BUDGET MONITORING AND PREPARATION

Question 1.1

Why is it necessary to determine and confirm scope and nature of budgetary planning activity with
relevant colleagues?

Submitted answer:

It is necessary because it will determine what is the status of your business with regards of finance.
Having scope and connection with relevant colleagues will make the work easier and smoother because
they have the expertise when it comes on budgetary planning activities. It is important that you and the
colleagues has same decisions and actions regarding on budgetary planning activities.

Question 1.2

What information/ data is required for budget preparation? List at least six items.

Submitted answer:

1. Performance data from previous records

2. Financial information from suppliers
3. Competitor research
4. Management policies and procedures
5. Grant funding guidelines or limitations
6. Organisation budget preparation guidelines.

Question 1.3

What internal and external data and data sources might be utilised when developing new budgets?
Suggest at least 10.

Submitted answer:

1. Cash flow reports

2. Customers
3. Competitors
4. Operational trends
5. Marketing data
6. Customer habits
7. Leadership decision makings
8. Internal research
9. Sales trends and metrics
10. Software user trends
Question 1.4

Why is it important to provide relevant colleagues with adequate notice of the opportunity to contribute
to the budget planning process?

Submitted answer:

It is important because your colleagues can provide financial proposals for different scenarios if needed.
They can share their ideas that can be helpful to the budget planning process and its activities. Giving
them opportunity also means that their side and opinion matter because they are the one who are in
charge with budget planning so they should be included in the opportunity so that they are aware what
to do.

Question 2.1

What is the importance of a cash flow budget or report?

Submitted answer:

The importance of cash flow budget or report is it’s giving you an everyday update on how many cash
that is going in and out of your business. It able you to monitor what is happening inside of your business
regarding of financial activity. You can determine the status of your finance whether the income is higher
compared to business cost or vice versa. It will help you to think some strategies to increase the cash
going in compared to going out.

Question 2.2

What data might you need to collect, and from whom, to construct a cash flow budget?

Submitted answer:

All the data that will be collected, the finance manager is the one who in charge of this. Data that might
you need to collect and from whom are:

• Training
• Sales
• Operations
•Capital expenditures
• Advertising
Question 2.3

Why is it a good idea to draw up a draft budget?

Submitted answer:

Drafting a budget is a good idea because it will help you to disseminate properly the funds and money to
the right sections and activities. It can be a tool that can provide you list of what are the important
matters that need to have funds and not. It can balance, management, and properly planned your funds.
It can avoid wasting of money to irrelevant and not beneficial activities of your business.

Question 2.4

Why is it a good idea to consider the various budgeting and monitoring options available?

Submitted answer:

Having various budgeting and monitoring options mean that you have a lot of choices that are fitted to
your business. There are many types like fixed budgeting, flexible budgeting, zero-based budgeting, and
activity-based budgeting. After you gather information regarding these options, you can apply it to your
business so that you can run it smoothly. You can be able to choose on how to budget your finances
which may help your business to grow and successful.

Question 2.5

List the five steps in presenting and circulating a draft budget to colleagues and managers for input.

Submitted answer:

1. Initial discussion
2. Peer discussion
3. Written feedback
4. Report and recommendations
5. Final discussion

Question 3.1

Explain the prime factor to be taken into consideration when prioritizing income and expenditure
requirements for a budget.

Submitted answer:

The prime factor that needs to be considered is customer satisfaction. Having good and positive
feedbacks together with high customer satisfaction is a marker of success of an business. The customer
satisfaction is important because it well tell you how good your business, product, and services that you
are offering to your market. The feedbacks will help your business to think of innovations and other ways
on how to maintain or to improve your business and its services.

Question 3.2

Give four reasons why it might be important to utilise specific formats for the presentation of budgets.

Submitted answer:

First reason is when you are utilise specific formats for presentation of budgets it will be organised and
easy to understand. Next one is it will help you to monitor and track all the cash revolving with your
business. You will know if you are allocating the money to its right places. Third, when you have specific
format, it would be easy to follow by all relevant colleagues and it will avoid confusion. Lastly, having
specific format for presentation will keep the data profound and in proper sections.

Question 3.3

Why is it important to effectively communicate new budgets to relevant colleagues?

Submitted answer:

It is important because these colleagues are handling the budget. Having effective communication
regarding new budgets means that you are informing them on how to properly use and allocate it. By
communicating, you can avoid the misunderstanding that can lead to misuse of funds to its proper
projects or activities. It will be easy to understand if there is an effective communication between the
colleagues they can determine which department needs money or budget and which one is not.

Question 4.1

4.1.a

List three tools for managing budgets.

Submitted answer:

1. Rolling forecast
2. Balance scorecard
3. EVA (Economic Value-added Analysis)

4.1.b

Why are rolling forecasts valuable?

Submitted answer:

Because forecasts help us to be prepared for whatever the changes with the market and trends of it
anytime. It able us to create plans, to responds, and to take immediate actions to the constant change of
environment with regards of business. Having forecasts mean that the managers are ready to any
changes that the environment might bring to the business.

Question 4.2

List 10 financial commitments that must be incorporated into the budget.

Submitted answer:

1. Legal services
2. Operating cost
3. GST and taxation payments
4. General insurance and worker’s compensation insurance payments
5. Council rates
6. Debts
7. Capital expenditure requirements
8. Rent payments (building, machinery, and equipment.)
9. Supplies inputs
10. Loan repayment and interest

Question 4.3

4.3.a

Explain the difference between a sales volume variance and a sales price variance.

Submitted answer:

The sales volume variance is calculated by multiplying the actual and expected number of units sold by
the budgeted price per unit. While sales price variance is the difference between the selling price at
which a company is expected to sell its products or services and the price at which it actually sells them.

