Operational Budgets Report: Financial Performance and Budget Analysis

This report delves into the realm of operational budgets within an organization, covering key aspects of financial planning and control. It begins by defining different types of budgets, such as master, operating, cash flow, and static budgets, along with the principles governing budgetary control. The report then explores the scope of budgetary planning, emphasizing the importance of stakeholder consultation and communication. It provides detailed examples, including an annual expenditure budget, a budgeted profit and loss statement, purchase budgets, and worksheets for cash receipts and payments. Variance analysis is discussed, highlighting its role in identifying discrepancies between budgeted and actual figures. The report also covers forecasting techniques, the application of double-entry accounting, and the preparation of various budget components, including sales, production, and cash budgets. Furthermore, it addresses the creation of budgeted income statements and balance sheets, the use of key performance indicators (KPIs), and the recording of reports to facilitate effective financial management and decision-making. The analysis is supported by numerical examples and calculations, providing a practical understanding of the concepts discussed.

Operational budgets

Table of Contents
INTRODUCTION...........................................................................................................................1
ASSESSEMENT 1..........................................................................................................................1
1.1 Different Budgets and their principles..................................................................................1
1.2 Scope of budgetary planning.................................................................................................2
1.3 Annual expenditure budget...................................................................................................2
1.4 Budgeted profit and loss........................................................................................................2
1.5 Purchase budget....................................................................................................................3
1.6 Worksheet for cash receipt and payments.............................................................................3
1.7 Purchase budget....................................................................................................................4
1.8 Variance Analysis.................................................................................................................5
1.9 Forecasting techniques, double entry and variance analysis.................................................5
ASSESSMENT 2.............................................................................................................................6
2.1 Preparation of objectives of budget.......................................................................................6
2.2 Sales budget..........................................................................................................................7
2.3 Production budget.................................................................................................................7
2.4 cash budget............................................................................................................................7
2.5 Budgeted income statements.................................................................................................8
2.6 Budgeted balance sheet.........................................................................................................8
2.7 consultation with stakeholders..............................................................................................9
2.8 Key performance indicators .................................................................................................9
2.9 Recording reports................................................................................................................10
ASSESSEMENT 3........................................................................................................................10
COVERED IN PPT...................................................................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..................................................................................................................................

INTRODUCTION
In any organisation there are various operations which are carried out such as sales,
production, and many more. For them it is required that budgets shall be made so that they can
be managed in appropriate manner (Zimmerman and Yahya-Zadeh, 2011). By the help of them
organisation will be able to control its expenses and this will lead to profit maximisation. Also
the variances will be identified which will be used in designing the plan for future. In this report
all the various budgets will be made and by that an understanding of them will be gained.
ASSESSEMENT 1
1.1 Different Budgets and their principles.
Budgets are the plans which shall be made in which it will be decided that how the
different operations shall be performed. All the objectives which are specified in it will have to
be attained within the prescribed time period. There are various types of budgets which are as
follows:
 Master budget: When all the aspects of the business are presented in combined manner
then that will be known as master budget (Hofstede, 2012). By the help of this overall
performance of company can be evaluated.
 Operating budget: In this budget projections will be made in respect of various incomes
and expenses which arise in business.
 Cash flow budget: All the transactions which will be related to cash will be entered in this
budget and by this needs will be identified and fulfilled at appropriate time.
 Static budget: The budget in which there will be no effect of any change or can be said
that it will remain same regardless of change in various factors will be covered in it.
There are several principles which are associated with budgetary control and some of
them are:
 All the activities will be coordinated as plan will be established in relation to
performance.
 Comparison will be made with the help of this between actual and budgeted amounts.
 Variances will be calculated and also reasons of them will be analysed.
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1.2 Scope of budgetary planning.
The planning which will be done shall be made by having all the discussion with
colleagues and others. It is required as then all information will be available regarding various
departments and this will help in making plan which will be considering all aspects. Risk of
making wrong decisions in budget will be eliminated by proper communication.
