Budgeting

Management Accounting-ABF205SL
Coursework
BY
Team Number 5
Name NSBM ID Plymouth ID
Rackshana Jayasekaran 10021066 10639497
Mathuranjali Pragalathan 10021321 10639222
Rushini Kuruppu 10022453 10644309
Olini Wijewickrama 10022737 10639210

An independent Report
Submitted to the Plymouth University – UK
In partial fulfillment of the requirements for the module of
ABF205SL – Management Accounting
2018

BSc (Hons.) Accounting and Finance

Plymouth University

United Kingdom

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 Abstract

Budget according to CIMA’s official terminology (2005) can be defined as a qualitative

expression of a proposed plan of action by management for a special period.

The budgeting process is the method a conglomerate moves on by forming their budget. A great
Budget process holds the ones who are accountable for sticking to the budget and executing the
aims and objectives of the company in making the Budget (Foley, 2010).

This report contains budgets of a small garment manufacturing company and its process. Due to
the fact that this organization doesn’t have a proper budgeting system, our group made a clear,
concise framework of the budgets that was supposed to be build.

The budgeting process commenced by researching about the company and getting access to the
sales information. With that information we made our assumptions as to how the company will
progress in the future months in the year 2019.

This report consists of all the functional budgets and cash budget of the Victoria Line Essential
pvt Ltd and the presumptions made along with it.

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 Table of Content

1.Introduction……………………………………………………………………1

2.Developing Budget……………………………………………………………..1

2.1. Sales Budget……………………………………………………………….1

2.2. Production Budget………………………………………………………...2

2.3 Direct Material Usage Budge……………………………………………...2

2.4Direct Material Purchase Budget……………………………………...….5
2.5Direct Material Labor Cost Budget……………………………………….7
2.6Overhead Budget…………………………………………………………..8
2.7Cash Budget …………………………………………………………..........8
3. Findings..……………………………………………………………………...9
4. Suggestions and conclusion…………………………………………………10
5.References …………………………………………………………………….11

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Section 1: Introduction

The company we chose to prepare the budget is a garment manufacturing company named
‘Victoria Line Essential Pvt Limited’. This company is a partnership business which is owned
and controlled by Mr. S.Vijayaratnam and Mr. Aflal Izdeen. Victoria Line Essential Pvt Limited
is a small scale company which is located in East Laluwaripuwa, Katana.

There are main three production lines; this includes garment products such as frocks, blouses and
night dresses. There are 79 direct and indirect workers and 88 workers in total. Since this a small
company they have no proper budgeting process. This has been a major issue because they
cannot estimate their sales, cost and also the total units to be produced. Therefore we prepared
the budgets for the coming year (2019).We included budgets such as sales, production, labor
budgets and etc. This would be helpful for Victoria Line Essential Pvt Limited to have a smooth
manufacturing process during the year.

Section 2: Developing Budgets

The organization that we have selected as our report core is “Victorian Line Essential Pvt Ltd”
which is a small scale garment that doesn’t have any proper budgeting system. We have selected
this company to develop a budgeting system which will be useful for them for the upcoming
years.

1. Sales Budget

Assumption:
Sales budget is a precise structure that represents expected sales for a forecasted period. All other
budgets depend on sales budget. Therefore, we can say that sales budget is the base for all the
other budgets.

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Based on the Information given by the company we have assumed our sales figures. We assume
that the sales increases during April and December than any months, as they are seasonal
months. During the period of July there is a fixed decrease in sales. There are no changes in the
price even if there are changes in sales.

2. Production Budget

Assumption:
Schedule of anticipated amount of products to be produced within a particular future time limit is
refers to the production budget. This is derived by adjusting the closing and opening inventories
with the expected sales units.
As per our assumptions, the closing inventory is 10% of the next month’s forecasted sales. Based
on our budget the total number of units produced within the year is 269419.

3. Direct Material Usage Budget

This budget shows the value of the material required for production and the adequate levels
of inventory. The purpose is to determine the material units required for the production.

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1. Fabric

2. Thread

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3 .Needles

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Assumption:
Victoria Line Essential Pvt Ltd uses materials such as needles, threads, fabric etc. Since we were
unable to find the exact values, we’ve assumed that the values of opening, closing and unit cost
for each materials. This is shown in the table below

Opening
Thread inventory closing inventory Unit cost
Blouse 500 500 15
Night
dress 1000 1000 30
Red
dress 1000 1000 50
Needles
Blouse 500 500 15
Night
dress 500 500 30
Red
dress 500 500 40
Fabric
Blouse 1000 1000 40
Night
dress 1500 1500 80
Red
dress 1800 1000 80

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4. Direct Material Purchase Budget

The purpose of this budget is to show how many unit of materials purchased during the
period. This is the amount of raw materials that should be purchased after adjusting the
opening and closing material balances.

1. Fabric

2. Needle

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 3. Thread

Assumption:
The assumptions made in the direct material usage budget will be applicable for the direct
material purchase budget.

