Contents

Task 1 .................................................................................................................................. 2
Task 2 .................................................................................................................................. 5
Task 3 .................................................................................................................................. 8
Reference .......................................................................................................................... 14
Coursework ....................................................................................................................... 15

Page 1 of 18
Task 1

(a)(i) Minimum stock level is the minimum quantity of a material must be kept in the

store at all times. Material stock should not be allowed to fall down below this level as

it may interrupt the production due to non-availability or shortage of the material.

Minimum stock level often called as safety stock as well.

(ii) Breakeven output is a production level that achieves zero economic profit. In other

words, a firm is just "breaking even." The total revenue received by a firm at the

breakeven output just matches the total cost incurred. However, because total cost

includes a normal profit, only economic profit is zero. A firm generally reports a

positive accounting profit at the breakeven level of production.

Page 2 of 18
(b)

July Aug Sept Oct Nov Dec

Opening

inventory 270 290 390 430 370 270

Add Produced 300 300 300 300 300 300

570 590 690 720 670 570

Less Sales 280 200 260 360 400 420

Closing

inventory 290 390 430 370 270 150

Inventory (by deduction) 1 July: 270 units

Page 3 of 18
(c) Factor Productivity Measure which gives the System Output in monetary value per

unit monetary value of the Input Factor during a specific period. To control for the

measurement issues emerging from the indirect approach, we incorporate financial

variables as well as other firm characteristics variables directly into the production

function equation to investigate whether financial variables can directly influence the

observable firm production. The combination of the direct estimation of production and

the indirect estimation of TFP can verify the robustness of the effects that financial

factor may have on firms’ productivity. To control for firm size heterogeneity, we

normalise a basic production function by capital first. Then adding controls for firm

characteristics as well as augmenting financial factors, the normalised production

function gives.

Page 4 of 18
Task 2

(a)

Period 1 Period 2 Period 3 Period 4

Receipts:

Capital 34,000

Hire charges paid in cash(w1) 1,248 1,664 1,664 1,664

Hire charges (chauffeured

cars)(w2) 2,400 2,400

35,248 1,664 4,064 4,064

Payments:

Cars bought 32,040

Cars bought 17,550

Petrol - - 360 360

Servicing 300 300 300

Fixed costs 200 200 200 200

Drawings 400 400 800 800

Initial staff 960 960 960 960

Chauffeurs 720 720 720

Page 5 of 18
 33,600 2,580 3,340 20,890

Balance at period end 1,648 732 1,456

Deficit at period end 15,370

Workings:

w1 Per week: weekdays: 4×5×$10= $200

weekends: 6×2×$18= $216

3 weeks in period 1, 4 weeks other period.

w2 Assumed additional to cars in (w1): 2×$60×5×4= $2,400

Page 6 of 18
(b) In planning, management must set specific objectives for each section of the entity.

Plans should be drawn up with a view to both the short and the long term, and must be

based on forecasts regarding demand, supply and expected technological improvements.

Therefore, a cash budget shows the expected flow of cash. Cash flow is crucial to any

entity and therefore the cash budget is very important to any business entity as it

involves planning, control, and coordination.

(c) 1. Internal Sources:

Internal sources of data are those which are obtained from the internal reports of an

organization. For instance, a factory publishes its annual report on total production, total

profit and loss, total sales, loans, wages to employees, bonus and other facilities to

employees etc.

2. External Sources:

External sources refer to the information collected] outside agencies. It can be collected

from primary as well as secondary sources; type of information can be collected through

census or sample method by conduct! Surveys and investigation.

For instance, to study the problem of transportation in Orissa, if we obtain the

information from Orissa Road Transport Corporation, it would be known as external

sources of data.

Page 7 of 18
Task 3

(a) (i) Budget is an estimation of the revenue and expenses over a specified future

period of time. A budget can be made for a person, family, group of people, business,

government, country, multinational organization or just about anything else that makes

and spends money. A budget is a microeconomic concept that shows the trade-off made

when one good is exchanged for another.

(ii) Operating budget is the annual budget of an activity stated in terms of Budget

Classification Code, functional/sub functional categories and cost accounts. It contains

estimates of the total value of resources required for the performance of the operation

including reimbursable work or services for others. It also includes estimates

of workload in terms of total work units identified by cost accounts.

(iii) Master budget is a comprehensive overview of a company's financial plans. It is

normally an annually calculated document. It typically includes smaller, separate

budgets that can be divided into two main categories: the operating budget and the

financial budget.