1.3 Annual expenditure budget.
Annual budgeted expenses for 2017
Particulars Calculation Amount $
Expected fees $350000
Marketing expense:
Fixed advertising $6800
Advertising 35000 * .04 $14000
Financial expense:
Interest paid 1400*12 $16800
Bank charges 200*12 $2400
Administration expense:
Accounting staff cost 8000*12 $96000
Stationary 280*12 $3360
Depreciation of office equipment $8500
Depreciation of motor vehicle $12400
Rent 2000*12 $24000
Travelling expense $22000
Work cover 96000*.03 $2880
Superannuation 96000*.09 $8640
Telecommunication 1000*12 $12000
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Total $229780
1.4 Budgeted profit and loss.
Budgeted Profit and loss Statement
Particulars Inclusive GST
payable
GST Input tax credit GST- Exclusive
amount
Fees revenue 396000 36000 360000
Less: expenses
Salaries 52500 52500
Long service leave 1050 1050
Telephone [phone]
Bank charges 1000 1000
Insurance 2332 212 2120
Rent 11000 1000 10000
Total expenses 73602 1732 71870
Profit 322398 288130
1.5 Purchase budget
Purchase Budget for quarter
Month October November December Total
A Projected sales (units) 200 280 450 930
B Closing stock 140 225 160 525
C Total stock
available(A+B)
340 505 610 1455
D Opening stock 100 140 225 465
E Purchases (units) (C-D) 240 365 385 990
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F Cost per unit 30 30 30
G Purchase cost (E * F) $7200 $10950 $11550 $29700
1.6 Worksheet for cash receipt and payments.
Cash receipts
Particulars January February March Quarter
Cash sale (40%) 140000 146000 152000 438000
Credit sales from last
month (80%)
172800 168000 175200 516000
Credit sale from two
month ago (20%)
35400 43200 42000 120600
Total cash collected 348200 357200 369200 1074600
Add: GST @ 10% 34820 35720 36920 107460
Total amount 383020 392920 406120 1182060
Cash payments
Particulars January February March Quarter
Cash purchase 216000 210000 219000 645000
Add: GST @ 10% 21600 21000 21900 64500
Total cash
payments
237600 231000 240900 709500
The summary statement
Particulars January February March Quarter
Total actual receipts 383020 392920 406120 1182060
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Total cash payments 237600 231000 240900 709500
surplus 145420 161920 165220 472560
Opening balance 0 145420 307340 0
Closing cash balance 145420 307340 472560 472560
1.7 Purchase budget
Calculation of purchases for Quarter ending December, 2016
Particulars October November December Quarter
Sales ($) 2992000 3308800 3555200 3203200
Cost of goods
sold
1360000 1504000 1616000 4480000
Add: closing
stock
300800 323200 291200 915200
Total 1660800 1827200 1907200 5395200
Less: opening
stock
272000 300800 323200 896000
Purchases ($) 1388800 1526400 1584000 4499200
Purchases
(units)
17360 19080 19800 56240
1.8 Variance Analysis
Variance analysis report
Income/expense Budget $ Actual $ Variance Favourable or
unfavourable
sales 640000 655000 -15000 Favourable
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Less: variable
cost
Cost of sales 458000 494500 -36500 Unfavourable
Delivery and
installation costs
19200 13100 6100 Favourable
Sales commission 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
Printing &
stationary
6000 5500 500 Favourable
TOTAL FIXED 20100 19900 200 Favourable
TOTAL COST 510100 543875 -33775 Unfavourable
NET INCOME 129900 111125 18775 Unfavourable
1.9 Forecasting techniques, double entry and variance analysis.
Forecasting means making estimates in respect of coming period and for that there are
various techniques which are present and can be used. In this there are various aspects which will
be considered such as historical data which can be measured and analysis will be carried out by
potential investors and analyst (Shim, Siegel and Shim, 2011). There will be some amount of risk
which will be involved in it. Some of the most commonly used techniques are as follows:
 Scenario technique: In this different criteria will be selected for starting and then on the
basis of them various outcomes will be developed by the forecasters. Out of the available
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options, most probable outcome will be selected by those will be making decisions. The
options under this techniques will be classified as worst, middle and best.
 Subjective approach: In this predictions will be made on the basis of the subjective
thoughts and feelings of person who is forecasting. In order to resolve issues and generate
the ideas it will be required that brainstorming sessions shall be conducted in which no
pressure or criticism will be there. when objective forecasts cannot be used due to lack of
time then this approach is taken into consideration. As it is based on thoughts so there are
high chances that bias will be there so it will be needed that all the predictions shall be
checked by the decision makers in appropriate manner.
 Time series forecasting: This will be covered under quantitative methods. In this trend
will be identified for which collected data will have to be measured. It can be used for
any period of time which may be monthly, weekly or on any other basis. Time series will
be made by cyclical, seasonal or irregular components. The information which will be
shifting with the time will be representing trend. In this increase or decrease will be
determined and that will be shown in form of sloping line. The component which will be
near to it will be cyclical.
