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Written test Unit Code: SITXFIN004 Unit Name: Prepare and monitor budgets 1 DC No. 5485
1. Name 4 business considerations you might consider when researching a budget. The budget's research phase requires enough time allotment. Adequate research will make the budget planning process easier and reduce the stress that usually comes with creating a budget. The budget for each division should be discussed with the respective division heads. Researching a budget requires thinking about a few different things: The company's track record in the past The products and costs of competing businesses The outlook of upper management Discussions and concerns from each division When seeking input from coworkers, provide enough time for them to do the necessary investigation and create a response (Flyvbjerg, 2014). 2. Describe how the following sources of data can be used for budget preparation. Competitor research: Examining the practises of your rivals is crucial. Opportunity and danger may be identified for your company via SWOT assessments and other types of competitive research. You should always be on the lookout for opportunities to learn more about the goods and services offered by your rivals, as well as their pricing strategies and future goals. Customer or supplier research: Having a firm grasp on who your target market is and what they're looking for can help you direct your company's resources in the direction that will provide the most return while minimising wasteful expenditures. It will also direct the company towards its desired profitability by highlighting the demographics most likely to generate the required sales and revenue. 2 DC No. 5485
Declared commitments in areas of operation: It's important to check with each department head to see whether any agreements or other commitments have been made that might have an impact on their specific sphere of responsibility. Because of these obligations, the department's budgetary flexibility will be severely constrained. Personnel accrued vacation time is another budgetary factor. When it comes to employee expenditures, you shouldn't allow people rack up huge amounts of vacation time like five months' worth of time off. Financial information from suppliers: There has to be consistent two-way communication between suppliers and department heads on costs to verify that current expenditures are staying within the budget. It is also important for department heads to coordinate and look for many providers that can provide the greatest resources at the cheapest pricing. Not everything with the lowest price is the greatest deal. Bad prices might indicate low quality. Financial proposals from key stakeholders: Financial stakeholders need the company owner's advice to assist them achieve both short- and long-term goals. While each partner may have their own hopes and aspirations for the company, if their goals and plans aren't aligned, the company's resources will be misallocated. In order to maintain or increase profit levels, the partners and entrepreneur need to analyse and investigate the financial support. In the case that renovations or more funding are necessary, the company' partners and entrepreneur will need to adjust the budget (Sullivan et al., 2014). Performance data/information from previous time periods: Owners and managers may use the historical data to see how their company has developed over time. By comparing data from different time periods and different products offered, you may get a sense of the company's strengths and limitations. With this data in hand, business owners may make informed 3 DC No. 5485
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predictions about the company's future and make changes to expenditure that will boost profits over the same time period last year (Yakubovna, 2020). Departmental, event project budgets: Each department's earnings and expenses may be broken out using the budget. Overspending in areas that do not directly contribute to income generation may be reduced by redistributing funds elsewhere in the budget. The possible costs and advantages of the suggested improvements will be calculated in the project budget, providing a high-level overview for company owners. The company may use this data to weigh the costs and advantages of taking on various initiatives (Rubin, 2015). Grant funding guidelines or limitations: Only some groups may qualify for the grant money. This will have an impact on the budget by freeing up resources for certain divisions within the company or making other provisions for them. Because of the helplessness of conceding while one's competition does, this might also increase the pressure to do better than rivals. Management policies and procedures: How much money should be set aside for the policies and procedures depends on how well they are managed. The amount of money needed to cover salaries for a certain work time may be calculated by referring to policies and procedures, such as the minimum number of personnel necessary during a shift. The budget and the result of the plan will be affected by any rules or processes that call for financial resources (Yakubovna, 2020). Organizational budget preparation guidelines: The amount of the budget that may be spent at any one moment is determined by the rules. The budget can't plan for how much will be spent at any one time without the guidelines. A rule may help the team determine how much of the available funding can be used in any given department or set of circumstances. With the 4 DC No. 5485
