SITXFIN003 Manage finances within a budget Worksheets
Table of Contents
Definition – A budget is a financial plan that determine what are the estimated expenses and revenue incurred in the financial year, and the profitability of business can also be determined.
Purpose – A budget helps to achieve the goals of the business and it is prepared prior to assist in the business planning process, and it allow the organization to allocate funds so that underutilization and overutilization can be avoided (Bösch, et al., 2018).
Budget can be used to determine how business funds will be divided among different projects and departments.
Fixed budget is prepared at the starting of the budget period, and the figures in the fixed budget will be remain same no matter what are the figures of the organization revenue and expenses.
Flexible budget allows adjustments that are based on the changing conditions, and the figures of the flexible budget change according to the different scenarios(Bösch, et al., 2018).
A cash flow budget determined the cash inflow and cash outflow in operating activities, investing activities as well as financial activities. It allows to determine how much cash or funds are available during any given period.
Profit and Loss budget is known as the revenue or income budget and anticipated the profit and loss of the given period of time, and it indicates the forecasted revenue and forecasted expenses.
Financial Viability – It simply means that the business has generated enough income so that they can clear their all dues and make a good amount of profit.
Profitability – It simply means that the business have that ability to cover all the costs by generating revenue from assets.
Liquidity –It refers to availability of assets that are converted into cash, and pay the amount for purchase of goods.
Budget cycle is the process which mainly starts with the preparation of budget, and it will end when all the transactions completed in the budget period, also the allocation of resources is one of the parts of the budget cycle (Rhanoui, et al., 2019).
If the budget priorities are changed, then the communication must be done effectively so that changes will be made in the budget. Priorities of the organization will be determined by the departmental goals and ensure that business owners as well as stakeholders will be informed regarding the departmental goals and priorities.
Yes, it is true that the budget allow only limited amount of funds and wages, and ensure that consult with the personnel that are relevant for these decisions, and budget help the business to achieve the objectives which are determined, and it is important to communicate the wages to all the staff members so that they must be assure that what is the cost of their work.
Two ways to promote awareness are such as conduct meetings, and share the budget to all the staff members and departmental managers by email so that they all will be informed about it.
Promoting the importance of budget helps to identify what is the budget allocated of each department, and it states that all employees must ensure that there will be optimum utilization of resources, and no one is wasting the resources in the organization, so that cost will not exceed(Rhanoui, et al., 2019).
It is important to record resource allocation because it makes sure that performance will be tracked, manage costs and cash flow, and most importantly identify and rectify deviations as well. Efficiency and productivity will be analyzed of all the staff members in the organization.
Four records to show the resource allocation are such as –
- First record is profit and loss statement
- Payroll documentation
- Purchasing documentation
- And the last one is balance sheet.
Compare actual figures with the budgeted figures because it will analyze that the budget is going over or under, and identify whether it will be underutilization or overutilization of resources. Also, it will discover that the budgets is realistic or not.
Check every month to determine that the actual income and budget is going according to the projected budget or not. Checking in every month is essential because it will identify where the areas of improvement can be made so that actual expenses will go as per the projected expenses.
Six types of financial records are such as bank deposit documentation, cheque books, credit card transaction statements, bank summaries, bank statements.
There is an advantage of using the computerized system in preparing the financial records that it is easy and quick process of developing the financial statements and easy to store data, update as well as distribute information.
Financial commitments in the business are such as that funds that are used in the business must be allocated properly and share the exact information with all the shareholders, and transparency must be maintained in the organization.
Two examples of the financial commitments for the business are such as Taxation payments and wages must be done on time, and there will be no tax evasion in the organization, as well as wages will be done to all the staff members according to their work only.
Four basis types of expenses in which the data is recorded in the financial documents are such as
- Fixed Expenses – Example is rent paid.
- Variable expenses –Example is electricity bills.
- Direct expenses – Direct expenses arecost of wages
- Indirect expenses – Examples of indirect expense is office expenses.
To calculate a budget variance and budget percentage, the formula that is used is –
- Budget variance – Actual expenses – projected expenses (Lomas, et al., 2018).
- Variance percentage – (Actual expenses – budget expenses) / budget expenses * 100
From the above table, it has been determined that public bar meals figures are calculated correctly.
- It will be favorable
- It is Unfavorable situation
- It is Unfavorable situation
Four main reasons are such as targets can be set too high or too low, there can be an unforeseen circumstance incurred in the organization and it leads to affect the budget, another one is changing conditions, and operational factors(Lomas, et al., 2018).
Factors that need to consider that whether the variation that has been determine can be investigated further or not can be that there is regularity of variance, reason behind the variance, and the cost of the variance that how it has been affected the organization. Another one is that how it is impacting the organization.
Three options that will consider to manage budget deviations effectively that are such as –
- Updating actual figures regularly.
- Second one is options can be investigated so that variable expenses can be reduced.
- Staffing levels can be controlled as well as rosters.
- Stock must be conducted on the daily basis.
Four types of information from the budget targets are –
- Successes – It includes two types of information such as whether the targets are achieved or not by the staff members and another one is staff members able to reach their targets (Oktar, et al., 2020).
- Concerns – Second one is whether the targets have been missed or not, and another one is what are the internal as well as external factors that are beyond the control.
- Third is making improvements – It includes two types of information such as that how the performance can be improved and what actions can we take to make improvements better? (Oktar, et al., 2020).
- Fourth one is setting new goals – It includes that what changes made in the target budget(Oktar, et al., 2020).
Trends analysis is the method that organizations use to understand the current performance of the business and provide information related to what businesses achieve in the future by their current business practices and operations. This analysis also helps the business by providing ideas related to the things that move the business in the right direction (Fang, 2019).
