcting the issues before due
payments.