HR7003 Individual Coursework Assignment Sample
EXECUTIVE SUMMARY
The London Docks Café is engaging budgeting process in their organization in order to facilitate better growth of the company (Donovan, 2006). The figures out the planning and actual outcomes of the company’s processes so that they can assess the profitability of the company. This budgeting process also helps in assessing the shortcomings of the company if it does not meet the planning of the company (Wenz and Nolan, 1982). Here the learning outcome is that it helps the company to calculate the variances and work towards the progress of the organization.
INTRODUCTION
In the given case of The London Docks Café, there are four tasks given. The first task explains the importance and objectives of the budgeting process in the given company (Penning, 2012). It explains how it helps the company to attain its goals. The second task helps in calculating the variances of the company and helps the company to work towards the adverse processes of the organization. In the third task, the report explains the company where should the company concern to make it better. The fourth task explains the how the company can achieve sustainable growth (Wenz and Nolan, 1982).
A) OBEJECTIVES OF BUDGETING
Budgeting is a well-defined plan for all the operational activities of the future. It helps in creating a target for the organization so that there is constant growth of the company. A budget is very helpful for the long survival as well as success of the organisation (What Is Cost Variance (CV)? Definition, Formula, Example, Calculator – Project-Management.info, 2021).
Following are the objectives of budgeting in the company:
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Planning tool
Every company needs some kind of planning so that it helps in utilising all the resources to its maximum level. For every planning, it needs to know the goals and objectives of the company. A budget can be defined as a detailed strategy which help in achieving a required goal (Broyles and Lay, 1982).
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Improvement in coordination
Coordination plays a very important role in any organisation. It is a managerial function which is used in the production activities as well as department activities. A budget is used to manage and balance these activities in order to achieve its goals. There should always be a proper coordination between sale and production department (Penning, 2012).
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Improvement in communication
Like coordination, communication among all the people of the company is very necessary. All should know the policies, goals, performances as well as various programmes of the company. There should a clear understanding of the goals of the company and how they can achieve the goal (Bakewell, 1991). All these are required by their participation in making the budget.
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Tool for evaluating the control and performance
Budget helps in controlling the activities of the organisation as per the planning done by the company. There is comparison of budgeted activities and actual activities and thus there is control over all the activities (Donovan, 2006). It also helps in measuring the performance of the company. As there is study over actual outcome and expected outcome. A budget gives realistic result of the performance of the company.
BENEFITS FROM ENGAGING IN ROBUST BUDGETARY PROCESSES IN LONDON DOCKS CAFE
Benefits of budgeting
- Budgeting helps in controlling the expenditure of the company in turn it helps in controlling the money of the company (What Is Cost Variance (CV)? Definition, Formula, Example, Calculator – Project-Management.info, 2021).
- Budgeting helps in knowing the exact capacity of the company. If the capacity of the company is less than the work can be shifted around or if the company can manage with excess work.
- Budgeting helps in allocating money in the company. A company requires money for investing in fixed assets and working capital of the company (Bakewell, 1991). Budgeting helps in deciding which fixed asset is more advantageous in investing money.
- Budgeting is a planning oriented process. It keeps into consideration long term goals of the company rather than focusing on the short term goals of the company. Even if the company is unable to meet its budgeted goals at least it is working towards the company’s financial conditions and its improvements(Broyles and Lay, 1982).
- Budgeting helps in reviewing the profitability of the company. It is very difficult for the company to keep a track on the money terms on day to day basis. A properly constructed budget helps in knowing the profitable activities of the company and how they can use the profit generating activities to the most.
- It helps in evaluating the performance of the organisations and its employees.
- Budgeting helps in efficient funding planning in the organisation. It helps in making correct investment decisions (Penning, 2012).
B) A report showing London Docks Café’s revenue and spending variance for December month
A report on revenue and spending variance for December month
| Variance Report | |||
| Particulars | Budgeted(￡) | Actual (￡) | Variance |
| Revenue | 100000 | 90000 | 10000 A |
| Expenses | |||
| Raw material | 50000 | 45000 | 5000 F |
| Wages and salaries | 10500 | 10000 | 500 F |
| Utilities | 3500 | 3400 | 100 F |
| Facility rent | 5000 | 5500 | 500 A |
| Insurance | 2800 | 3200 | 400 A |
| Fuel | 2500 | 2800 | 300 A |
| Net operating income | 25700 | 20100 | 5600 A |
- Adverse
F- Favorable
In the above report, there is adverse effect on the total revenue of the company. The budgeted sales are lesser than actual sales by £10000. Similar in case of facility rent, the budgeted figure is £5000 while actual expense is £5500. It is also showing adverse situation of the company (Broyles and Lay, 1982). Insurance and fuel expenses are also higher in actual report than budgeted report. All other parameters like raw material expense, wages and salary expense and utilities expenses are favorable in actual report than budgeted report (Donovan, 2006). In turn the total net income of the company is adverse showing £5600 lesser profit than the budgeted profit.
