wk8 9 budget for the short-term

8/11/2019 Wk8 9 Budget for the Short-Term

http://slidepdf.com/reader/full/wk8-9-budget-for-the-short-term 1/32

Week 8 & 9

Martin Turner

ACCT11059 USING ACCOUNTING FOR DECISION MAKING

BUDGETING“It was my favourite

chapter so far.”

“I struggled to read this chapter … I found it boring,

long-winded and some parts hard to understand. I

found it difficult to look for meaning and to be insightfulwhen I wasn’t interested in what I was reading.”



Agenda

• Purple Chocolates

•

Why Budget?

• Balanced Scorecard

• Minute Paper



Cash Budgets

“The two most beautiful words in the

English language are ‘cheque enclosed’.”

Dorothy Parker



Figure 7.1: Purple Chocolates

Cash Budgetfor the six months ending 30 June 2015

.

Jan Feb March April May June Total

$'000 $'000 $'000 $'000 $'000 $'000 $'000

Cash Inflows

New Share Capital 1,500 0 0 0 0 0 1,500

Cash Receipts from Sales* 100 200 300 400 1,000 1,000 3,000

Total Cash Inflow 1,600 200 300 400 1,000 1,000 4,500

Cash Outflows

Direct Materials 0 300 300 300 300 300 1,500

Direct Labour 75 150 150 150 150 150 825

Overheads 0 300 300 300 300 300 1,500

Purchase of Equipment 1,000 0 0 0 0 0 1,000

Total Cash Outflow 1,075 750 750 750 750 750 4,825

Net Cash Flow 525 (550) (450) (350) 250 250 (325)

Opening Cash Balance 0 525 (25) (475) (825) (575) 0

Closing Cash Balance 525 (25) (475) (825) (575) (325) (325)



* Cash sales that month plus credit sales from two months previously

Sales Budget ($000)

Jan Feb Mar Apr May June

Cash Sales 100 200 200 200 200 200 1,100

Credit Sales (60 days) 100 200 800 800 1,000 1,000 3,900

Total Sales 200 400 1,000 1,000 1,200 1,200 5,000




Budgeted Income Statementfor the six months ending 30 June 2015

$'000

Sales

CashCredit (60 days)

1,100

3,900

Total Sales 5,000

Less: Cost of SalesDirect MaterialsDirect Labour

1,650

825

2,475

Gross Profit 2,525

Less: Dep'n ofMachineryLess: Overheads

50

1,650

Net Profit 825



Q: How could we have negative cash flow

of $325,000 and make a ‘profit’ of

$825,000?

What gives? Which one is ‘right’?




Budgeted Balance Sheet as at 30 June 2015

$'000

Assets

Current Assets

Inventory 375

Debtors 2,000

Total Current Assets 2,375

Non Current Assets

Equipment 1,000

Less: Accum. Dep'n (50)

Total Non-CurrentAssets 950

Total Assets 3,325

Liabilities

Current Liabilities

Bank Overdraft 325

Creditors** 675

Total Current Liabilities 1,000

Equity

Share Capital 1,500

Retained Earnings 825

Total Equity 2,325Equity + Liabilties 3,325





$'000

Assets

Current Assets

Inventory 375

Debtors 2,000


Non Current Assets

Equipment 1,000



Total Assets 3,325

Liabilities

Current Liabilities

Bank Overdraft 325

Creditors** 675


Equity

Share Capital 1,500



Credit sales in

May & June



* Cash sales that month plus credit sales from two months previously

Sales Budget ($000)

Jan Feb Mar Apr May June

Cash Sales 100 200 200 200 200 200 1,100

Credit Sales (60 days) 100 200 800 800 1,000 1,000 3,900

Total Sales 200 400 1,000 1,000 1,200 1,200 5,000

Credit sales in

May & June: $2m





$'000

Assets

Current Assets

Inventory 375

Debtors 2,000


Non Current Assets

Equipment 1,000



Total Assets 3,325

Liabilities

Current Liabilities

Bank Overdraft 325

Creditors** 675


Equity

Share Capital 1,500





Why Budget?