There are two questions that managers ask when assessing the existing resources and cost of the business such as
- How can you use the resources of the organization more effectively?
- How can you increase the sale and decrease the cost of the business?
An organization must discuss the budget outcome with the finance manager because the finance manager is the management and control the financial transaction of the business. The finance manager always tracks the financial position of the business to identify the area that needs improvement (Fang, 2019).
There are five examples of approaches are following as –
- Conduct the training and development program for the staff members.
- Use new software as well as hardware to manage the expenses of the business.
- Always create a contingency plan.
- Review the current policy and procedures of the organization.
- Create the purchasing policy for purchasing the material and resources of the business.
There are five examples of approaches to managing and controlling the payroll expenses of the business such as –
- a) Identify the number of customers that are anticipated.
- b) Pay the minimum cost for overtime.
- c) Decide the wages rate for the employees.
- d) Hire the staff according to the requirements.
- e) Manage the staff wages and salary rate.
There is a list of three approaches or possible options to control and improve the management of accounts payable of the business such as
- a) Absenteeism
- b) Labour turnover
- c) Equipment breakdown and malfunctions.
There is a list of three methods that organizations use to increase the profit of the business such as –
- a) Update the price structure of the business according to the current market condition.
- b) Adopt a new promotional activity to promote the business.
- c) Update or create new outputs for the business (Hong & Wu, 2019).
There is a list of two people that should represent the recommendation to
- Financial experts
- The General manager of the business.
- Customer service
- a) Benefits – After implementing the changes, staff gets motivated to adopt the changes to provide the best services to the customers.
- b) Disadvantages – Sometimes, the staff member does not get comfortable adopting the changes because they are familiar with old procedures.
- Staff morale
- a) Benefits – After implementing the changes, the morale of team members increases to complete the work on time with more potential (Hong & Wu, 2019).
- b) Disadvantages – Sometimes, the company does not develop the changes according to the consent of employees due to this reason the morale of the staff member is decreased.
There are some recommendations to improve budget management such as –
- a) Use the resources properly without wasting them.
- b) Encourage the employees to increase the sale of the business and improve their business performance.
- c) Update the business policies and procedures to improve the business operations.
- Introduction of the problem that the company currently faces.
- Impacts of the problem that the company may be facing in the future.
- Solution of the problem that the company uses to overcome the impact of the problem.
There is a list of five examples such as –
- a) Sale of the business.
- b) Purchases of the organization.
- c) Cost related to the marketing and promotions.
- d) Annual budget of the business.
- e) Income from various other sources.
There is a list of five examples such as –
- a) Purpose of the report.
- b) Title of the report.
- c) Date of preparing the report.
- d) Receivers
- e) Report prepared by.
- Report that includes a budget helps the company to decide to manage the expenses of the business.
- Report that includes information related to the HRM help to manage the hiring process of the business.
- Report that includes information related to profit and loss helps to increase the sale and profits of the business (Li, 2015).
Managers can see the status of a report by reviewing the audit page of the business or organization. In many companies, stakeholders send the report to the senior managers by their email.
- Accounting software helps the company by providing information related to the expenses and income of the business. In this way, the company can manage the budget of the business.
- Accounting software helps the company by providing a way to prepare the budget on time.
- Accounting software helps the company by updating the amount of the budget automatically (Li, 2015).
- Variable direct costs – Tab Commission, and another one is Utilities
- Variable indirect costs – Variable indirect costs including advertising, and promotions, and another one is bank charges.
- Fixed Indirect costs –Fixed indirect costs are rent charges, license fees and permits.
The top four cost categories for which the budget has been allocated to the business in which the funds are allocated high in the budget are such as beverage purchases, food purchases, wages and utilities.
Significant funds have been allocated to these cost categories because they are the huge part of the expenses, so that deviations will be less incurred in these categories. If inadequate funds are allocated, then the deviations can be incurred and the business has to prepare the revised budget.
Different type of information that will be communicated to the team so that targets and goals can be achieved are such as what is the budget allocated to the team and what all resources including human resources and physical resources are allocated to the team, and ensure that they are aware regarding the policies and procedures of the organization. If the meeting is conducted, they will receive the full information and it helps them to use that information in achieving their targets, also their queries can be solved.
Techniques to promote awareness of controlling costs and increasing sales are such as staff training will be conducted, track the performance of employees and involve them in participating in the brainstorming session so that they will be aware about the costs and sales of the organization, and can easily use sales techniques as well as how to communicate with the customers techniques to convince them and increase sales.
Yes, there were variances in the sales figure, but no need to worry about it because all the figures are positive and variances that incurred are also positive. So, it leads to ensure that the sales budget is going on track only. The results that have been indicated are that actual sales are more than the budget sales, and variances are positive as well as variance percentage are positive (Beredugo, et al., 2019).
Expenses such as small equipment replacement as well as printing stationery and training expenses are also considered to be investigated further, and investigation must be done because results outcome can be unfavorable for the business and it leads to increase in overall expenses and wastage of resources. Investigation is required because the projected expenses are less than the actual expenses(Beredugo, et al., 2019).
Based on the responses from question 1 and 2, it has been determined that evaluation of budget has been done and net profit as well as gross profit has been increased, and it ensure that total income is more than the total expenses. And the overall result incurred is favorable for the organization.
Wages and costs have been allocated the highest funds in the organization and it leads to affect the performance, and wages is considered as an unfavorable for the business and the variance percentage is negative.
Outcomes of the report that will be given in the staff meeting are such as total sales has been increased. Comparison between the actual sales and projected sales is done and it has been identified that actual sales have been increased, and the variance percentage is positive and the result is favorable.
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