The assessment aims in evaluating the financial performance of Ambertech Limited for the financial year of 2018 and projecting future income, which can be generated by the company. In addition, there is further evaluation that has been conducted in the assessment regarding the top-down and bottom-up approach to the budget process, which can help in analysing the budget process. Furthermore, the income statement for the financial year of 2019 has been projected, which can help in determining the future incomes of the company. Adequate analysis of each elements of the master budget has been conducted for determining the impacts, which can be conducted on the financial performance. The analysis of the master budget components directly allows the management to detect the expenses and income that is estimated for future operations of the organisation. The analysis of the future projected annual report can eventually help in understanding the measures that has been taken by the company to generate the required level of income in 2019. Lastly, the comparison of 2018 and forecasted budget for 2019 is mainly conducted in the assessment for detecting the opinion on the changes, which has been conducted while preparing the forecasted annual report.
Figure 1: Depicting the components of Master budget
(Source: Weygandt, Kimmel and Kieso 2015)
The above figure directly depicts the overall master budget component, which is used by the organisation in preparing the budget for the fiscal years. These components mainly allow the management to acquire the required level of income from operations, which reduces the chance of variance occurrence from budgeted values to the actual values. In addition, the components of the budget directly allow the organisation to set up the relevant expenses and income that will be generated from the operations over the period of time. Dopson and Hayes (2016) mentioned that master budget would eventually allow the organisation to generate high level of income from operations, which can increase efficiency of the management. The master budget might eventually help in acquiring the required level of funds for supporting the master budget, which can help in improving the operations of the organisation.
The elements of master budget are depicted as follows.
Sales budget:
Sales budget is considered the basic component of the master budget, which allows the organisation to detect the level of sales units that will be incurred from the operations. The overall expected price per units and the number of units sold for the future fiscal years is mainly estimated in the sales budget. Moreover, the sales budget values are identified from the historical growth in sales values that has been generated by the organisation. The sales budget directly influences the other components of the master budget, as rising sales units will alter the production and expense needs of the organisation (Noreen, Brewer and Garrison 2014).
Production budget:
The production budget is mainly used by the organisation for detecting the level of planned production, which needs to be conducted by the management for supporting their products demand. In addition, the production budget would be beneficial for the organisation to determine the required level of raw materials and other purchases that needs to be conducted for smoothly conducting their operations. The production budget ensures the organisation to determine the level of activities, which will be needed for supporting the sales demand from customers.
Direct labour budget:
The direct labour budget is influenced directly by the sales budget prepared by the organisation. This high level of output needed by the sales budget will directly affect the needs of direct labour in the production system. Hence, the direct labour budget would allow the organisation to determine the level of workers needed in the production function to support the production output and comply with the sales budget. The direct labour budget is prepared after the preparation of the production units, which determines the level of labour input that will be needed for the next fiscal year (Butler and Ghosh 2015).
Cash budget:
Cash budget is mainly prepared after determining the level of expenses and income that will be generated from the operations. The cash budget directly indicates the level of cash position that will be generated by the organisation during the fiscal year. In addition, the cash budget relevantly allows the organisation to detect high level of cash inflows and outflows, which will be conducted from the operations. The preparation of cash budget is mainly conducted after preparing the sales and production budget, which allows the management to determine the level of net cash flow that will be increased over the period of time.
Ending finished good budget:
The ending finished goods budget is determined are the prepared of the overall material budget and the production budget. This component of the master budget relevantly allows the management to determine the level of units that will be needed by the organisation to support the ending finished goods for the fiscal year. In addition, the determination of the finished good budget would eventually help in generating high level of income from operations.
Direct material budget:
The direct material budget is prepared after the completion of the production budget and sales budget, which help in determining the level of materials that will be needed to support the sales demand from customers. In addition, the direct material budget would eventually help in determining the level of expenses, which is needed by the organisation to support their production needs. The material budget also allows the organisation to understand the requirements of material after analysing the inventory currently held for production (Epure 2016).
Selling and administrative budget:
The managers for analysing the planned operations expenses use the selling and administrative budget and other manufacturing costs incurred during the fiscal year. In addition, the evaluation also helps in determining the selling expenses and administrative expenses, which needs to be incurred by the company for supporting the future operations. The selling and administrative expenses would eventually help in determining the level of spending which needs to be conducted by the company for supporting the operations during the fiscal year by analysing the output.
Manufacturing overhead budget:
The manufacturing overhead budget directly provides the details regarding manufacturing costs, which needs to be incurred by the organisation leaving the direct material and direct labour cost. The information represented in the manufacturing overhead budget cost is directly linked with the cost of goods sold by the organisation. This eventually helps in determining the level of expenses that needs to be incurred by the company to support the future sales units of the company. The budget is considered significant in nature, as it contains large portion of the expenses, which needs to be conducted by the organisation to accommodate the targeted sales.
