Managerial Accounting Report: Ambertech Limited Budget Analysis

This report provides a comprehensive analysis of managerial accounting principles, focusing on the budgeting process and financial performance evaluation. It begins with an executive summary outlining the significance of budgeting for expense and income detection in the next fiscal year. The report delves into the components of a master budget, essential for preparing future budgets, and then applies these concepts to the financial data of Ambertech Limited for 2018 and 2019. It includes the calculation of a 2019 income statement and a comparison of the 2018 actuals with the forecasted 2019 budget. The report also discusses the elements of the master budget, such as sales, production, direct labor, cash, and various material budgets. Finally, it compares the top-down and bottom-up approaches to budgeting, analyzing their suitability for the company and concluding with insights into the changes made in the forecasted annual report.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
Authors Note:

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Executive Summary:
The overall assessment aims in evaluating the significance of budgeting process, which can
be used by organisation for detecting the overall expenses and income that needs to be
incurred in next fiscal year. In addition, the financial performance of the organisation is
mainly evaluated for devising the budgeted, which can adequately support the cash inflows
and outflows during the next fiscal years. Moreover, the components of the master budget are
mainly discussed, which is an essential part of the budgeting process, as it allows the
organisation to prepare an appropriate budget for future fiscal years. The financial budget of
Ambertech Limited is mainly calculated for detecting the overall budget for 2019, which can
help in detecting the incoming and expenses for the organisation. The analysis of the master
budget components directly allows the management to detect the expenses and income that is
estimated for future operations of the organisation. The analysis of the future projected
annual report can eventually help in understanding the measures that has been taken by the
company to generate the required level of income in 2019. Lastly, the comparison of 2018
and forecasted budget for 2019 is mainly conducted in the assessment for detecting the
opinion on the changes, which has been conducted while preparing the forecasted annual
report.

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Table of Contents
Introduction:...............................................................................................................................3
a. Explanation of the elements of Master Budget:.....................................................................4
b. Discussing about the comparison of top-down and bottom-up approach to the budget
process and analyse, which detecting the most suitable chosen for the company:....................8
c. Producing the budget of Income statement for 2019:..........................................................10
d. Comparing the data and providing relevant opinion on the changes for 2019 budget and
2018 actual income statement:.................................................................................................11
Conclusion:..............................................................................................................................13
Reference and Bibliography:....................................................................................................14

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Introduction:
The assessment aims in evaluating the financial performance of Ambertech Limited
for the financial year of 2018 and projecting future income, which can be generated by the
company. In addition, there is further evaluation that has been conducted in the assessment
regarding the top-down and bottom-up approach to the budget process, which can help in
analysing the budget process. Furthermore, the income statement for the financial year of
2019 has been projected, which can help in determining the future incomes of the company.
Adequate analysis of each elements of the master budget has been conducted for determining
the impacts, which can be conducted on the financial performance. The analysis of the master
budget components directly allows the management to detect the expenses and income that is
estimated for future operations of the organisation. The analysis of the future projected
annual report can eventually help in understanding the measures that has been taken by the
company to generate the required level of income in 2019. Lastly, the comparison of 2018
and forecasted budget for 2019 is mainly conducted in the assessment for detecting the
opinion on the changes, which has been conducted while preparing the forecasted annual
report.

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Ending
finished goods
budget
Sale budget
Production
Budget
Direct labour
budget
Cash Budget
Direct
Material
Budget
Selling and
administrative
budget
Manufacturing
overhead budget
Budgeted Financial Statements
a. Explanation of the elements of Master Budget:
Figure 1: Depicting the components of Master budget
(Source: Weygandt, Kimmel and Kieso 2015)
The above figure directly depicts the overall master budget component, which is used
by the organisation in preparing the budget for the fiscal years. These components mainly
allow the management to acquire the required level of income from operations, which
reduces the chance of variance occurrence from budgeted values to the actual values. In
addition, the components of the budget directly allow the organisation to set up the relevant
expenses and income that will be generated from the operations over the period of time.
Dopson and Hayes (2016) mentioned that master budget would eventually allow the
organisation to generate high level of income from operations, which can increase efficiency
of the management. The master budget might eventually help in acquiring the required level
of funds for supporting the master budget, which can help in improving the operations of the
organisation.

