Essays on Mudjimba Manufacturers Ltd and Inspire Ltd Distributors Financial Budgeting Case Study

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In general, the paper "Mudjimba Manufacturers Ltd and Inspire Ltd Distributor’ s Financial Budgeting" is a great example of a finance and accounting case study.     The following report contains a production, cash, labor and material budgets for the manufacturer and an overall cash budget for the distributor. Each of these budget analyses is essential to proper planning by the management to avoid stock-outs or wastages from both the manufacturer and the distributor. In addition, budgets allow for timely management of cash flow balances to cater for any unforeseen expenditure without resulting in liquidity problems for the firm. The report has also outlined aspects of behavioral budgeting and participative budgeting explaining each into more details on its effects on the organization.

The types of behavioral budgets discussed are the slack budget and participatory budget in order to determine the effect on the stakeholder behavior citing both the advantages and disadvantages. The report will be used by both the respective management to monitor the progress of each of the organizations. This will enable them to point out any loopholes that may exist in the production or distribution process.

The financial controller of the manufacturer will also benefit from the analysis. The breakdown of the environmental cost report has also been outlined which helps the public gain a positive perception towards the company as it engages in corporate social responsibility.   Scope The companies under investigation are a manufacturer and a distributor. They are Mudjimba Manufacturers and Inspired Ltd respectively, for the period between November and March. Limitations The data provided neither reflected any figure of opening inventory nor closing inventories of finished goods. As a result, the production budget for the manufacturer has used an assumption that they were all at zero. Manufacturing direct materials also did not have any information regarding the opening or closing stocks by the manufacturer.

They were also assumed to be zero for each month. The year of the data provided is also missing. Consequently, the titles of the reports do not reflect a specific date besides the month under investigation. Cash Budget Inspire *Assumption made is that ‘ ’ … in the first two months’ ’ statement meant to start from the month of December. Inspire Ltd Cash budget '000' Receipts Nov Dec Jan Feb Mar Current month   15,000 20,000 10,400 7,040 70%-30 days     52,500 70,000 36,400 10%-60 days       7,500 10,000 Total sales receipts   15,000 72,500 87,900 53,440             Payments           Payments-Purchases   22,500 30,000 19,500 16,500 Discount allowed   22,500 30,000 15,600 10,560 General expenses   2,000 2,000 2,000 2,000 Total payments   47,000 62,000 37,100 29,060             Cash flow for the month   (32,000) 10,500 50,800 24,380 Bal b/f   1,000 (31,000) (20,500) 30,300 Bal c/f 1,000 (31,000) (20,500) 30,300 54,680 Table 1 1 Mudjimba Manufacturers Budgets Production Budget Mudjimba Manufacturers Ltd Production budget '000'   Nov Dec Jan Feb Mar Expected unit sales 150 200 130 110 90 Add closing finished goods 0 0 0 0 0 Total required units 150 200 130 110 90 Less beginning finished goods 0 0 0 0 0 Required production units 150 200 130 110 90 Table 1 2 Material Budget Mudjimba Manufacturers Ltd Material budget '000'   Nov Dec Jan Feb Units to be produced 150 200 130 110 Direct material A per unit 3 3 3 3 Direct material B per unit 6 6 6 6 Direct material C per unit 1 1 1 1 Total Direct materials per unit 1,500 2,000 1,300 1,100 Add desired closing stock 0       Total required materials 1,500 2,000 1,300 1,100 Less beginning opening stock 0       Direct materials purchases 1,500 2,000 1,300 1,100 Cost per kg A 3 3 3 3 Cost per kg B 6 6 6 6 Cost per kg C 12 12 12 12 The total cost of production 31,500 42,000 27,300 23,100 Table 1 3 Labour Budget Mudjimba Manufacturers Ltd Labor budget '000'   Nov Dec Jan Feb Units to be produced 150 200 130 110 Direct labor hrs. /unit 0.6 0.6 0.6 0.6 Total required labor hrs. 90 120 78 66 Direct labor cost /hr. 35 35 35 35 Total direct labor cost 3,150 4,200 2,730 2,310 Table 1 4 Cash Budget Mudjimba Manufacturers Ltd Cash budget '000' Receipts Nov Dec Jan Feb Current month   15,000 20,000 10,400 70%-30 days     45,000 60,000 10%-60 days       15,000 Total cash sales receipts 0 15,000 65,000 85,400           Total receipts         Overhead costs 200 200 200 200 Labor costs 3,150 4,200 2,730 2,310 Material costs 31,500 42,000 27,300 23,100 Total payments 34,850 46,400 30,230 25,610           Cash flow for the month (34,850) (31,400) 34,770 59,790 Bal b/f 2,000 (32,850) (64,250) (29,480) Bal c/f (32,850) (64,250) (29,480) 30,310 Table 1 5 Behavioral Aspects of Budgets Budgetary Slack Budgetary slack is also known as padding the budget.

A budget preparation affects many key stakeholders in an organization; the users, those responsible for its preparation, the employees evaluated on its basis and finally the decision-makers management segment. Budgetary slack is commonly explained in terms of overestimation of costs and underestimating revenues.

It’ s a major disadvantage of the budgetary process since the person in charge of their preparation will deflate or inflate budget estimates in anticipation of the actual amounts in order to appear favorable to the top management. For instance, a sales manager may provide underestimated sales figures for a period, so that when the actual revenue outweighs the budget by a huge amount, the manager will gain favor as hardworking. There have been theories as to why a budget slacker is a common phenomenon in organizations; to cope with unforeseen future, appear hardworking to top management and due to the vicious cycle of cutting costs in resource allocation.

References

1.0 References

Hilton, R. (2014). Behavioral Impact of Budgets. Retrieved September 11, 2014, from https://www.inkling.com/read/managerial-accounting-ronald-hilton-9th/chapter-9/behavioral-impact-of-budgets

Inc.com. (2014). Budgetting; Cash Management. Retrieved September 11, 2014, from Mansueto Ventures: http://www.inc.com/guides/finance/cashmanagement.html

Lamberton, G., & Harvey, D. (1991). Advanced Management Accounting. East Lismore: NSW: Southern Cross University.

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