StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

A Budget Is a Plan about Expenditures - Essay Example

Cite this document
Summary
The paper "A Budget Is a Plan about Expenditures" states that a budget is a very important tool in our lives as it helps to avoid underestimates or overestimates of both revenue and expenditures. Before the preparation of every budget, there must be a strategic plan…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER92% of users find it useful
A Budget Is a Plan about Expenditures
Read Text Preview

Extract of sample "A Budget Is a Plan about Expenditures"

A master budget that is a set of interrelated budgets used for different purposes. The master budget is categorized into both an operating budget and a financial budget. The operating budget shows income-generating activities alongside the expenses incurred in generating the revenues. This is usually captured in the budgeted income statement.

The finance budget shows the inflows and outflows of cash as well as the firm or companies' financial position. The operating budget includes the eight components of the budget such as the sales budget, purchase budget, production budget, direct material budget, labor budget, direct material budget, selling and distribution budget, and overhead budget. The financial budget components include; a budgeted income statement, a budgeted balance sheet, and a cash flow budget.

Based on the spreadsheet attached (excel) file shows how a company has forecasted its budget for the year 2015 divided into months to get the overall performance for the year. It is analyzed from the data in the Excel budget summary in terms of both values and ratios.

The values are interrelated and are used to give the final results shown on the formula of ratios and budget summary. The sheet is prepared in such a way that the values keyed into the spreadsheet will give different ratios and formulas. It, therefore, implies the first two sheets are relied upon by the other subsequent sheets.

            The spreadsheet is in such a way that it is very sensitive to the values fed into it. Assume that I have a company called ABC manufacturing company that has three branches in the country. The company deals with the processing of loaves of bread. The price of bread in different locations is based on the demand. In branch A the unit sales of bread is $45 with a cost price of $30.B selling price per unit is$ 50 with a cost price of $40 and A’s selling price per unit is $40 with a cost price of $30.the volumes of sales are 300 units in A, 400 units in B, and 500 units in C respectively. Using the data above will give different results assuming the financial year is 2006. (Assume the cost price per unit in every branch remains constant).

From the above mentioned, the marked yellow values affect the gross margin and are variable depending on the values of sales, purchases, and units of sales and purchase volume. The net profit ratio has also changed while the return on capital employed has also changed because the Earning before tax and interest have changed while the other components such as capital employed have not changed.

The solvency ratio components such as the working capital ratio and quick acid tests have also changed. This is due to the change in inventory.

Based on the above system(spreadsheet) of the budgeted costs and expenditures with an example given the new budget summary would be shown from the Excel. in this case, sensitivity analysis carried out showed how different variable(product)  affects the budgeted income statement, budgeted cash flow statement, and overhead budget. From the analysis the values will be obtained accurately .however should the formulae be deleted it will give an inaccurate and conflicting value. This is one of the limitations of Excel (spreadsheet) as a tool for analysis. Sensitivity analysis involves revising the budget based on varied assumptions. In practical budgeting, all the values have changed and are sensitive to changes in their variables or components.

The master budget models the company’s planned activities. Cash budget and the budgeted balance sheet to support key strategies. Actual plans differ from plans. The management wants to know if budgeted income and cash flows will change if key variables turn out to be incorrect. Sensitivity analysis is a what-if technique what the results will be if the predicted amount is not achieved.

Companies use a computer spreadsheet program like Microsoft Excel to prepare master budget schedules. The spreadsheet examines how sales and costs will change if the values change.

 

Summary

            The values from the Yearly budget summary are as follows:

  1.  