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 5. Direct Material Labor Cost Budget
This is where the cost of manufacturing wages of labors is included. It calculates the number of labor
hours required to produce each product. This includes both skilled and unskilled labor.

1. Skilled

2. Unskilled

Assumption:- The manager of Victoria Line Essential pvt Ltd stated that their unit required is 10 hours.
Therefore we considered this value will be the same in the year 2019. At the same time the labor rate for
skilled labor is Rs.80 and for skilled is Rs.260.

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 6. Overhead Budget

This budget contains all manufacturing costs other than the costs of direct materials and
direct labour.

Assumption:

As per our budget, we have taken the required unit as 10 hours, and labour rate as 170rs. This
was assumed based on the information given by the company. Through this we have generated
the total cost for the whole year as Rs. 458011450.

7. Cash Budget

This includes all the cash receipts and the cash payments of the year. This budget shows how
cash inflows and cash outflows move in a business. Many business make a budget monthly,
weekly or daily basis.

Assumption:

As per the details given by the company, 60% electricity is used in the manufacturing plant and
the rest in the administration, and 20% telephone charges are utilized by the manufacturing plant.

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10% of the sales is through cash, and the rest is through debtors. Factory rent, needle, cutting
accessories, sewing machine, machine rent, wages are fixed amounts which were taken from the
information given by the owner.

Section 3: Findings

In this section, it will include the organization’s policies and procedures as well as how the
company has used budgets in order to fulfill their management decision making. The company
Victoria Line Essentials pvt ltd doesn’t have a proper and a convenient budgeting system,
because of this they have reached many problems as all their operations don’t run smoothly.
Since they don’t have a precise budgeting framework it has affected their sales and they are
clueless whether they are making a profit or not.

In this garment company they don’t practice keeping a closing and opening inventory which has
affected their profit which in return cause distress to their profit and loss accounts, balance sheet
etc. In our suggested budgets we’ve assumed the opening and closing inventory in a way that
would generate greater profit for the company.

Regarding the laborers, it was found out that they have divided laborers equally into the three
production lines. They have also gain the benefit of receiving transport and money for their
lunch. This organization consists of two types of labors- skilled and unskilled. To recruit for
unskilled laborers, they have to be specialized in dress making and while for skilled they have to
expertise in all the operations occurring within the company.

We’ve taken the labor cost as

Expected production*Unit requirement

= Total cost per labor

Total cost per labor*Labor rate

= Total labor cost

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The organization has planned that as the business grows they will diversify their products in 3-4
years. They will expand their varieties into skirts, trousers, t shirts etc.

Their main cash inflow is by sales of the garments they produce, while their cash outflows would
consist creditor payments and purchase cost.

Section 4: Suggestions and conclusion

As we have referred to the company’s information we have found some drawbacks of their
budget.

Firstly, they have planned to produce 65000 of units for a month but they have only produced
45930 units. This shows us that there are some inefficient planning in their budgeting system.
The owner reported us saying that the laborinefficiency is the main reason for this laps in the
expected production and the actual production. For this problem we would like to suggest to
boost the labors by providing them adequate training and development programs which would
increase their capacity in producing more garments than in usual production.

The next main problem is that labors tend to take more leaves and the targeted production range
gets interrupted. To minimize this problem the company could implement a rule saying that no
incentives would be provided if a worker attempts to take more than one leave per month. If
more leaves are still taken a certain amount will be reduced in their salary.

The next problem is that the production capacity changes in every two months because of
changing their production style. Therefore their production capacity gets slower. For this they
can remain without changing their style of production where the speed would increase as the
style is constant.

As the conclusion we would like to say that the Victoria garments already has made certain
amount of profit during the past ($701). But after considering these suggestions they can increase
their profit to a certain rate than before. There are 12 workers for each line, so they could make
them work efficiently by providing them proper training programs and develop their company.

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 Group Report Marks Comments

Section 5:References

Foley, E. (2010). The Budgeting Process | Nonprofit Accounting Basics. [online]

Nonprofitaccountingbasics.org. Available at:
https://www.nonprofitaccountingbasics.org/reporting-operations/budgeting-process [Accessed 13
Nov. 2018].

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 awarded

The introduction to coursework

is not sufficient and it has not
been described the whole work
1 Introduction to the coursework. 10% 4 you asked to do.

Analysis of the budgeting process

of the organization and identifying The analysis is fairly good, but
main budgets to develop you haven’t identified the
considering their resource budgeting process as well as
2 constraints and other aspects. 30% 18 resource constraints.

Developing a budget to the selected You have developed budgets in

organization a satisfactory level. Have taken
a good effort to develop
budgets by considering most of
3 40% 28 practical aspects.

Identifying issues of the budgeting You have identified issues but

process and your suggestions for suggestions are not
4 its development 10% 6 satisfactory with them.

Guidelines have not been

5 Adherence to provided guidelines 5% 3 followed properly.

The overall presentation is in a

satisfactory level. But I hope
you could have done a better
Overall structure and the presentation with this
6 presentation 5% 3 information.
of the report including
spreadsheets

Total Marks = 62%

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