information provided by these evaluations, a strategy may be developed to guide the company's future expenditures (Le Quéré et al., 2018). 3. Explain how the following internal factors can impact on budgets Management restructure: The budgeting process may change as a result of the new management team's reorganisation of the company's priorities and objectives. New leadership may determine that the objectives laid forth in the present budget are no longer relevant or necessary. After the transition, the new leadership may decide to alter the project's aims, necessitating the development of a revised project budget (Walsh, 2016). Human resources requirements: When a member of staff is added to or removed from a company, there will be financial ramifications in the form of superannuation, insurance, workers' compensation, and pay. The amount of money needed to provide such resources may differ as well, depending on one's situation. Depending on the specifics of the new legislation, it may need a change in the allocation of funds to cover the increased cost of insurance for each employee. New projects and business objectives: Budget revisions will range in magnitude depending on the scope of new initiatives and construction. If the company is to take on any new initiatives or achieve any new goals, then money must be set aside from the existing budget to pay for these new endeavours. When calculating the total cost of a renovation or refurbishment project, it's important to include in not just the money spent on the project itself, but also the money lost while the work is being done (Saunois et al., 2020). 5 DC No. 5485
Changes in commodity or service prices: Supply price changes will have an effect on the profit ratio. There may be a need to adjust the budget in light of the fact that various suppliers may offer either higher or cheaper pricing for the commodities or services in question. Changing suppliers is necessary if the existing one charges more for the identical goods than the competition. When the adjustment is done, the surplus monies in the budget could be redistributed to other departments (Mauro, Cinquini and Grossi, 2016). 4. Explain how the following external factors can impact on budgets. Legislation and regulations: If there are changes to the WHS requirements, then the company must make the necessary modifications to comply with them. A part of the money will have to be set aside for things like modernising staff training or replacing old, inefficient equipment. The number of non-citizens who contribute to a company's workforce will be affected by current immigration policies. Loss of competent workers or personnel in general might be detrimental to the company if immigration regulations limit work permits for immigrants. As a result of these losses, the company may have to pay higher rates for temporary employees known as casual workers until a permanent staff can be located (Friard and Gamba, 2016). Changes in the global economy: Travel and spending by both foreign and local customers will be impacted by the current state of the global economy. When people from other countries utilise the services offered by this sector, it helps the economy. The sector will suffer if fewer people take vacations and fewer people have disposable income to spend on things like going out to eat and travelling for fun. The cost of essential materials and labour might rise if the economy has an impact on suppliers and market items. If that occurs, fewer customers may be able to purchase the services offered, leading to lower sales and maybe a larger loss for the 6 DC No. 5485
