Detailed Report: Preparation and Analysis of an Operational Budget

This report provides a comprehensive overview of operational budgeting, encompassing various assessment activities. It begins with an introduction to budgets, different types (operating, production, sales, master), and budgetary control principles. The report emphasizes the importance of communicating budget planning and includes detailed examples of an annual budget for 2016, a monthly profit and loss estimate, purchase budgets, and worksheet examples. Key elements such as budget variance analysis, forecasting techniques, and double-entry accounting are discussed. The report further delves into the preparation of budget objectives, sales and production budgets, cash budgets, and budgeted income statements and balance sheets. Stakeholder consultation, key performance indicators (KPIs), and budgetary reports are also covered. The significance of preparing budgets and their role in creating goodwill are highlighted, concluding with references.

Prepare Operational Budget

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Assessment Activity 1 .....................................................................................................................1
TASK 1.1 ........................................................................................................................................1
What is budget........................................................................................................................1
Different types of budgets......................................................................................................1
Budgetary control principles..................................................................................................1
TASK 1.2 ........................................................................................................................................2
Importance of communicating budget planning to peers.......................................................2
TASK 1.3 ........................................................................................................................................2
Preparation of annual budget for 2016...................................................................................2
TASK 1.4.........................................................................................................................................2
Monthly budgeted Profit and Loss estimate for 2015............................................................2
TASK 1.5.........................................................................................................................................3
Purchase budget......................................................................................................................3
TASK 1.6.........................................................................................................................................3
Worksheet...............................................................................................................................3
TASK 1.7 ........................................................................................................................................4
TASK 1.8.........................................................................................................................................5
Budget variance......................................................................................................................5
TASK 1.9.........................................................................................................................................6
Discuss forecasting techniques...............................................................................................6
Double-entry accounting........................................................................................................7
Variance analysis....................................................................................................................7
Assessment Activity 2......................................................................................................................7
TASK 2.1.........................................................................................................................................7
Preparation of budget objectives............................................................................................7
TASK 2.2.........................................................................................................................................7
Sales budget............................................................................................................................7
TASK 2.3.........................................................................................................................................8

Production budget...................................................................................................................8
TASK 2.4.........................................................................................................................................8
Cash budget............................................................................................................................8
TASK 2.5.........................................................................................................................................9
Budgeted income statement....................................................................................................9
TASK 2.6.......................................................................................................................................11
Budgeted balance sheet........................................................................................................11
TASK 2.7.......................................................................................................................................12
Stakeholders and consultation methods................................................................................12
TASK 2.8.......................................................................................................................................13
KPI (Key Performance Indicators).......................................................................................13
TASK 2.9.......................................................................................................................................13
Budgetary reports.................................................................................................................13
Assessment Activity 3....................................................................................................................13
Budget Objectives................................................................................................................13
Significance of preparing budgets........................................................................................13
Budgets creates goodwill......................................................................................................14
Convince stakeholders before budget implementation.........................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................14

INTRODUCTION
Operational budgets are crucial for business to prepare so that forecasting about future
can be made easily. The present report deals with various assessments engaged in preparation of
operational budgets so that meaningful results may be obtained.
Assessment Activity 1
TASK 1.1
What is budget
Budget is a document containing financial plan of company for the coming period
including anticipating sales and estimated expenses.
Different types of budgets
Operating budget
This budget is prepared for estimating income and expenses for the coming year. All
costs should be forecasted to prepare budget (Pal, 2018 ).
Production budget
Production budget is prepared for maintaining level of production so that adequate units
may be manufactured with much ease having estimation of sales and inventory of finished
goods.
Sales budget
Sales budget is prepared to analyse expected units to be sold in a particular period.
Master budget
It is complete segregation of all the budgets so that overall picture of financial health may
be assessed.
Budgetary control principles
Budgetary control principles are used to record actual performance and then compare the
same with planned performance so that variances can be easily found out. Corrective action can
be taken to remove variances.
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TASK 1.2
Importance of communicating budget planning to peers
It is important that budget should be communicated to peers so that they may accomplish
tasks in timely manner. Without involving their cooperation, goals cannot be achieved by the
business.
TASK 1.3
Preparation of annual budget for 2016
Expected fees $350,000
Marketing expense:
Fixed Advertising 6800
Advertising 14000
Financial expense
Interest paid 16800
Bank charges 2400
Administration expense:
Accounting staff cost 96000
Stationary 3360
Depreciation of office equipment 8500
Depreciation of motor vehicles 12400
Rent 24000
Travelling expense 22000
Work cover 2880
Superannuation 8640
Telecommunication 12000
2

