Budget Analysis: Merits, Demerits, and Budgetary Control Solutions Assignment Sample

Budget Analysis: Merits, Demerits, and Budgetary Control Solutions

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Introduction - Budget Analysis and Control Solutions

Budgets are required to highlight the financial necessity of the firm. Hospitality and catering business requires budget statients to ascertain their financial belongings and to get reports on their business operations. The main aim of this study is to analyse the requirement of budgets with their merits and dierits. The solutions to budgetary control are also reflected here to show the effectiveness of the decision-making. A cash budget for one year is also made to give clear assumptions to the client of the firm.

1. Cash budget for 12 months with variance analysis

Cash budget for 12 months with variance analysis (in millions)
January	February	March	April	May	June	July	August	Sept	Oct	Nov	Dec	Total
Sales :
Loan	600	500	200	200	220	800	500	900	650	680	300	700	5850
Investment.	800	1200	900	800	1200	900	700	900	1200	890	1100	1978	11768
Total Sales:	800000	880000	968000	1064800	1171280	1288408	1417249	1558974	1714871	1886358	2074994	2282493.365	17107427.01
SET UP COSTS TOTAL	801400	881700	969100	1065800	1172700	1290108	1418449	1560774	1716721	1887928	2076394	2285171.365	17125045.01
Direct Costs:
Materials.	6000	6300	6615	6946	7293	7658	8041	8443	8865	9308	9773	10262	11000
Discount on materials	4800	5040	5292	5556.6	5834.43	6126.1515	6432.46	6754.08	7091.79	7446.38	7818.694	8209.628919	8800
Stock.	600	500	200	700	500	250	450	650	420	860	590	250	5970
Additional Staffing
TOTAL Direct Costs:	6600	6800	6815	7645.8	7793.0	7907.7	8491	9093	9284.73	10168	10363.37	10512.03615	16970
Fixed Costs:	90000	90000	90000	90000	90000	90000	90000	90000	90000	90000	90000	90000	90000
Salaries	500	550	605	665.5	732.05	805.255	885.781	974.359	1071.79	1178.97	1296.871	1426.558353	1569.214188
Rent.	2000	1700	1445	1228.25	1044.01	887.41063	754.299	641.154	544.981	463.234	393.7488	334.6864874	11436.77657
Rates	500	550	600	650	700	750	800	850	900	950	1000	1050	9300
Staff Wages.	8000	9500	11000	12500	14000	15500	17000	18500	20000	21500	23000	24500	195000
Stationary.	5600	5936	6400	6800	7200	7600	8000	8400	8800	9200	9600	10000	93536
payment to suppliers (CR.)	4000	4200	4410	4630.5	4862.03	5105.1263	5360.38	5628.4	5909.82	6205.31	6515.579	0	56827.14865
Accountant	8000	8480	8989	9528	10100	10706	11348	12029	12751	13516	14327	15186	134959.5296
Insurance	7200	7848	8554	9324	10163	11078	12075	13162	14346	15638	17045	18579	145013.1825
Interest on loan.	800	880	968	1065	1171	1288	1417	1559	1715	1886	2075	2282	17107.42701
TOTAL:	126600	129644	132971	136391	139973	143720.1	147641	151744	156039	160537	165253	163359.1968	754749.2785
Sub Total: Fix + Direct Costs.	133200	136444	139786	144037	147766	151627.79	156132	160836	165323	170705	175616.4	173871.2329	771719.2785
Net Profit: Sales – Sub total	666800	743556	828214	920763	1023514	1136780.2	1261117	1398137	1549548	1715653	1899378	2108622.132	16335707.74
variance	76756	84657.9	92549	102752	113266	124337.03	137020	151410	166105	183725	209244.5	14227085.6	15668907.74
Variance (%)	12%	10%	9%	11%	10%	10%	10%	11%	10%	11%	14%	1422708460%

Table 1: cash budget

From the above table, it can be stated that the cash budgets are made on a few assumptions. The above data set is fully on assumptions to show the budget requirients of the firm. As per the view of Zitsov and Tsareva (2020), the cash budget is prepped on 12 monthly bases, where all the revenues and expenses are reflected on a cash and accrual basis. The variance analysis is done to show the impact of the different elients of the business operations. The supplier's one-month trade credit is estimated at 4000 (assumed value) from where the credits are raising their value each year. The costs related to rental property are written down by adjusting a 15% amount each month.

Discounts on the cost of materials are valued up to 20% which shows a huge impact on the value of sales. A 10% increase in the overall expenses is also shown as the given adjustments. From the variance analysis, the slight changes in the variance percentages are availed. From the calculation, the net profits are obtained at an increasing value each month.

2. Role of budgets in making financial statients

Budgets play a key or vital role in making financial statients. It shows support to execute the business operations or investment opportunities for the firm. As per the view of Agyiang et al. (2019), the financial implications are also highlighted in the budget statients. Mainly it shows the comparison between the planned expenses and the spending expenses. Ideally, these budgets are prepared to reflect the revenues and expenses at the end of the year or the end of each month. Budgets are the ongoing cycle that adjusts and plans each business operation. The role of the budget can be stated as reflecting and defining the resources that are useful for the business. As per the author Ahmedi et al. (2022), budgets usually provide a “means of measuring, viewing and controlling the obtained results, in comparison with the plans”. The role of budgeting in making the financial implications and making effective decisions is discussed below.