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The elements of master budget are depicted as follows.
Sales budget:
Sales budget is considered the basic component of the master budget, which allows
the organisation to detect the level of sales units that will be incurred from the operations.
The overall expected price per units and the number of units sold for the future fiscal years is
mainly estimated in the sales budget. Moreover, the sales budget values are identified from
the historical growth in sales values that has been generated by the organisation. The sales
budget directly influences the other components of the master budget, as rising sales units
will alter the production and expense needs of the organisation (Noreen, Brewer and Garrison
2014).
Production budget:
The production budget is mainly used by the organisation for detecting the level of
planned production, which needs to be conducted by the management for supporting their
products demand. In addition, the production budget would be beneficial for the organisation
to determine the required level of raw materials and other purchases that needs to be
conducted for smoothly conducting their operations. The production budget ensures the
organisation to determine the level of activities, which will be needed for supporting the sales
demand from customers.
Direct labour budget:
The direct labour budget is influenced directly by the sales budget prepared by the
organisation. This high level of output needed by the sales budget will directly affect the
needs of direct labour in the production system. Hence, the direct labour budget would allow
the organisation to determine the level of workers needed in the production function to

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support the production output and comply with the sales budget. The direct labour budget is
prepared after the preparation of the production units, which determines the level of labour
input that will be needed for the next fiscal year (Butler and Ghosh 2015).
Cash budget:
Cash budget is mainly prepared after determining the level of expenses and income
that will be generated from the operations. The cash budget directly indicates the level of
cash position that will be generated by the organisation during the fiscal year. In addition, the
cash budget relevantly allows the organisation to detect high level of cash inflows and
outflows, which will be conducted from the operations. The preparation of cash budget is
mainly conducted after preparing the sales and production budget, which allows the
management to determine the level of net cash flow that will be increased over the period of
time.
Ending finished good budget:
The ending finished goods budget is determined are the prepared of the overall
material budget and the production budget. This component of the master budget relevantly
allows the management to determine the level of units that will be needed by the organisation
to support the ending finished goods for the fiscal year. In addition, the determination of the
finished good budget would eventually help in generating high level of income from
operations.
Direct material budget:
The direct material budget is prepared after the completion of the production budget
and sales budget, which help in determining the level of materials that will be needed to
support the sales demand from customers. In addition, the direct material budget would

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eventually help in determining the level of expenses, which is needed by the organisation to
support their production needs. The material budget also allows the organisation to
understand the requirements of material after analysing the inventory currently held for
production (Epure 2016).
Selling and administrative budget:
The managers for analysing the planned operations expenses use the selling and
administrative budget and other manufacturing costs incurred during the fiscal year. In
addition, the evaluation also helps in determining the selling expenses and administrative
expenses, which needs to be incurred by the company for supporting the future operations.
The selling and administrative expenses would eventually help in determining the level of
spending which needs to be conducted by the company for supporting the operations during
the fiscal year by analysing the output.
Manufacturing overhead budget:
The manufacturing overhead budget directly provides the details regarding
manufacturing costs, which needs to be incurred by the organisation leaving the direct
material and direct labour cost. The information represented in the manufacturing overhead
budget cost is directly linked with the cost of goods sold by the organisation. This eventually
helps in determining the level of expenses that needs to be incurred by the company to
support the future sales units of the company. The budget is considered significant in nature,
as it contains large portion of the expenses, which needs to be conducted by the organisation
to accommodate the targeted sales.
Budgeted financial statements:

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Budgeted financial statements is prepared by the organisation after completing the
above components of the master budget, as it helps in preparing the income statement and
balance sheet for the fiscal year. In addition, the budgeted financial statement would
eventually help in determining the projected incomes, which will be generated by the
company over the next fiscal years. This would eventually help in determining the level of
income and expenses that will be incurred during the fiscal year (Warren, Moffitt and Byrnes
2015).
b. Discussing about the comparison of top-down and bottom-up approach to the budget
process and analyse, which detecting the most suitable chosen for the company:
There are significant differences between the top-down and bottom-up approach,
which can be used by the organisation, while preparing the budget. In addition, the
comparison would eventually help in detecting the most viable budgeting process, which can
be used by the organisation for preparing the budge, which can support their future
operations. Top-down and bottom-up approach is mainly used in different areas of the
business, which helps the management to make relevant decisions regarding the operations.
The top down approach mainly evaluates the situation from general perspective to specific,
while the bottom-up approach focuses on specific conditions and then moves to general
attributes. Furthermore, there is specific difference between the top-down and bottom up
approach of the budget process, which indicates the alternative measure that is taken by each
process (Kaplan and Atkinson 2015).
The top managements mainly set top down budget, which does not allow the ultimate
budget holders to have the opportunity for participating in the budgeting process. In addition,
the top management directly creates the budget, where adequate allocation of resources is
conducted as per the discretion of the high officials. The department heads in this process is