Total expenses 229780
TASK 1.4
Monthly budgeted Profit and Loss estimate for 2015
Budgeted Profit and loss statement
GST -Inclusive
GST payable
GST Input
Tax credit
GST -Exclusive
Amount
Fees Revenues 356400 39600 396000
Less expense
Salaries 0 0 52500
Long service leave 0 0 0
Telephone [phone]
Bank charge 0 0 1000
Insurance 2200 132 2332
Rent 9900 1100 11000
17248 1804 20052
Profit 339152 37796 375948
TASK 1.5
Purchase budget
Month October November December Total
Projected Sales in units 200 280 450 930
add Closing stock 140 225 160
3

Equals available 340 505 610
less Opening stock 100 140 225
Required purchases in units 240 365 385
Purchases cost $ 9360 14235 15015 38610
TASK 1.6
Worksheet
Cash receipts JAN FEB MAR
QUARTE
R
Cash receipt (40%) 140000 146000 152000 438000
Cash from last month (80%) 172800 168000 175200 516000
Cash from two months ago (20%) 35400 43200 42000 120600
Total cash from sales 348200 357200 369200 1074600
Add: GST 10% 34820 35720 36920 107460
Total actual receipt 383020 392920 406120 1182060
Cash payments
JAN FEB MAR QUARTER
Cash purchase last month 216000 210000 219000 645000
Add: GST 10% 21600 21000 21900 64500
Total cash Payments 237600 231000 240900 709500
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Summary statement
JAN MAR QUARTER
Total actual receipt 383020 406120 1182060
Total cash Payments 237600 240900 709500
Surplus 145420 165220 472560
Opening balance 360000 365000 1075000
Closing cash balance 214580 199780 602440
TASK 1.7
Purchases budget
Pan Tel Trading
Worksheet to Calculate
Purchases for October to
December 2016.
October November December Quarter
Sales unit 17,000 unit 18,800 unit 20,200 unit
Cost of Goods Sold 1360000 1504000 1616000 4480000
Closing Inventory 300800 323200 0 624000
Opening Inventory 0 300800 323200 624000
300800 22400
Purchases ($) 1660800 1526400 1616000 4803200
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Purchases (Number)
TASK 1.8
Budget variance
Income/ expense Budget Actual Variance Favourable or
unfavourable
$ $
Sales 640000 655000 15000 Favourable
Less Variable costs
Cost of sales 458000 494500 36500 Unfavourable
Delivery and Installation
costs
19200 13100 6100 Favourable
Sales commissions 12800 16375 -3575 Unfavourable
TOTAL VARIABLE 490000 523975 -33975 Unfavourable
Less Fixed costs
Advertising 5200 5500 -300 Unfavourable
Energy 2800 3200 -400 Unfavourable
Insurance 2400 2400 0
Office supplies 3700 3300 400 Favourable
6

Printing & stationery 6000 5500 500 Favourable
TOTAL FIXED 20100 19900 200 Favourable
TOTAL COSTS 510100 543875 -33775 Unfavourable
NET INCOME 109800 91225 -18575 Unfavourable
TASK 1.9
Discuss forecasting techniques
Delphi method-
It is a forecasting technique which is used to facilitate decisions from panel of experts so
that estimation may be made in effective way.
Time series forecasting-
Time series forecasting is used to gather past trends and forecast the same in future so
that coming trends can be highlighted (Xu, Zhang and Pinedo, 2017.). Yearly, weekly, monthly
data is taken to forecast.
Subjective approach-
Subjective approach is quite effective forecasting technique for which outcomes are
forecasted by experts depending upon their subjective feelings.
Double-entry accounting
The accounting is based on the concept that every transaction has a dual effect and both
debit and credit side should be balanced.
Variance analysis
The difference obtained between planned output and actual one is termed is variance
analysis. For overcoming this, corrective action is taken to improve the situation.
Assessment Activity 2
TASK 2.1
Preparation of budget objectives
Planning
7