 

Budget Summary

 

Sales

£382,325

Gross Profit

£97,575

Gross Profit Margin

26%

Net Profit

£61,021

Net  Profit Margin

16%

Return on Capital Employed

93%

Cash position

-£57,579

Break Even units

2436.933333

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(Finance Budget Assignment Example | Topics and Well Written Essays - 1500 words, n.d.)
Finance Budget Assignment Example | Topics and Well Written Essays - 1500 words. https://studentshare.org/finance-accounting/1873900-finance-budget
(Finance Budget Assignment Example | Topics and Well Written Essays - 1500 Words)
Finance Budget Assignment Example | Topics and Well Written Essays - 1500 Words. https://studentshare.org/finance-accounting/1873900-finance-budget.
“Finance Budget Assignment Example | Topics and Well Written Essays - 1500 Words”. https://studentshare.org/finance-accounting/1873900-finance-budget.
  • Cited: 0 times

CHECK THESE SAMPLES OF A Budget Is a Plan about Expenditures

Budget analysis of RDBS Corporation

The essay discusses that a budget is a manuscript that translates plans into money.... “The budget process consists of activities that encompass the development, implementation, and evaluation of a plan for the provision of services and capital... The budget is an estimate, forecast about what you will need in fiscal terms to do your work.... The budget is the most important tool in the business.... Incremental budgeting is a budgeting method where the budget is organized using a preceding period's budget or else actual performance as a foundation with incremental amounts added for the new budget period....
6 Pages (1500 words) Essay

Microsoft Company Budget Plan Analysis

static budget is a set of assumptions derived by a company at the beginning of its fiscal period.... A static budget is associated with the anticipated values of input and output.... These values are different from the actual results; this is because the static budget is an assumed or anticipated input and output value that a company sets before starting its fiscal year (Andrew, 2011).... It revalues expenditures on the bases of revenue that is being generated by the company....
5 Pages (1250 words) Essay

The Organizational Structure of the Business

A financial budget is a set of revenue and sales projection at various production or sales volumes.... The involvement of operational staff in a budget setting will facilitate the budgetary control system and will eliminate variances.... The operating staff well knows about the operating costs and thus should be involved in the budget setting.... Operational staff must be educated about the budget and then involved in decision-making....
7 Pages (1750 words) Research Paper

The EU Budget

This essay "The EU budget" discusses hat are the major items of revenue and expenditure in the EU's budget and assesses how well this budget fits the priorities of the EU.... In the present day, development and employment receive a lion's share from the EU budget.... The citizens of the EU derive some kind of benefit from the EU budget.... The member states have approved which actions should be financed from the common budget....
6 Pages (1500 words) Essay

Table of content

Depending on how much you earn each month, your monthly expenses, and how far ahead you want to plan, setting up a personal budget is a good way to know how much you could save, and what mount of your income to allocate your expense.... The article states that if a budget is irregular, one needs to make a priority list of expenditure by way of importance; so one can fulfill these goals one by one.... The average American household budget is managed using an individual expense report....
1 Pages (250 words) Essay

The Prevention and Public Health initiative in the African Countries

"The Prevention and Public Health initiative in the African Countries" paper is aimed at conducting a study and presenting a paper to the board of directors of a large nonprofit-based health relief company regarding the issues of solving the health needs of a poorly developed Ghana.... ... ... ... The promotion of health and suitable interventions for disease prevention are being made in a cost-effective and impactful manner....
17 Pages (4250 words) Research Paper

Investigating How Much Knowledge the Samples of People Have about Expenditure Behaviour

The paper "Investigating How Much Knowledge the Samples of People Have about Expenditure Behaviour" is a great example of a finance and accounting essay.... The paper "Investigating How Much Knowledge the Samples of People Have about Expenditure Behaviour" is a great example of a finance and accounting essay.... Budgeting is a concept that is known to go hand in hand with making money, meaning that there are few chances that individuals will make money without thinking about how the money will be spent (Nafeh, 2013:n....
7 Pages (1750 words) Essay

Division of Accounting And Finance

This will therefore help different forms of business organization to ensure that they prepare a budget before allocating their scarce resources and also spends their income.... It usually involves future financial estimates and expenditures that the management expects to use (Hilton & Sainty, 2001).... It usually involves future financial estimates and expenditures that the management expects to use (Hilton & Sainty, 2001).... It usually involves future financial estimates and expenditures that the management expects to use (Hilton & Sainty, 2001)....
9 Pages (2250 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us