C) Areas of activity which should be a concern to the management of London Docks Café
Areas of concern:
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Revenue
The budgeted revenue of the company is £100000 while the actual revenue is £ 90000. There is adverse revenue of the company by £10000. This is due to less meals generated or sold by the company. The budgeted quantity of meals is 20000 while the actual meals are 18000. There are shortage of 2000 meals sold by the company. The company needs to meet the demands of the customer in order to achieve desired profits. If the company does not have enough quantity of meals, then there will be less revenue and hence high risk of losing consumers. Hence the company should ensure that the production center is producing enough meals for its consumers. It should recruit more employees so that there is more production of melas. The wages and salaries are showing favorable condition so the company has still as advantage to employ more persons (Gray and Ricketts, 1982). There might be a case that the company is using less raw material. So, there is also should be a stock made for raw material.
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Facility rent expenses, insurance and fuel expenses
The company first should make realistic budget so that the adverse condition in facility rent, insurance and fuel expense can be avoided. The company should reduce the area of functioning and operate in smaller area. Also, the fuel expenses can be avoided by consuming lesser amount electricity and gas. The company can find a way to avoid usage of the gas for cooking. It is also required to keep a check on the insurance expense of the company. It is also showing negative variance (Broyles and Lay, 1982).
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Net operating income
Net operating income has a negative variance by £5600 less income in actual report as compared to budgeted report of the company (Budgeting – Overview and Steps in the Budgeting Process, 2021). The company needs to increase the volume of production of meals of the company. It needs to meet the demands of the consumers by employing more raw material and employees to produce desired quantity of meals. Further the company needs to reduce various expenditure on facility rent, insurance and fuel. It also should focus on marketing strategies. It needs to reduce wastage in the company. The processes should become more efficient. There is also a need to change the process of sales. The prices of the meals can be reduced in order to attract more consumers. Change in product mix and quality of the meals can also help in achieving desired profits (Penning, 2012).
D) An explanation on the term’s profitability and sustainability.
A sustainable business is always a profitable one (Donovan, 2006). The company should always be a sustainable one along with earning profits. Every company works towards producing profits as well as growth. Sustainability and profitability are interrelated that the company should provide services or goods which are profitable as well as sustainable in the environment. Every company tries to earn profits on a long-term basis (Gray and Ricketts, 1982). The company aims at achieving desired profits but at sustainable rate. It should always be a long-term goal not a short-term goal. Some companies try to earn short term profits without making it sustainable. They make unrealistic budgets for the company which they fail to achieve in the future (Penning, 2012). So, the company should always create realistic budgets so that they can make consistency of those budgets even in the future. Every company desire to produce such products which are environmentally friendly. In order to achieve long term profit goals, the company should not only think about their own organization but about their stakeholders. Sustainability means a goal of achieving not only present requirements but also future requirements and goals. This way profitability and sustainability goes hand in hand (Broyles and Lay, 1982).
Advising London Docks Café on the measures they should adopt to ensure the attainment of both mandates
Measures to be adopted by London Docks Café:
- It should understand and spread awareness in the organisation regarding creating money in the company, how to use that money in an efficient manner and reduce the cost and increase the revenue of the company (Penning, 2012).
- They should focus towards their suppliers and consumers (Donovan, 2006). They should measure their requirements and make a plan accordingly keeping in mind the needs of consumers and capacity of suppliers.
- There should be savings in cost and increasing the productivity of the company (Gray and Ricketts, 1982). They should employ such processes so that they achieve these targets.
- The company should always has communication between top and bottom management. A well-coordinated plan will always be sustainable and profitable. There should be a proper engagement of top and bottom management of the company (Broyles and Lay, 1982).
CONCLUSION
There is a detailed study of budgeting and variance in this case study. London Docks Café has engaged budgeting process (Donovan, 2006). And it has also calculated all the revenue and expenditure variances in order to understand its favorable and adverse areas. There is also solution given in order to eradicate the adverse areas of the company. There is a variance report made so that there is comprehensive idea on the situation of the company (Broyles and Lay, 1982).
BIBLOGRAPHY
- Donovan, S., 2006. Budgeting. Minneapolis: Lerner Publications Co.
- Broyles, R. and Lay, C., 1982. Budgeting and controllable cost variances. Journal of Medical Systems, 6(6), pp.599-611.
- Penning, A., 2012. Budgeting. Osborne.
- Gray, J. and Ricketts, D., 1982. Cost and managerial accounting. New York: McGraw-Hill.
- Bakewell, K., 1991. Budgeting. Bradford, West Yorkshire, Eng.: MCB University Press.
- Project-Management.info. 2021. What Is Cost Variance (CV)? Definition, Formula, Example, Calculator – Project-Management.info. [online] Available at: <https://project-management.info/cost-variance-cv/> [Accessed 27 April 2021].
- Corporate Finance Institute. 2021. Budgeting – Overview and Steps in the Budgeting Process. [online] Available at: <https://corporatefinanceinstitute.com/resources/knowledge/finance/budgeting/> [Accessed 27 April 2021].
- Wenz, T. and Nolan, A., 1982. Budgeting for the Future: Target Base Budgeting. Public Budgeting & Finance, 2(2), pp.88-91.
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