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Unit 9 Management Accounting Assignment Sample
Diploma in Business
Unit Number and Title
Unit 5 Management Accounting
Budgeting is an essential element for the smooth conduct of the business in an organization. The budgets are prepared for determine the needs of the companies regarding the requirement of funding and the effective allocation of the available resources in the operations of the company. The report has been prepared indicating the impact of various types of costs on the business of the organization. The report includes the explanation of the nature and behaviour of the costs along with the description of the various methods of costing. The favourable and adverse variance of cost has been determined and analysed along with the specification of the purpose for which the budgets are prepared in the organizations
AC 3.1 Explain the purpose and nature of the budgeting process
Budget is the process of planning the expenses of the company. The budgeting is done in an organization to determine whether the company has sufficient funds to meet the expenses of the organization. The budget has been prepared by the finance department of the company and help in the forecasting of the financial resources requirements of the organization. The budget is the plan of the sales and revenues to be generated for a given period of time (Alino & Schneider, 2012).
There are several purposes for the preparation of the budget;
- The major purpose of budgeting is to forecast the sales, cost and expenses of the organization.
- The performance of the company can be measured with the help of budgeting.
- Decision making process can be possible to be performed effectively and efficiently in the organization.
- The budget makes the organization possible to evaluate the availability of the funds in the company (Alino & Schneider, 2012).
- The prior planning of the budget is done to allocate the resources of the organization in an effective manner.
- Control can be maintained and monitored in the organization for the betterment of the operations in all departments.
- The budget prepared in the organization provides the direction to the company for the achievement of the organizational goals and objectives.
- The cash flow of the company can be predicted in advance so that the company can utilize the available resources in the organization (Alino & Schneider, 2012).
- With the effective budget process, coordination among the managers in an organization can be developed in order to maintain the minimum cost in the production process.
- One of the important elements of budgeting process is to eliminate or reduce the risk in the business of the company.
AC3.2 Budgets can be produced for different purpose and needs. You are required to select appropriate budgeting methods for the organization and its needs.
There are different budgeting methods that are used in an organization. The companies select the appropriate budgeting methods according to the needs and nature of the organization. Some of the methods of budgeting are;
Zero based budgeting: The budget in the zero based budgeting starts from the zero. The process of budgeting in this method starts from zero bases and determining the allocation of the resources in each department of the organization along with the review of the budget on regular intervals. There are several steps that are performed in the zero based budgeting which includes the decision making activities of the managers and the efforts of the managers are focused on the reduction in the costs as well as elimination of duplication of activities (Glass & Prinzivalli, 2014).
The needs of zero based budgeting are;
- The zero based budgeting ensures the accuracy and efficiency in the preparation of budget.
- The method of zero based budgeting is helpful in the determination of the cost effective operations in the business of the organization.
The decision making process of the organization is improved as the managers are involved in effective decision making regarding the reduction of cost.
Incremental budgeting: For the purpose of the preparation of the incremental budget, the previous budget and the actual performance of the organization is taken into consideration in order to prepare the forecasted budget for the company which focuses on the increments in the cost and the added amount in the budget. The process for the preparation of the incremental budgeting is simple as only incremental changes are added in the new budget in comparison to the budget of the previous year. The incremental method of budgeting is suitable only to those organizations which have the fixed costing and there are not many deviations of cash flows in the operations of the organization (Alino & Schneider, 2012).
The needs of incremental budgeting are;
- The incremental budgeting process is simple as it does not contain the process of preparing a fresh budget and the new budget is prepared taking into consideration the previously prepared budget.
- The departments of the organization have the stable operations and this benefits the organization in performing the operations effectively.
- The funds are available for the organization on the continuous basis.
- The changes that affect the business of the organization can be detected timely (Alino & Schneider, 2012).
AC 3.3 various kinds of Budgets
AC 3.4 Cash Budget
Notes to cash budget
- It is given that total sales are converted 60% into cash in the month of sales and rest 40 % is received in the month succeeding the sales.
- Regarding purchase units is was given that purchases are made for the next month production to be made, that is there is lag between purchases and transferring the raw material to the production department.
- Purchases payment is made in the succeeding month of purchase
- Depreciation cost of 400 per month is reduced from the total overhead cost as it is a non cash cost
- Payment of overhead cost is made 80 % in the month of production and rest 20 % in next month to production (Alino & Schneider, 2012).
AC 4.1 Variance statements
AC 4.2 Reconciliation statement
AC 4.3 Report findings to management in accordance with identified responsibility centres
The budget prepared can’t be chosen because the overall variance is unfavourable. The organisation has to increase its budgets in labour and sales units and price respectively such that we can there do not exist budget deviation or labour has to work efficiently and management require skilled labour which in turns reduces labour hours and actual performance get increased and company will get closer to budgets (Lidia&T.G.2014).
The report concludes that budget planning plays an important role in the successful planning of the business strategy. The report explained the performance indicators with the analysis of the variance and the needs and the purpose of the budgets has been explained. The report focuses on the methods that are used for the purpose of preparation of the budgets that depends on the nature of the organizations. The report has also determined the liquidity position of ABC Limited and the uses of the standard costing have been specified. Presentation of data with the uses of tables and graphs has been presented in the report.
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