Budgeted financial statements:
Budgeted financial statements is prepared by the organisation after completing the above components of the master budget, as it helps in preparing the income statement and balance sheet for the fiscal year. In addition, the budgeted financial statement would eventually help in determining the projected incomes, which will be generated by the company over the next fiscal years. This would eventually help in determining the level of income and expenses that will be incurred during the fiscal year (Warren, Moffitt and Byrnes 2015).
There are significant differences between the top-down and bottom-up approach, which can be used by the organisation, while preparing the budget. In addition, the comparison would eventually help in detecting the most viable budgeting process, which can be used by the organisation for preparing the budge, which can support their future operations. Top-down and bottom-up approach is mainly used in different areas of the business, which helps the management to make relevant decisions regarding the operations. The top down approach mainly evaluates the situation from general perspective to specific, while the bottom-up approach focuses on specific conditions and then moves to general attributes. Furthermore, there is specific difference between the top-down and bottom up approach of the budget process, which indicates the alternative measure that is taken by each process (Kaplan and Atkinson 2015).
The top managements mainly set top down budget, which does not allow the ultimate budget holders to have the opportunity for participating in the budgeting process. In addition, the top management directly creates the budget, where adequate allocation of resources is conducted as per the discretion of the high officials. The department heads in this process is not being used by the organisation for determining the budgeted values that is needed by the organisation. The top-down budget process directly allows the manager to create the budget within the confines of the desired budgeted values. This type of approach has certain significance, which reduces the lead-time for completing the production process, as top management are responsible for the preparation of budget. Hence, the timesaving’s can be conducted in this method, which can reduce the involvement of persons who are responsible for the day-to-day work of the organisation. However, there are certain disadvantages to the method, which directly relates to the non-involvements of individual who can detect the specific expenses that might incur during the operations. This might result in low performance of the budget, as high-level individuals cannot accommodate adequate expenses that will be incurred in the department (Eker and Aytaç 2016).
The bottom-up approach of budgeting is mainly a system, where budget holders are able to participate in their own budgets. This type of budgeting process directly involves the managers of the department in preparing the overall budget and send to the top management for approval. This type of budgeting process mainly requires the managers of the department to prepare the budget in accordance with their needs and expenses. This type of approach has specific significance, where the estimated expenses are adequately accommodated by the budget. However, there are specific disadvantages of the bottom-up approach, which the expenses that might be conducted by the management due to the higher spending target of the departments. Therefore, the bottom-up approach will directly raise the level of expenses that is needed for each department, as the budget will accommodate the expense requirement of all the relevant department managers (Vladychyn 2017).
Both the top-bottom and bottom-up budgeting approach has advantages and disadvantages, which can negatively affect the prepared budget of the organisation. However, top-bottom approach is mainly selected for Ambertech Limited, as it will allow the organisation to prepare the adequate budget for supporting their operations. The top-bottom approach would eventually help in designing the adequate level of expenses and income for the organisation, which can be incurred during the fiscal year.
|
Particulars |
2018 |
2019 |
|
Revenue |
51,839.00 |
57,022.90 |
|
Cost of sales |
(35,735.00) |
(38,593.80) |
|
Gross profit |
16,104.00 |
18,429.10 |
|
Employee benefit expense |
(9,496.00) |
(9,685.92) |
|
Distribution cost |
(1,460.00) |
(1,489.20) |
|
marketing cost |
(740.00) |
(754.80) |
|
Premises cost |
(1,971.00) |
(2,010.42) |
|
Depreciation and amortization expense |
(312.00) |
(318.24) |
|
Finance cost |
(670.00) |
(683.40) |
|
Travel costs |
(546.00) |
(556.92) |
|
other expenses |
(1,096.00) |
(1,117.92) |
|
Earnings before tax |
(187.00) |
1,812.28 |
|
Tax |
44.00 |
543.68 |
|
Earnings after tax |
(143.00) |
1,268.60 |
The above table directly provides the overall income statement of Ambertech Limited foe the fiscal year of 2019. The budget has been conducted for the fiscal year of 2019 by utilising the data of 2018, which can eventually help in detecting the level of income and expenses that will be incurred in the next fiscal year. The financial performance of the organisation has mainly increased during the fiscal year of 2019, which is estimated in the budgeted values. This value is mainly created by utilising the different incremental sales, and expenses, which will be incurred during the financial year. Said (2016) mentioned that budgeting process allow the organisation to grasp the overall situation of the income and expenses, which will be incurred in the future years.