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not being used by the organisation for determining the budgeted values that is needed by the
organisation. The top-down budget process directly allows the manager to create the budget
within the confines of the desired budgeted values. This type of approach has certain
significance, which reduces the lead-time for completing the production process, as top
management are responsible for the preparation of budget. Hence, the timesaving’s can be
conducted in this method, which can reduce the involvement of persons who are responsible
for the day-to-day work of the organisation. However, there are certain disadvantages to the
method, which directly relates to the non-involvements of individual who can detect the
specific expenses that might incur during the operations. This might result in low
performance of the budget, as high-level individuals cannot accommodate adequate expenses
that will be incurred in the department (Eker and Aytaç 2016).
The bottom-up approach of budgeting is mainly a system, where budget holders are
able to participate in their own budgets. This type of budgeting process directly involves the
managers of the department in preparing the overall budget and send to the top management
for approval. This type of budgeting process mainly requires the managers of the department
to prepare the budget in accordance with their needs and expenses. This type of approach has
specific significance, where the estimated expenses are adequately accommodated by the
budget. However, there are specific disadvantages of the bottom-up approach, which the
expenses that might be conducted by the management due to the higher spending target of the
departments. Therefore, the bottom-up approach will directly raise the level of expenses that
is needed for each department, as the budget will accommodate the expense requirement of
all the relevant department managers (Vladychyn 2017).
Both the top-bottom and bottom-up budgeting approach has advantages and
disadvantages, which can negatively affect the prepared budget of the organisation. However,
top-bottom approach is mainly selected for Ambertech Limited, as it will allow the

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organisation to prepare the adequate budget for supporting their operations. The top-bottom
approach would eventually help in designing the adequate level of expenses and income for
the organisation, which can be incurred during the fiscal year.
c. Producing the budget of Income statement for 2019:
Particulars 2018 2019
Revenue 51,839.00 57,022.90
Cost of sales (35,735.00) (38,593.80)
Gross profit 16,104.00 18,429.10
Employee benefit expense (9,496.00) (9,685.92)
Distribution cost (1,460.00) (1,489.20)
marketing cost (740.00) (754.80)
Premises cost (1,971.00) (2,010.42)
Depreciation and amortization expense (312.00) (318.24)
Finance cost (670.00) (683.40)
Travel costs (546.00) (556.92)
other expenses (1,096.00) (1,117.92)
Earnings before tax (187.00) 1,812.28
Tax 44.00 543.68
Earnings after tax (143.00) 1,268.60
The above table directly provides the overall income statement of Ambertech Limited
foe the fiscal year of 2019. The budget has been conducted for the fiscal year of 2019 by
utilising the data of 2018, which can eventually help in detecting the level of income and
expenses that will be incurred in the next fiscal year. The financial performance of the
organisation has mainly increased during the fiscal year of 2019, which is estimated in the
budgeted values. This value is mainly created by utilising the different incremental sales, and
expenses, which will be incurred during the financial year. Said (2016) mentioned that
budgeting process allow the organisation to grasp the overall situation of the income and
expenses, which will be incurred in the future years.

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From the evaluation of the above calculation, it can be detected that the relevant
increment in the overall expenses of the organisation is estimated at the levels of 10%, which
has increased the revenues for the fiscal year of 2019. This increment has mainly allowed the
gross profit to increase in the budgeted values of 2019. The cost of goods sold is estimated to
increase at the levels of 8%, which has provided a positive gross profit margin for the
budgeted period of 2019. However, the other expense that has been incurred by the company
has only increased at the levels of 2%, which has made a positive net profit for the budgeted
financial year of 2019. The evaluation of financial performance can be conducted with the
help of above figure and determine the level of incomes, which can be generated from
operations. Mihaila (2014) indicated that budget preparation is conducted with the help of
adequate assumptions, as it allows the organization to detect the future operational needs that
must be met by the management.
The budgeted revenues can be achieved by the organization after implementing
adequate marketing strategies and increasing the demand for its products. The increment in
overall revenues of the organization is mainly essential, as it will allow the management to
acquire the adequate cash inflow to support the cash outflow. The budgeted income statement
for 2019 is relatively positive for Ambertech Limited, which was not previously incurred
during the fiscal year of 2018. Fry and Fiedler (2014) argued that budget process could
negatively affect the operations of the organization if adequate research is not conducted
while preparing the master budget.
d. Comparing the data and providing relevant opinion on the changes for 2019 budget
and 2018 actual income statement:
The above table directly represents the overall budgeted income statement of the
organization for the fiscal year of 2019, which is prepared in accordance with the financial