• Short-term Planning

• Co-ordinate

• Communicate

• Delegate

• Motivate



Why Budget?

“I didn’t know that budgets could be used to co-

ordinate different parts of firms, communicate

objectives and strategies, delegate activities or

motivate people, though I’m still not convinced it

can do all these things.”

Previous Student



Short-Term Planning

“… build a fence at the top of the

cliff rather than have an ambulance

at the bottom.”

Previous Student



Co-ordinate

“I don’t understand how budgets can help

different parts of a firm co-ordinate their

activities. The reading states that budgets can

make clear what is expected of different partsin an organisation and how they need to talk

and work together, but I still do not understand

how a bunch of numbers can do this.”

Previous Student



Co-ordinate

“Sometimes it is difficult to work together

because people are individuals with different

ideas and beliefs, and also different backgrounds.Managers need to be open-minded.”

Previous Student



Communicate

“When I think of a budget, it appears to me it is

just a lot of numbers. So, how can budgets

(numbers) help managers to communicate their

‘dreams’ with staff?”

Previous Student



Communicate

“In one of my previous roles in a web company we traded

online, but held absolutely no stock. Essentially what we

did was order the stock as the orders came through our

website. At first I thought it was madness having thistype of set-up. As far as I was concerned it would make

more sense to have the stock ready so that we could ship

it out as soon as the order came through – thus making

the process much quicker.”

Previous Student



Motivate

“… in my experience most people I know who go

to work do it to pay the bills and in order to live

the life they desire.”

Previous Student



Motivate

“… I still cannot quite understand

how a budget can motivate people to

do things.”

Previous Student



Motivate

“I disagree with what the author said

about motivation, that budgets can help

motivate us in the short-term by making itclear what we have to do. Personally I

think people are motivated mostly

through money.”

Previous Student



Motivate

“The conventional definition of management

is getting work done through people, but real

management is developing people through

work.”

Agha Hasan Abedi



Motivate

“[This quote] had me stumped for awhile.

What are we developing people for? Are we

developing them to work better? After

reading the rest of the chapter I came to the

conclusion that we must be developing

people to want the same objectives as the

firm.”

Previous Student



Motivate

“I remember when I used to be youth leader for our church at a

very young age. I was so excited about the position, but at the

same time, I had to admit I didn’t know everything about our

church doctrines and all that. So I got the old folks from ourchurch to help me and our youth to run our programs. I may

have some talents in leading our young people, but there are

core values that I lacked and needed help with.”

Previous Student



Motivate

“Budgets don’t motivate staff to act in ways consistent

with manager’s plans and objectives. Rather than

motivating staff to ‘take the first steps’ they usually act

as a disincentive to take any steps at all.”

Previous Student



Emerging Insights

“[I] realise that the effectiveness of

accounting and whether accounting

hinders or helps managers depends a loton the managers themselves and the

people within the firm, and less so on the

actual accounting practices, which is whatI previously believed.”

Previous Student



Emerging Insights

“For Budgets to be meaningful, quality

communication must be present in their

preparation, in their use and in their post-analysis.”

Previous Student



Personally Untouched & Unchanged

“I have the uneasy feeling that I haven’t learnt much

at all, considering the time spent. The amount I’ve

learnt would be roughly equivalent to an hour’s

lecture in a subject where the whole time is filled withcontent (I know, I know, ‘learning isn’t content’ – but

that’s the primary way I learn” – when I have

problems with understanding, I just ask a question).”

Previous Student



Balanced Scorecard

Perspectives:

1. Financial

2. Customer

3. Internal business process

4. Learning & growth

Grades Achieved

Formal Student Evaluation

Attendance: Lectures/Tut’s

Students completing SPAs



Minute Paper

QI: What was the most important

thing you learned today?

Q2: What questions still remain

unanswered?



Summary

• Purple Chocolates

•

Why Budget?

• Balanced Scorecard

• Minute Paper

wk8 9 budget for the short-term

Documents