Page 8 of 18
 (b)(a)

Madingley Ltd

Forecast Operating Statement for the six months ending 30 November 2010

($000)

Revenue 1185.2

Cost of sales:

Opening inventory 234

Materials 205.6

440

Less Closing inventory 227.9

211.8

Wages 36.7

Variable overheads 340.2

Depreciation: Plant 0.47 589.17

Gross profit 596.03

Fixed overheads 226.8

Depreciation: Fixtures 6.27 227.07

Profit for the year 368.96

Page 9 of 18
(b)(b)

Forecast Balance Sheet as at 30 November 2010($000)

Aggregate

Cost depreciation Book value

Non-current assets

Land and buildings 134.00 - 134.00

Plant and machinery 9.40 4.23 5.17

Fixtures and fittings 2.30 1.32 0.98

145.70 5.55 140.15

Current assets

Inventory: Raw materials 91.70

Finished goods 136.20

Accounts receivable 574.50

Bank 282.20 1084.60

1224.75

Current liabilities

Accounts payable: Raw materials 41.00

Overheads 42.60 83.60

1141.15

Page 10 of 18
Equity 500.00

Share capatal

Retained Profits 272.19

Profit for the year 368.96 641.15

1141.15

Page 11 of 18
Working

Account Receivable Control

Opening Balance 594.4 Cash 1205.1

Sales 1185.2 Balance c/d 574.5

1779.6 1779.6

Purchases Ledger Control

Cash 246.8 Opening balance 82.2

Balance c/d 41 Materials 205.6

287.8 287.8

Overheads

Cash 651.8 Opening Balance 127.4

Balance c/d 42.6 Incurred 567

694.4 694.4

Page 12 of 18
 Cash Book

Opening balance 12.4 Payment: Suppliers 246.8

Receipts 1025.1 Wages 36.7

Overheads 651.8

Balance c/d 282.2

1217.5 1217.5

Page 13 of 18
Reference

1. http://books.google.com.my/

2. en.wikipedia.org

3. text book\

4. Cliche, P. (2012). “Budget,” in L. Côté and J.-F. Savard (eds.), Encyclopedic

Dictionary of Public Administration, [online],

Page 14 of 18
Coursework

1. List the limitation of budgeting.

The main limitations of budgeting are as under:

Budget plan: Since budget a plan are based on estimates, the success or otherwise

depends on the accuracy of basic estimates or forecasts. Due to this while making

estimates, judgmental decision may accrue. The results need to be interpreted very

cautiously.

Rigidity: Since the estimates are quantitative expression of all relevant data, there is

likely that finality attachment may become very clear. Such consideration may result in

rigidity. Rigidity may become a setback for the changing business conditions.

Replacement: Budgeting is not a substitute for management. It is essentially a tool of

management. Under no circumstances, it should be concluded that the budgeting is

alone sufficient to ensure success and to guarantee future profits.

Costly: The installation of budgeting system to an organization involve too much of

costs. Its scientific approach will definitely call for huge cost allocation. Small concerns

cannot afford to take over huge costs for the establishment of business systems. Since

the costs and revenues and operational activities do not match in many occasions, the

Page 15 of 18
entire exercise will become costly. The system should be adopted only when benefits

exceed the costs.

2. Advantages of cash budgets

(a) Having to think ahead and plan for the future and express plans in figures, focuses

the mind in a way that thinking in a general fashion about the future will not do — a

general optimistic feeling that `all will be well' often fails to stand up to scrutiny when

the views of the future are expressed in a cash budget.

(b) Seeing that money will have to be borrowed at a particular date will mean that you

can negotiate for a loan in advance, rather than at the time when you have actually run

out of cash. Bankers and other lenders do not like someone attempting to borrow money

in a panic. When borrowing money, you have to give the lender the confidence that the

loan will be repaid at the agreed time, plus any interest and charges that may accrue.

Last minute borrowing, unsupported by any calmly thought-out plan, will not inspire

such confidence, and will often lead to the loan being refused as the lender may think

that the risk is too great.

Page 16 of 18
(c) Knowing about the need to borrow in advance also widens the possible pool of

lenders. Such people as friends, relations and businesspeople or investors other than

bankers rarely have large sums of cash quickly available. They need time to turn their

own investments into cash before they can lend to you.

(d)Alternatively, you may find that you will have cash funds surplus to requirements.

Knowing this in advance enables you to investigate carefully how you can invest this

surplus cash until required, thus earning interest or other investment income. Surplus

cash lying in bank current accounts very often earns absolutely no interest at all, no

matter how large the amount. Banks often offer deposit accounts linked to current

accounts that automatically transfer funds from one to the other so that any surplusfunds

in the current account are moved immediately to the deposit account and reversed back

to the current account when required.

There are also other sorts of short-term investments which banks and accountants can

advise businesses to put their surplus cash into at appropriate times.

Page 17 of 18
3. The Budgeting Process

It would be easy to dismiss the budgeting process as beginning when the first budget is

prepared, and as being complete when the master budget is finalised. In reality, the

budgeting process begins for many organisations a long time before the budget period

begins; and the process ends once the budget period has ended. This means the

budgeting process is a very lengthy process: typically, for a large organisation, the pre

budgeting phase can begin up to a year before the budget period starts.

Jones and Pendle bury (1984), pp62-63, give us some insight into the beginning of the

budgeting cycle when they present a "Timetable for preparation of detailed revenue

budget and capital programme" for a Local Authority. They show that the process starts

in June in the year proceeding the budget period with the draft budget manual being sent

to Finance Officers, who will discuss this draft with their departmental staff (with a

view to adoption or amendment). The budgetary planning phase is completed in March

(ready for an April start) when the printed budget book is published and the approved

estimates are put into the financial control system (Colville (1989) presents a similar

view, but this time of the budgeting for a Police Authority in the UK).

Page 18 of 18