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.
| 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 recipt 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
| Production budget for Milbourn Manufacturers Ltd | ||||
| Dec | Jan | Feb | Mar | |
| Expected unites of sales | 2,20,000 | 1,60,000 | 1,25,000 | 1,20,000 |
| Add: desired ending finushed goods | 0 | 0 | 0 | 0 |
| Less: Beinging 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 labout 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 |
- A
It can be seen in the bottom down approach of budgeting. That is why, controller should avoid this technique in the large target.
- 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.
- 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 collected the cash from creditors specially VGL Ltd.
- VGL Ltd can develop a strategy to reduce the credit limit on the sales.
- Its consequences may be seen as an increase in the amount of bad debts.
- 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.
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 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 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 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.
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