• Monitoring the budgets
• Usage of planned budgets
• Evaluation of budgets
• Measures performance
• Prediction of next term budgets

The above-mentioned points Cleary states the key roles that the budgets always in an organisation. As opined by Bisogno et al. (2018), not only does it help to increase the budgets but at the same time, it allows effective decisions regarding the business operations or plans. It provides an accurate structure where the budget has to pay all the expenses to make the firm more effective. The trade-credit and the discounts are easily ascertained thigh the budget. The financial assumptions that are required for the maintenance of the budget can be effective for the business as there are many projects that are run on a credit basis (Butler et al. 2019). In cash budgets, the budgets are denominated and prepared by ascertaining the liquidity position of the firm.

3. Benefits and limitations of using budgets

Merits of using budgets in an organisation are as follows:

• It helps in regulating the money in all departments of the firm
• Manages the money required for the organisation
• Meet the organisational objectives
• Increases motivational factors among the staff
• Helps in predicting returns

These above-mentioned benefits are easily classified as the beneficiary elients of the budgets that are made for accomplishing a project. As mentioned by Chong and Stephenson (2020), financial stability in a firm is facilitated by budgetary analysis with assumptions. It mainly tracks expenses and “follows a plan, a budget makes it easier to pay bills on time, build an iergency fund”, and saving for major business expenses. These benefits show the accuracy of the budgeting that helps to ascertain all the financial and non-financial requirients. Budgets make out the financial advisers of the firm take regular and long-term decisions that avail more returns to the firm. Budgets are more precisely to be flexible in nature. In a few parts of the organisations the budgets are usually flexible and lean-to change day by day (Ferry et al. 2019). On the other hand in large companies or in non-financial firms, the budgets are fixed.

As the client engages in the hospitality and catering businesses, the assumptions regarding budgets are usually made to analyse the financial performance. As stated by Franco?Santos and Otley (2018), this analysis is done on a monthly, half-yearly or annual basis. Generally, quarterly budgets are made for these kinds of businesses. The effective planning and control of resources in an organisation are managed through the budgets made for the firm. the is advantages make the controlling process of the firm effective manner. The business schies are mostly followed by the organisation where they need to evaluate their current process and meet their obligations at the correct time (Hersleth et al. 2022). It also monitors the performance and increases the firm's capacity to meet its business objectives.

Dierits of using budgets are as follows:

• Inaccurate results
• Excessive spending on different operations or projects
• Financial orientations
• Manipulation of the overall budget
• Rigid process

The above-mentioned limitations state the negative aspects of budgeting in a firm. In the context of regular maintenance, the budget implies wrong results as they are prepared by predicting the overall returns from the activity or the investment (Jordana et al. 2018). It ensures inaccurate results that can simply no further additions to the business. This will create bad outcomes for the respective projects. For the medium scale firms the budgets are mainly reported by the managers or financial advisors. The final budgets are manipulated stents where the mismanagient of the cash and credit incomes are manipulated to get an actual budget. As per the view of Liguor and Steccolini (2018), however, manipulation of budgets is required for the making of budgets. These drawbacks ensure the negative repercussions on the financial budget of the firm.

Due to its rigidity and complex process, the amount that is allotted for a respective project changes its value. Instead of lowering the expenses, the budget implies high revenue for a single project. As per the author Ndiewah et al. (2019), financial orientations require more budgets but the amount is always stated from the predicted results. Therefore the time required for making a budget acquire in the long term makes the budget rigid for the firm to use on a general basis.

4. Budgetary control solutions to support organisational decision making

Budgetary control is an important part of the financial operations as it serves the organisation in meeting its goals in a short span of time. As opined by Nuijten et al. (2020), the budgetary control process refers to the long term expenditure of a firm that is maintained by then to ensure the exact value pen often the project. It determines actual figures from the budgeted figures and compares the results to identify how much money is excessively spent. As mentioned by Nuti et al. (2018), that comparison is done to calculate the variance of the expenses of the firm. The firm needs to ascertain accurate budgets for a specific investment; it ensures that the firm can get better outcomes after finishing the work or business operation.

In order to access the current financial position of the firm as well as the project, the budgetary control process is examined by the managers. As stated by Pešalj et al. (2018), the client of the firm can get accurate results where the firm can showcase the effectiveness of the budget in maintaining the results. It outlines the directions that can be effective for the firm to represent the efficiency of the used resources. The most prominent part of the firm is that the budget that is made for the firm enables proper infrastructure. The decision making and ensuring efficient and effective deployment of resources by budgets makes the firm more authentic than others (Rangrez et al. 2022). The solutions to the budgetary controls enable a free flow of services in all kinds of organisations.

Functional budgets are the most appropriate functions of the budgets that limit the expenses of a firm. As per the author Santis et al. (2018), this spending limit shows that the firm needs to certain the actual expenses and to reduce the wastage of money over expenses. It clearly defines the actual performance of the budgets. It also reduces risks and provides artificial intelligence to large companies, by providing various software and other technical supports to the firm. Budgetary controls help in the project coordination and making of the budgets. It also helps in “coordinating the departments and establishing responsibilities”. As per the view of Tanklevsk et al. (2020), this is done by “comparing actual performance with the budgeted and acting upon results to achieve maximum profitability”. These solutions to the budgetary control show the full efficiency of the company impending more money for the further acquisitions.

Conclusion

Based on the brief context it can be concluded that budgets are the essential statients where the company can easily manage their expenses. From the cash budgets, it can be seen that the revenues are increased by the stated percentages. The variance analysis shows the slight changes that are beneficial for the firm. However, the changes are not good for the firm if they want to explore the hospitality industry. The client needed to allocate the budgets as required for the growth and expansion of the business. The budget must be allocated by referring to the limitations and merits of the budget.

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