Budgeting

Budgeting

The main purpose of this report is to prepare the different budget for the Milbourn Manufacturers Ltd. In this context, cash budget, production budget, material budget, labour budget are prepared.

This report is significant to understand aspect of the preparing the cash budge, production budget, material budget and labour budget. Typically, the preparation of the budget is an interesting sub. But, still limitation is faced in this due to complexity of the information.

Part A

A.1: Cash budget for VGL Ltd

Cash budget for VGL Ltd
JanFebMarApr
Beginning Cash Balance19,00,000-1,24,10,0004,96,90,00011,07,60,000
Cash recipt from sales
20% cash instant of sales22440000163200001275000012240000
65% cash after 30 days of sales7,29,30,0005,30,40,0004,14,37,500
15% cash after 60 of sales1,68,30,0001,22,40,000
Payment to Milbourn35200000256000002000000019200000
Cash expenses15,50,00015,50,00015,50,00015,50,000
Closing balance -1,24,10,0004,96,90,00011,07,60,00015,59,27,500

 

A.2: Material budget for Milbourn Manufacturers Ltd

Material budget for Milbourn Manufacturers Ltd
DecJanFebMar
Total planed unites2,20,0001,60,0001,25,0001,20,000
Material A Kgs2310000168000013125001260000
Material B Kgs5940000432000033750003240000
Material C Kgs4400000320000025000002400000
fixed overhead cost3,00,0003,00,0003,00,0003,00,000
Total cost / Closing balance12950000950000074875007200000

 

A.3: Production budget for Milbourn Manufacturers Ltd

Production budget for Milbourn Manufacturers Ltd
DecJanFebMar
Expected unites of sales2,20,0001,60,0001,25,0001,20,000
Add: desired ending finushed goods0000
Less: Beinging finished goods units0000
    
Required unities to produce2,20,0001,60,0001,25,0001,20,000

 

A.4: Labour budget for Milbourn Manufacturers Ltd

Labour budget for Milbourn Manufacturers Ltd 
DecJanFebMar
Unit Produced2,20,0001,60,0001,25,0001,20,000
Labour hour per unit0.50.50.50.5
Cost of labout per unit36363636
Cost Labour /closing balance3960000288000022500002160000

 

A.5: Cash budget for Milbourn Manufacturers Ltd

Cash budget for Milbourn Manufacturers Ltd
DecJanFebMar
Beginning Cash Balance1,550.00-1,69,08,450.0059,11,550.003,67,49,050.00
cash from VLG352000002560000020000000
Labour3960000288000022500002160000
Material12950000950000074875007200000
Closing balance-1,69,08,450.0059,11,550.003,67,49,050.006,17,89,050.00

Additional Questions

  1. A

It can be seen in the bottom down approach of budgeting. That is why, controller should avoid this technique in the large target.

  1. B:

To make the different budget provide various kind of advantage to the financial controller of the manufacturer Milbourn Manufacturers Ltd such as control on expenditure in the manufacturing process.

It also helps to manage the capital for different sources. But, at the same time it also contains some disadvantages such as success of the budgeting depends on the involvement of all the members.

  1. Cash Management
  2. On the basis of the cash budget, it can be advised to both VGL Ltd and Milbourn Manufacturers they should develop an effective strategy to collected the cash from creditors specially VGL Ltd.
  3. VGL Ltd can develop a strategy to reduce the credit limit on the sales.
  4. Its consequences may be seen as an increase in the amount of bad debts.
  5. The consequences of carrying too much cash can affect the capital of the company and its profitability. Due to stop of cash flow, company will also unable to earn profit.

Part B

B.1: Environmental Cost Report

Environmental cost categoriesAmount in $
Prevention
Initial evaluation of environmental standing of new suppliers2,100
Performing environmental studies7,500
Revising evaluation of some existing suppliers700
Training to the employees1,400
Detection
Contamination Testing28,000
Inefficient usage of material70,000
Internal Failure
Treating and disposing of toxic waste215,000
Maintaining pollution equipment39,000
Operating pollution equipment19,000
External Failure
Cleaning up chemically contaminated soil260,000

Total sales of the organization are $5,300,000 and total cost of the organization is $4,100,000.

Relative distribution percentages against total cost and total sales

PreventionDetectionInternal FailureExternal Failure
Percentages of total cost0.29%2.39%6.66%6.34%
Percentages of total sales0.22%1.85%5.15%4.91%

Budgeting

B.2: Prioritizing the environmental cost categories on the base of cost spending

The environmental cost categories are helpful for an organization to reduce negative outcome by spending more for control the quality. The prevention is a category of environmental cost that needs very less investment in control, so an organization should provide first priority to the prevention (Eshel, et al., 2015). After this detection is an appraisal activity that can be controlled by the management by the detection of the poor quality in the production.

After the detection activities the organization can control on the failure that may internal or external but an organization can control on internal failure first. The internal failure is more controllable than external failure because this failure is affected by internal sources such as scrap, repairing etc.

The external failures are not highly controllable by the organization so an organization should not spent more on them (Bovea and Pérez-Belis, 2012). These failure needs high costs for analysis the reasons of the failure of the product and service in the market.

Reference

Bovea, m. And pérez-belis, v., (2012) a taxonomy of ecodesign tools for integrating environmental requirements into the product design process. Journal of cleaner production20(1), pp.61-71.

Eshel, g., shepon, a., makov, t. And milo, r., (2015) partitioning united states’ feed consumption among livestock categories for improved environmental cost assessments. The journal of agricultural science153(3), pp.432-445.

Moussa, M. (2014) A Review of Human Resource Information Systems (HRISs) in Organizations. SIU Journal of Management, 4(1), pp. 1-34.

Weiss, (2014) Business ethics: A stakeholder and issues management approach. UK: Berrett-Koehler Publishers.

Wijaya, R.E., Ludigdo, U., Baridwan, Z. and Prihatiningtias, Y.W. (2015) Paradigm Blurred: Opera Cake in Management Accounting Information Research. Procedia-Social and Behavioral Sciences, 211, pp.859-865.

Worrell, J., Wasko, M. and Johnston, A., (2013) Social network analysis in accounting information systems research. International Journal of Accounting Information Systems, 14(2), pp.127-137.

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