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company as a whole. c. Market trends: As a result, customers will flock to retailers that have the hottest new items. The company has a better chance of succeeding financially if it adapts its offerings in response to changing market conditions and customer preferences. This can't happen unless some of the company's resources are set aside to facilitate the shift from the company's current offerings to the ones that are now in vogue. In addition, the budget planning process may be significantly impacted if the trend does not endure long enough to create sufficient profit to balance the change and return to the original service and product (Bogsnes, 2016). 5. How does involving staff “from the bottom up” in the budgeting procses, help the business? Different staff members in various positions will see the company and its inner workings from unique angles. Staff members in different roles will see different sets of accessible resources within their roles. Once staff members have a firm grasp of the budget, they will be better equipped to identify areas that may have a favourable or negative impact. Staff members at all levels will be better able to assist in identifying the most efficient means of achieving budgetary objectives if they have a firm grasp of the company's overall direction (Saunois et al., 2020). 6. What does the process of preparing a draft budget usually involve? Information from the operational budget, capital expenditure budget, finance budget, and money related spending plan is compiled to create a draught budget, and then the ratio of revenue to expenses is evaluated using the available projects. To see whether the financial allowance can accomplish the goals of the fiscal year, compare the data and percentage decided with the business arrangements and methods. Determine and put in writing your options for handling 7 DC No. 5485
circumstances and responses to unexpected developments that might affect your financial strategy. The What-If Report, which estimates costs in the event of unforeseen events, is another important consideration. This may be due to anything from a natural calamity on a worldwide scale to the entrance of a competing restaurant whose customers are segregated. The Break Even Report would be a useful addition to the report since it would show the minimum amount of revenue necessary to break even (Walsh, 2016). 7. How does breaking the budget down into groups, departments, or income and expense categories help colleagues? Those responsible for reviewing the budget will appreciate the time and effort saved by having it broken down into groups, departments, and other categories. Members of the various organisations or departments may examine the breakdown to see how their funding is distributed and make adjustments as needed. Without having to go through the full budget breakdown of the company, the head of any given department may instantly ascertain whether or not his or her unit is incurring unnecessary costs or generating insufficient money (Saunois et al., 2020). 8. Name 3 people (job roles) you would circulate the draft budget to for feedback or approval: Budget Committee Owners of the Business Upper Management (Le Quéré et al., 2018) 9. The budgeting process requires strong negotiation skills. Why is it important to convince staff of the achievability of the budget? 8 DC No. 5485
Employees will be more driven to meet business and budget objectives if they have a firm grasp on how those objectives will be funded and how much money will be allocated to each department. Employees who are unclear on the budget or the degree to which the objectives are realistic may waste money inadvertently or lose interest in the project because they believe it is impossible to complete. 10. A staff member suggests a change or alteration to the budget. List 3 aspects you need to consider to ensure any changes would have no negative impacts: The budget's bottom line must be taken into account. A change should be considered if the cost to implement it in the particular area or department is more than the cost of maintaining the status quo, but the overall profit is higher. Any alterations made should be in line with and support the ethos of the company. A modification may be authorised if it brings about the intended advantages and, in certain cases, additional ones. The modifications must also be consistent with existing national, state, and local rules and regulations. All modifications should be discussed with the management and budgeting committee to guarantee that they will result in a surplus rather than a loss. If the suggested adjustments go against the budget committee's and management's original vision for the company, they may reject the plan out of hand. The proposal for adjustments should be revised or abandoned if the changes do not match the owner's expectations or if the budgeting committees identify a possible threat of loss owing to the changes (Saunois et al., 2020). 11. In most businesses/industries, when must the budget be complete? 9 DC No. 5485
