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 aspects of preparing the cash budget, production budget, material budget and labour budget. Typically, the preparation of the budget is an interesting sub. But, still, the limitation is faced in this due to the complexity of the information.
Part A
A.1: Cash budget for VGL Ltd
| Cash budget for VGL Ltd | ||||
| Jan | Feb | Mar | Apr | |
| Beginning Cash Balance | 19,00,000 | -1,24,10,000 | 4,96,90,000 | 11,07,60,000 |
| Cash receipt from sales | ||||
| 20% cash instant of sales | 22440000 | 16320000 | 12750000 | 12240000 |
| 65% cash after 30 days of sales | 7,29,30,000 | 5,30,40,000 | 4,14,37,500 | |
| 15% cash after 60 of sales | 1,68,30,000 | 1,22,40,000 | ||
| Payment to Milbourn | 35200000 | 25600000 | 20000000 | 19200000 |
| Cash expenses | 15,50,000 | 15,50,000 | 15,50,000 | 15,50,000 |
| Closing balance | -1,24,10,000 | 4,96,90,000 | 11,07,60,000 | 15,59,27,500 |
A.2: Material budget for Milbourn Manufacturers Ltd
| Material budget for Milbourn Manufacturers Ltd | ||||
| Dec | Jan | Feb | Mar | |
| Total planed unites | 2,20,000 | 1,60,000 | 1,25,000 | 1,20,000 |
| Material A Kgs | 2310000 | 1680000 | 1312500 | 1260000 |
| Material B Kgs | 5940000 | 4320000 | 3375000 | 3240000 |
| Material C Kgs | 4400000 | 3200000 | 2500000 | 2400000 |
| fixed overhead cost | 3,00,000 | 3,00,000 | 3,00,000 | 3,00,000 |
| Total cost / Closing balance | 12950000 | 9500000 | 7487500 | 7200000 |
A.3: Production budget for Milbourn Manufacturers Ltd
| The production budget for Milbourn Manufacturers Ltd | ||||
| Dec | Jan | Feb | Mar | |
| Expected units of sales | 2,20,000 | 1,60,000 | 1,25,000 | 1,20,000 |
| Add: desired ending finished goods | 0 | 0 | 0 | 0 |
| Less: Beginning finished goods units | 0 | 0 | 0 | 0 |
| Required unities to produce | 2,20,000 | 1,60,000 | 1,25,000 | 1,20,000 |
A.4: Labour budget for Milbourn Manufacturers Ltd
| Labour budget for Milbourn Manufacturers Ltd | ||||
| Dec | Jan | Feb | Mar | |
| Unit Produced | 2,20,000 | 1,60,000 | 1,25,000 | 1,20,000 |
| Labour hour per unit | 0.5 | 0.5 | 0.5 | 0.5 |
| Cost of labour per unit | 36 | 36 | 36 | 36 |
| Cost Labour /closing balance | 3960000 | 2880000 | 2250000 | 2160000 |
A.5: Cash budget for Milbourn Manufacturers Ltd
| Cash budget for Milbourn Manufacturers Ltd | ||||
| Dec | Jan | Feb | Mar | |
| Beginning Cash Balance | 1,550.00 | -1,69,08,450.00 | 59,11,550.00 | 3,67,49,050.00 |
| cash from VLG | 35200000 | 25600000 | 20000000 | |
| Labour | 3960000 | 2880000 | 2250000 | 2160000 |
| Material | 12950000 | 9500000 | 7487500 | 7200000 |
| Closing balance | -1,69,08,450.00 | 59,11,550.00 | 3,67,49,050.00 | 6,17,89,050.00 |
Additional Questions
- A
It can be seen in the bottom down approach of budgeting. That is why the controller should avoid this technique in the large target.
- B:
To make the different budgets provide various kinds of advantages 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 the success of the budgeting depends on the involvement of all the members.
- Cash Management
- 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 collect the cash from creditors specially VGL Ltd.
- VGL Ltd can develop a strategy to reduce the credit limit on sales.
- Its consequences may be seen as an increase in the number of bad debts.
- The consequences of carrying too much cash can affect the capital of the company and its profitability. Due to the stop of cash flow, the company will also be unable to earn profit.
Part B
B.1: Environmental Cost Report
| Environmental cost categories | Amount in $ |
| Prevention | |
| Initial evaluation of environmental standing of new suppliers | 2,100 |
| Performing environmental studies | 7,500 |
| Revising evaluation of some existing suppliers | 700 |
| Training to the employees | 1,400 |
| Detection | |
| Contamination Testing | 28,000 |
| Inefficient usage of material | 70,000 |
| Internal Failure | |
| Treating and disposing of toxic waste | 215,000 |
| Maintaining pollution equipment | 39,000 |
| Operating pollution equipment | 19,000 |
| External Failure | |
| Cleaning up chemically contaminated soil | 260,000 |
Total sales of the organization are $5,300,000 and the total cost of the organization is $4,100,000.
Relative distribution percentages against total cost and total sales
| Prevention | Detection | Internal Failure | External Failure | |
| Percentages of the total cost | 0.29% | 2.39% | 6.66% | 6.34% |
| Percentages of total sales | 0.22% | 1.85% | 5.15% | 4.91% |
B.2: Prioritizing the environmental cost categories on the basis of cost spending
The environmental cost categories are helpful for an organization to reduce negative outcomes by spending more to control the quality. Prevention is a category of the 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 the failure that may internal or external but an organization can control internal failure first. 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 spend more on them (Bovea and Pérez-Belis, 2012). This 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 production, 20(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 science, 153(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.
