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Management and Accounting

Breakeven analysis of the results has also been prepared to determine the volume of sales at which the company will be able to cover its fixed costs. There are a number of financial tools and techniques available to assist business managers to monitor and control their operations. They include budgeting, ratio analysis, breakeven analysis and sensitivity analysis. 2.0 Budgeting Budgets are useful methods of monitoring and controlling costs and organisations prepare a number of them in order to monitor and control expenditure. They include revenue budget, material budget, labour budget, cash budget, budgeted income statement, and budgeted financial statements. The revenue budget is normally the first budget to be prepared. The revenue requirements are determined and a forecast is done of the revenues that the company will generate over a period and when the actual amounts will be received (See Appendix A). The material budget and the labour budget is then prepared based on the information in the revenue budget. These budgets indicate the cost of materials that are required in each period in order to achieve the targeted revenues. The material budget indicates when materials are purchased and the quantity in which they are purchased (See Appendix B). The labour budget includes a description of the labour required and the cost of labour for each period included in the budget. A cash budget is then produced based on the information in the revenue budget, material budget and labour budget (See Appendix C). The cash budget includes a section for inflows (receipts) and another for outflows (payments) (See Appendix D). The receipts in the cash budget are linked to information in the revenue budget and the payments are linked to information in the materials budget and the labour budget. The revenue, material, labour and cash budgets are shown in Appendix A, B, C and D. In order to forecast the total income, expenditure and profits for the period a projected income statement is prepared. This statement draws cumulative information from the revenue budget, the material budget, the labour budget and the cash budget. The projected retained earnings from the projected income statement is then used in the preparation of the forecast balance sheet along with capital items in the cash budget, prepaid and unpaid expenses which are determined by comparing the information in the income statement with the cash budget. The projected income and financial position statements are shown in Figure 1 and 2 respectively. Famished! Limited Forecast Income Statement for the year ending March 31, 2012 ? ? ? Gross sales revenue 592,000 Less direct material costs after deduction of closing inventory 124,320 Gross margin 467,680 Less expenses: Lease 24,000 Refit depreciation 7,000 Equipment depreciation 5,148 Business rates 24,300 Water 1,712 Electricity 4,508 Gas 6,050 Internet for business use 360 telephone 909 Cleaning 10,944 Promotional expenditure 600 Salaries 241,661 327,191 Operating profit 140,489 Interest payable 902 Retained profit 139,587 Figure 1 Famished! Limited Projected STATEMENT OF FINANCIAL POSITION as at March 31, 2012 ? ? ? Non current assets Cost Dep'n Net Refit of premises 35,000 7,000 28,000 Equipment 28,600 5,148 23,452 51,452 Current assets Inventories 1,800 ...Show more


To: The Managing Director From: A.M. Project Manager Subject: Budget Analysis of Famished! Limited Date: Report Table of Contents 1.0 Terms of reference 2.0 Budgeting 3.0 Ratio analysis 4.0 Breakeven analysis 5.0 Sensitivity analysis 6.0 Conclusion Appendices References 1.0 Terms of reference This report provides various budgets for the first year of operations of Famished Ltd…
Author : trey11
Management and Accounting essay example
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