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Before the start of the new fiscal year, the budget must be finalised and disseminated to all relevant parties. For this reason, it is recommended that the final version of the budget be completed and disseminated no later than two months before the start of the new fiscal year. This will give the various departments ample time to make the necessary preparations and adjustments in order to meet the budget's goals for the coming year (Friard and Gamba, 2016). 12. What information should department managers include in their monthly reports? Department heads should detail the unit's overall health through Profit and Loss Statements. Cash flow statements that compare real cash flow with asset value, A Cash Flow Statement detailing the ebb and flow of money, a Sales Report detailing how and which items or services are doing well, and a Departmental Report detailing the big picture of the department's success or failure (Saunois et al., 2020). 13. How often should the budget be compared to the actual accounting results? Weekly, fortnightly, monthly, quarterly, or yearly comparisons of the reports with the actual accounting may be performed. Accounting comparisons should be performed at least once a month to ensure accurate reporting. When unforeseen circumstances arise, such a sudden influx of clients or a natural catastrophe that has a negative impact on sales, the budget may be compared to the actual outcomes. This will be useful for keeping an eye on the budget and making adjustments as needed. 14. Name and describe 5 financial reports you might generate from your accounting system to check your budget against actual income or expenditure. Average spends report – What a consumer typically spends at a store is reflected in the average 10 DC No. 5485
expenditure report. By comparing these figures with costs, a company may determine how much money it is making at any particular time. Cover reports – In the food and drink sector, the cover reports assist in calculating the average client expenditure over a certain time period and pinpointing which locations or meals are profitable. Occupancy report – In the hotel business, revenue is directly proportional to occupancy rates. Revenue and costs may then be compared, revealing whether or not operations can be sustained with the monies produced. Sales report – This report details the budget vs actual income and spending differences for the various revenue-generating divisions. Units sold report – The report details how many of a certain unit were sold and how much money was made. That's how you know whether the product is selling well enough to justify the time and resources put into making it (Walsh, 2016). 15. Every revenue and expense item on the Profit and Loss Statement should be compared to what? It is important to compare the forecasted income and expenses on the Profit and Loss Statement to the historical records and the budget. This will assist guarantee the budget is growing rather than shrinking. That way, you'll know whether or not a certain product or service is profitable for your company (Sullivan et al., 2014). 16. When revenue variances occur, why is talking to staff a good way to help identify and find options to address the issue? Those working on the ground see and hear more than what can be captured by a spreadsheet of financial statistics. The staff's first-hand knowledge of the flow of products and services allows 11 DC No. 5485
them to provide insights that would be beyond the scope of a generic budget report and explain the discrepancy (Mauro, Cinquini and Grossi, 2016). 17. List 3 factors that can cause variances in staff budgets. Promotions with wage increases, which will require the business to allocate more funds for paying staff, award rate changes by the government, which by law will require the business to pay the staff a different rate than the current standard, and recruitment of new staff, which will require more if the staff number is increasing or less if a less skilled staff is replacing a higher positioned and more experienced staff (Flyvbjerg, 2014). 18. Why is monitoring your budget progressively throughout the year so important? By gradually monitoring the budget, the firm may determine the income and revenue patterns. By watching patterns, a firm may make the required modifications to minimise income loss or, if a good trend is seen, boost revenue. Throughout the course of the year, the budget may reveal which service generates the greatest rate during a specific season. With this knowledge, the company may lower the quantity of the service offered when it is less popular and raise it when demand is strong. Monitoring the budget also reveals which services do not make a profit but instead cause a deficit, which may then be eliminated or substituted with something more lucrative (Bogsnes, 2016). 19. How can you collect information to help create future budget plans? It is possible to collect information for the creation of the future budget by utilising accounting programmes and researching historical performance data, examining the offerings of competitors on their websites or menus, requesting a draught of management's views on future plans, and 12 DC No. 5485