It is required that budget should be planned in accordance to the objective of Johnson
Trading so that sales and production forecast may be made (Walczak and Rutkowska, 2017).
Predicting cash flows
Estimating cash flows is required especially in small sized business which is Johnson
Trading in this case so that it may analyse use of working capital.
Resources allocation
Allocation is required so that funds may be properly utilised by the business so that
budgeted results may be obtained.
TASK 2.2
Sales budget
Sales budget for the year 2017
SALES BUDGET March April May June
Forecast sales units 22000 24200 27500 30250
Selling price per unit 176000 193600 220000 242000
Total sales in $ 198000 217800 247500 272250
TASK 2.3
Production budget
PRODUCTION
BUDGET
March April May June
8

Forecast unit sales 22000 24200 27500 30250
Plus Finished goods
stock closing
4400 4840 5500 6050
Total units required 26400 29040 33000 36300
less Finished goods
stock opening
0 4400 4840 5500
Equals production
units required
26400 24640 28160 30800
Cost per unit in $ 8 5.6 5.8 5.6
Cost of production in
$
211200 137984 163840 172480
TASK 2.4
Cash budget
CASH BUDGET March April May June
Collections from
Trade Debtors
40 % In month of
sale
79200 87120 99000 108900
55% in month
following sale
0 43560 47916 54450
9

Subtotal 79200 130680 146916 163350
GST collected 0 0 0 0
TOTAL RECEIPTS 79200 130680 146916 163350
Payments
To trade creditors for
purchases [100%]
Direct labour 63360 41395.2 49152 51744
Factory overhead 63360 41395.2 49152 51744
Expenses
Fixed 96000 96000 96000 96000
Variable 29700 32670 37125 40837.5
GST paid 0 0 0 0
TOTAL
PAYMENTS
252420 211460.4 231429 240325.5
SURPLUS/ DEFICIT -173220 -80780.4 -84513 -76975.5
Bank balance
opening
133220 -52440 -136953 -
213928.5
Bank balance closing -40000 133220 -52440 -136953
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TASK 2.5
Budgeted income statement
March April May June
SALES 198000 217800 247500 272250
Less COST OF GOODS SOLD 176000 193600 220000 242000
22000 24200 27500 30250
Opening Finished Goods Stock 0 4400 4840 5500
Plus Cost of production 211200 137984 163840 172840
233200 166584 196180 208590
Less Closing finished goods
stock
4400 4840 5500 6050
GROSS PROFIT 228800 161744 190680 202540
Less Expenses from ordinary
activities
126680 82790.4 98304 103488
Selling, administrative and
11

financial
Fixed 96000 96000 96000 96000
29700 32670 37125 40837.5
Variable
252380 211460.4 231429 240325.5
NET LOSS from ordinary
activities
-23580 -49716.4 -40749 -37785.5
TASK 2.6
Budgeted balance sheet
Budget Balance Sheet as at 30 June
2017
$
OWNERS' EQUITY
Capital 420080
Add / Less Net profit / loss 151830.9
Less Drawings
Total owners' equity 268249.1
12

This is represented by
ASSETS
Current assets 520146
Cash at bank
Finished goods stock
GST paid
Trade debtors
Total current assets
Non-current assets
Property, plant & equipment 650000
Less Accumulated depreciation 130000
Investments
Other financial assets
Total non-current assets
TOTAL ASSETS 1300146
Less LIABILITIES
Current liabilities 40000
GST collected
Total current liabilities
Non-current liabilities
Mortgage on property 250000
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Total non-current liabilities
TOTAL LIABILITIES 518249.1
NET ASSETS 741896.9
TASK 2.7
Stakeholders and consultation methods
Stakeholders such as investors, creditors, customers are required to be communicated
before implementation of budget so that they may be ready to adhere to budgetary target. For
overcoming this problem, various consultation methods can be used such as-
Telephonic interview
Stakeholders may be engaged in informal way of interview by contacting on telephone so
that consultation may be obtained with much ease (Milette and et.al, 2017).
Focus groups
Moderator is informed to carry out information to stakeholders so that there opinions can
be extracted and consultation may be made.
TASK 2.8
KPI (Key Performance Indicators)
KPI are required to be attained so that strategic goals and target may be accomplished by
Johnson Trading Company in effective way. KPI such as customer attrition, current status of
customers and other perspectives are required to be understood so that such as KPI may be
conformed with owners and management.
TASK 2.9
Budgetary reports
All the budgetary reports should be secured in a manner so that apart from management
no one seeks it. Customer and supplier invoices should be kept in proper manner. This help to
secure budgetary reports from any kind of discrepancy.
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