4.3.b

What is a materiality threshold, and how might the level set for negative deviations differ between small
and large business?

Submitted answer:

The materiality threshold is usually expressed as a percentage of a specific financial statement line item.
In the context of an individual entity's financial report, materiality is an entity-specific aspect of relevance
based on the nature or magnitude, or both, of the items to which the information relates. Negative
deviations have negative impacts between the small and large business. The larger the business is, the
bigger the impact is. However, it is not always like that it depends on situation of the business.

Question 4.4
 4.4.a

Complete the table with an internal and an external variance affecting the different aspects of a
business. the variance can be either favourable or unfavourable. You cannot use examples from the text.

Internal External

Sales variance Promotion of business and products Sales increase

Cost variance Wrong computation of budget Business may have unforeseen balance

Materials variance The materials used for operation is not Low quality of of outcome or product
enough

Labour variance Well performing employees Growth of business

Overheads variance Unbalanced shifting schedule Performance of employees may go down

Profit variance New opportunity for growing market Promotion of products and new potential
customers

Submitted answer:

4.4.b

Choose one aspect from the previous table and list five questions that could be asked to find a solution.

Submitted answer:

Sales variance

1. How do you improve your sales?

2. What are your ways to maintain your sales?
3. How much is the growth of your sales?
4. Do your plan is successful to increase your sales or it affected the sales in wrong way
5. How you determine if your sales variance is increasing?

Question 4.5

What financial data might be collected and used to contribute to new budgets? List as many as you can,
at least 20 items.

Submitted answer:
1.Insurance reports
2. Wastes, mistakes, and reworks
3. Income and expenditure
4. Cash flow data
5. Job quotations
6. Credit card receipts
7. Petty cash receipts
8. Debt and debtors
9. Credit and creditors
10. Taxation and GST records
11. Files of paid purchase and service invoices
12. Employee timesheets and labour hours or wages and salaries
13. Incoming supply invoices and payments
14. Emergencies and contingencies
15. Assets, asset maintenance, and depreciation
16. General cost— overhead and indirect cost
17. Process and product or service variation
18. Outgoing product or service sales invoice and payment
19. Bank account records (loan, cash at bank deposits and withdrawals)
20. Purchase receipts

Question 5.1

List and explain seven types of budgets.

Submitted answer:

The seven types of budgets are

1 Traditional budgeting process related use last year's expenses to determine or forecast expenditures for
the coming year, with a percentage added to account for inflation.
2 Incremental budgeting starts with the previous period's budget or actual performance and then adds
an incremental amount for the new budget period.
3 Cash flow budgeting provides information that can be used to develop new forecasts and design new
budgets.
4 Fixed Budgeting is based on historical data and figures that have been nominally adjusted to account
for the future.
5 Adjustments are possible with flexible budgeting because figures are dependent on other figures and
can be adjusted as well if necessary.
6 Zero-based budgeting resets the clock each year, starting from scratch and questioning each
expenditure. It's also a great way to shake things up.
7 Activity-based budgeting is a development of activity-based costing in which the true cost of providing
a product or service is defined by capturing and analyzing how employees spend their time.
 Question 5.2

Define the budgetary terms.

Terminology Definition

Assets An asset is something that provides an individual or other entity with a current, future, or potential
economic benefit.

Capital expenditure It is a fund set aside by an organization for the purpose of upgrading and maintaining physical assets
such as machines, technology, and facilities.

Cash inflows are the inward flow of funds resulting from the sale of a product or service.

Cash outflows are the transfers of funds from the business for the purpose of paying business expenses.

COGS The expenses incurred to produce the goods or services sold by an organization are referred to as the
cost of good sold.

Direct labour costs are the total costs of employing every person directly involved in the production of the organization's
product or service.

Expenses is just the cost of doing business, which includes both direct costs for product/service production and
general operating expenses.

Fixed costs should be reimbursed regardless of whether the company makes a profit or a loss, and regardless of the
business's production level

Gross profit It is an organization's profit after deducting all costs associated with manufacturing and selling its
products or services.

Liabilities These are the organization's debts owed to legal third-party creditors.

Profit and loss reflects a commercial company's future viability and will contribute to the development of new financial
report budgets and financial controls.

Revenue It is the total amount generated by an organization's sales of goods and services.
Sales forecast It is the process of estimating and calculating future revenue in order to predict the amount of product
or services that can be sold in an organization.

Question 5.3

What financial reporting cycles can be used by an organisation?

Submitted answer:

The financial measure reporting cycle is used by the organization to determine and identify the
organizational level of success and to know the status of their goal. It is used to understand the business'
financial statements, which are recorded and analyzed by internal and external entities to understand its
current position over a specific time period.

Question 5.4

List seven internal and external factors that impact on budget development.

Submitted answer:

1. Organisational and Management Restructures

2. Organisational Objectives
3. Shift in Market Trends
4. New Legislation or Regulation
5. Scope of the Project
6. Human Resource Requirements
7. Venue Availability and Cost

Question 5.5

Summarise budget preparation and monitoring techniques.

Submitted answer:

Budget preparation is defined as the process of assigning and selecting organizations and individuals to
carry out the tasks that have been assigned to them within a specific timeframe. The legal and
regulatory framework would normally supervise and control this process. Establishing goals and
developing a plan to achieve those goals are two steps in this process. It also aids in budgeting, tracking
expenses, and saving. Monitoring techniques are defined as the systems and mechanisms used by the
organization and its employees to monitor various aspects of the organization's operation. It is also a
method of obtaining feedback or responses from employees and customers through the use of surveys
and computer generated ratings on social media to learn about their perspectives on the products and
services provided.