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obtaining departmental feedback on the current budget scheme through surveys and internal research. If the budget allows, getting assistance from accountancy companies and doing a market study may help gather information that can be utilised to design a future budget that is superior to the present one (Saunois et al., 2020). 20. Name an accounting program you can use to help manage budgets. Software like Xero, MYOB, and Cashwhiz is available to assist managers and owners of small companies handle their finances. 21. Explain each of the following types of budgets: Cash budget/Cash flow budget The budget is intended to demonstrate whether or not the company has sufficient finances to meet its obligations throughout the specified time periods. Departmental budget A method of estimating future earnings and expenditures for the purpose of guiding that division towards its objectives. Event budget It is the anticipated earnings and costs associated with a prearranged function. Project budget The term "project budget" refers to the sum of money allotted to provide the monetary groundwork for a certain endeavour. 13 DC No. 5485
Purchasing budget The buying budget details the quantity and price of merchandise that must be purchased by the designated department within a certain accounting period. Sales budget Profit, costs, and anticipated sales are all estimated in the budget. Wage budget In the plan, salary is calculated by multiplying the worker's hourly rate by the total number of hours worked. Master budget The overall financial plan for the company, including all departmental budgets, income statements, and balance sheets (Mauro, Cinquini and Grossi, 2016). 14 DC No. 5485
Reference list Bogsnes, B. (2016). Implementing Beyond Budgeting: Unlocking the Performance Potential . [online] Google Books . John Wiley & Sons. Available at: https://books.google.co.in/books? hl=en&lr=&id=uRRYDAAAQBAJ&oi=fnd&pg=PR10&dq=what+is+budget&ots=0eBHiFtoZm &sig=4zCW9mYWHk_GSgXc8E9JQ8nusuc [Accessed 9 Feb. 2023]. Flyvbjerg, B. (2014). What you Should Know about Megaprojects and Why: An Overview. Project Management Journal , [online] 45(2), pp.6–19. Available at: https://journals.sagepub.com/doi/pdf/10.1002/pmj.21409 [Accessed 10 Feb. 2023]. Friard, O. and Gamba, M. (2016). BORIS: a free, versatile open-source event-logging software for video/audio coding and live observations. Methods in Ecology and Evolution , [online] 7(11), pp.1325–1330. Available at: https://besjournals.onlinelibrary.wiley.com/doi/abs/10.1111/2041- 210x.12584 [Accessed 10 Feb. 2023]. Le Quéré, C., Andrew, R.M., Friedlingstein, P., Sitch, S., Pongratz, J., Manning, A.C., Korsbakken, J.I., Peters, G.P., Canadell, J.G., Jackson, R.B., Boden, T.A., Tans, P.P., Andrews, O.D., Arora, V.K., Bakker, D.C.E., Barbero, L., Becker, M., Betts, R.A., Bopp, L. and Chevallier, F. (2018). Global Carbon Budget 2017. Earth System Science Data , [online] 10(1), pp.405–448. Available at: https://www.earth-syst-sci-data.net/10/405/2018/ [Accessed 10 Feb. 2023]. Mauro, S.G., Cinquini, L. and Grossi, G. (2016). Insights into performance-based budgeting in the public sector: a literature review and a research agenda. Public Management Review , [online] 19(7), pp.911–931. Available at: https://www.tandfonline.com/doi/abs/10.1080/14719037.2016.1243810 [Accessed 10 Feb. 2023]. Rubin, I.S. (2015). Public Budgeting: Policy, Process and Politics . [online] Google Books . Routledge. Available at: https://books.google.co.in/books? hl=en&lr=&id=O2hsBgAAQBAJ&oi=fnd&pg=PP1&dq=what+is+budget&ots=JKDtk1jj4r&sig =nozQzUhAE3af5m_ik3G60SHbaZM [Accessed 9 Feb. 2023]. 15 DC No. 5485
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Saunois, M., Stavert, A.R., Poulter, B., Bousquet, P., Canadell, J.G., Jackson, R.B., Raymond, P.A., Dlugokencky, E.J., Houweling, S., Patra, P.K., Ciais, P., Arora, V.K., Bastviken, D., Bergamaschi, P., Blake, D.R., Brailsford, G., Bruhwiler, L., Carlson, K.M., Carrol, M. and Castaldi, S. (2020). The Global Methane Budget 2000–2017. Earth System Science Data , [online] 12(3), pp.1561–1623. Available at: https://essd.copernicus.org/articles/12/1561/2020/#abstract [Accessed 10 Feb. 2023]. Sullivan, S.D., Mauskopf, J.A., Augustovski, F., Jaime Caro, J., Lee, K.M., Minchin, M., Orlewska, E., Penna, P., Rodriguez Barrios, J.-M. and Shau, W.-Y. (2014). Budget Impact Analysis—Principles of Good Practice: Report of the ISPOR 2012 Budget Impact Analysis Good Practice II Task Force. Value in Health , [online] 17(1), pp.5–14. Available at: https://www.sciencedirect.com/science/article/pii/S1098301513042356 [Accessed 10 Feb. 2023]. Walsh, K. (2016). Managing a budget in healthcare professional education. Annals of Medical and Health Sciences Research , [online] 6(2), p.71. Available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4866369/ [Accessed 10 Feb. 2023]. Yakubovna, I.S. (2020). Ensuring effective use of local budget funds: what is the root cause of the problem? Архивариус , [online] (7 (52)), pp.44–47. Available at: https://cyberleninka.ru/article/n/ensuring-effective-use-of-local-budget-funds-what-is-the-root- cause-of-the-problem [Accessed 10 Feb. 2023]. 16 DC No. 5485
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