From the evaluation of the above calculation, it can be detected that the relevant increment in the overall expenses of the organisation is estimated at the levels of 10%, which has increased the revenues for the fiscal year of 2019. This increment has mainly allowed the gross profit to increase in the budgeted values of 2019. The cost of goods sold is estimated to increase at the levels of 8%, which has provided a positive gross profit margin for the budgeted period of 2019. However, the other expense that has been incurred by the company has only increased at the levels of 2%, which has made a positive net profit for the budgeted financial year of 2019. The evaluation of financial performance can be conducted with the help of above figure and determine the level of incomes, which can be generated from operations. Mihaila (2014) indicated that budget preparation is conducted with the help of adequate assumptions, as it allows the organization to detect the future operational needs that must be met by the management.
The budgeted revenues can be achieved by the organization after implementing adequate marketing strategies and increasing the demand for its products. The increment in overall revenues of the organization is mainly essential, as it will allow the management to acquire the adequate cash inflow to support the cash outflow. The budgeted income statement for 2019 is relatively positive for Ambertech Limited, which was not previously incurred during the fiscal year of 2018. Fry and Fiedler (2014) argued that budget process could negatively affect the operations of the organization if adequate research is not conducted while preparing the master budget.
The above table directly represents the overall budgeted income statement of the organization for the fiscal year of 2019, which is prepared in accordance with the financial report of 2018. From the evaluation, it can be detected that the overall income in 2019 budget has a relatively increased due to the implementation of 10% increment in sales revenue. This increment in revenues has relatively allowed the budget to generate the adequate cash inflows for supporting the expenses or cash outflows. The cost of sales of the organization has been estimated to increase at the level of 8% for the budget year of 2019. The incremental percentage of 10% has relatively rise the overall budget value of revenues for 2019 to the levels of $57,002,900 in comparison to $51,839,000 in 2018 fiscal year. This improvement in the overall revenues is mainly due to the incremental sale value that has been assumed in the budget. Furthermore, the cost of sales has been increased from the levels of $35,735,000 to 38,593,800 budgeted 2019 (Ambertech.com.au 2018). This relevant improvement in the overall cost of sales and revenue has increased the overall gross profit of the organization in the budgeted year 2019. The gross profit has increased from the levels of 16,104,000 in 2018 fiscal year to 18,429,100 in 2019-budgeted year.
The budgeted income statement also comprises of different expenses that has been incurred by the organization during the fiscal year of 2018, which has been increased in the budgeted values of 2019. The increment in expenses has been conducted at the levels of 2%, which has relatively raised the overall cash outflow during the budgeted year of 2019. A significant expense has been incurred during the fiscal year of 2018, which has been accommodated in the budgeted 2019 figures. These expenses has been relatively depicted the increment in overall cash outflows that will be conducted during the fiscal year of 2019 is anticipated in the budget. The relevant expenses that is incurred by the organization in administrative and other expenses are Employee benefit expense, distribution cost, marketing cost, premises cost, depreciation expense, finance cost, travel cost, and other expenses.
In my opinion, the overall changes in the budgeted value has been relatively exaggerated which is directly increasing the overall earnings after tax of the organization from negative -143,000 to 1,268,600 in 2019 budgeted year. The overall tax that has been calculated for the budgeted year is relatively at the levels of 543,680, while the overall tax that has been credited to the organization during the fiscal year of 2018 is at the levels of 44,000. Hence the budgeted values that has been generated in the above table is a relatively not in accordance with the previous financial year report. The high expenses that have been generated by the organization during the first value of 2018 will not be nullified during the fiscal year of 2019. Therefore, the budget needs to be conducted on the relevant growth that has been generated on previous fiscal used by the organization (Zhang 2015).
Conclusion:
The overall assessment aims in evaluating the significance of budgeting process, which can be used by organisation for detecting the overall expenses and income that needs to be incurred in next fiscal year. In addition, the financial performance of the organisation is mainly evaluated for devising the budgeted, which can adequately support the cash inflows and outflows during the next fiscal years. Moreover, the components of the master budget are mainly discussed, which is an essential part of the budgeting process, as it allows the organisation to prepare an appropriate budget for future fiscal years. The financial budget of Ambertech Limited is mainly calculated for detecting the overall budget for 2019, which can help in detecting the incoming and expenses for the organisation. The relevant analysis of the top-down and bottom-up approach has been conducted for the organisation, which allows them to make adequate budget for supporting their future operations. The components of the top-down and bottom-up approach are mainly evaluated for detecting the appropriate budgeting approach, which can be used by Ambertech Limited. The analysis of the financial performance can be conducted in the assessment, which can help in detecting the level of improvements that can be conducted by the company.
Reference and Bibliography:
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