In the accounting there is a technique which is used and it is double entry. In this it is
considered that all the transactions will be having two aspects which will be having opposite
effects. By this two accounts will be affected with single transaction. With the help of this it will
be ensured that accounting equation is balanced.
Variance analysis is the method by which difference in budgeted and actual amount is
ascertained. Then all of them are analysed so that reasons for same can be identified and then
measures will be taken by company to ensure that they are eliminated.
ASSESSMENT 2
2.1 Preparation of objectives of budget.
In the formation of budgets there are many objectives which will be achieved and some
are provided below:
 the financial position of business will be estimated as all incomes and expenses will be
predicted.
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 If any change occurs then it will be providing management with the plan to make
decisions and also changes can be made accordingly.
 The plan will be provided in respect of various actions to be performed with the use of
which aim of business will be attained.
So as by all of them organisation will be benefited so it can be said that they will be in
coordination to mission and vision.
2.2 Sales budget
Particulars March April May June
Sales units 22000 24200 27500 30800
Selling price p.u. 12.8 12.8 12.8 12.8
Total sales value
($)
281600 309760 352000 394240
2.3 Production budget
Particulars April May June
Forecasted sales in units 24200 27500 30800
Add: closing sock 4840 5500 6160
Total units 29040 33000 36960
Less: opening stock 4400 4840 5500
Production units 24640 28160 31460
Cost P.U. 8 8 8
Total cost of production 197120 225280 251680
2.4 cash budget
Particulars April May June
Collection from trade debtors:
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Sales month 40% 123904 140800 157696
Following month 55% 154880 170368 193600
Sub total 278784 311168 351296
GST collected 27878.4 31116.8 35129.6
Total receipts 306662.4 342284.8 386425.6
Payments
Trade creditors 78848 90112 100672
Direct labour 59136 67584 75504
Factory overhead 59136 67584 75504
Expenses:
Fixed 8000 8000 8000
Variable 46464 52800 59136
GST paid 25158.4 28608 31881.6
Total payments 276742.4 314688 350697.6
Surplus/deficit 29920 27596.8 35728
Opening balance -40000 -10080 17516.8
Closing balance -10080 17516.8 53244.8
2.5 Budgeted income statements.
Income statements for year ending 30 June 2017
Particulars Amount
Sales 1056000
Less: cost of goods sold
Opening stock (4400*8) 35200
(+) purchases (84260*8) 674080
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(-)closing stock (6160*8) 49280 -660000
Gross profit 396000
Variable expenses -158400
Fixed expenses -24000
Net profit 213600
2.6 Budgeted balance sheet
Balance sheet as on 30 June 2017
Particulars Amount
Owners capital (420080+213600) 633680
Current assets:
Stock 49280
Debtors (394240*.55) 216832
Cash 53244.8
GST paid 85648
Non current assets
Property plant & equipment (650000-130000) 520000
Other financial assets 52800
Total assets 977804.8
Liabilities
Current liability
GST collected 94124.8
Non current liability
Mortgage on property 250000
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Total liabilities 344124.8
Net assets 633680
2.7 consultation with stakeholders
Stakeholders are those which are directly or indirectly related to the company. They are
the individuals for whom company operates their operations in a great extent. Stakeholders in the
company are: government, consumers, workers, suppliers, creditors, community trade unions and
other concerned group who have direct or indirect interest with the firm. Stakeholders can affect
the firm or be affected by the actions of the firm. Before going to implement the budget,
company is required to focus all these stakeholders in a great extent (Goode and Malik, 2011).
Their concern can be placed by way consultation process. With the help of this process, company
can balance the different interests and requirements of its stakeholders, and to form a sound plan
for the future.
2.8 Key performance indicators
There are various key performance indicators which are required to be opted by the
assistance marketing managers in order to attain the pre-set targets.
Customers value: Every marketing manager is required to know the measures of their company's
return on investment, quantifying whether company is producing enough revenues or not.
Cost per acquisition: This is the amount of money that manager invest for acquiring the
customers. Such can cover things such as hours of labours in producing common expenses for
supplies or material implemented for generating products and services.
2.9 Recording reports
Keeping records is the most crucial part in everyone's routine work (Uyar and Bilgin,
2011). With the help of advances technologies, company can securely store and records
budgetary reports. As, this is essential to work effectively, and managing records assists the firm
to frame strategic direction and oversight.
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