Accounting and Finance

ACC4A8 14 STEPS to your GROUP BUDGETING COURSEWORK

- GUIDANCE

Devise a Master Budget where Sales is the principal budget factor. Assign the work equally between your team members & record who is responsible for each budget.

1. Product Description:

· What is it? How does/will it work?

· Who will be in your Target market?

· How will this Market be reached (i.e. resource & cost implications)?

2. Financing:

· What level of Finance is needed?

· How/from whom will this be obtained?

· What will be the cost of any additional financing required?

3. Table of Assumptions

· Any and all Assumptions need to be clearly stated within your table!

4. Contribution Statement:

· Set a realistic Selling price based on your research (this is vital!)

· Estimate & itemise all Variable Costs/unit based on those needed

· Calculate your % mark up on cost or on sales (Assumptions)

· Calculate Contribution per unit, Total contribution & C/S ratio

5. Capital Expenditure Budget:

· Itemise all items of Non-Current Assets needed to run your business

· How much will these cost? Useful lives? Depreciation method/rates?

· Who will supply these items and on what terms (cash/credit/lease)?

6. monthly Sales Budget:

· Forecast Sales demand dictates Inventory, Purchases and Overheads

· Quantity of Sales (units) x Selling Price - Monthly basis with Total p.a.

· Allow for current Competitive & Economic conditions! (Research)

· Interlink with Advertising & Promotional plan & Overhead budget

7. monthly Production Budget:

· Budgeted in Units based on Production & Inventory level

Production = Sales + Closing Inventory – Opening Inventory

8. monthly Purchases Budget

· Quantity needed to purchase to meet production in Units x Cost/unit

9. monthly Labour Budget:

· What skilled & unskilled labour will be needed to produce your product? (Assumptions)

· Monthly Labour Hours x Rate per Hour = Direct Labour Cost

10. monthly Overheads Budget:

· Itemise all likely overheads categorised separately

· Overheads are ubiquitous! n.b. interest cost step 2. advertising/promotion step 6.

· Separate Semi-variable costs (these mixed costs include sales commissions, delivery charges, all utilities, etc.)

· Consider the timing of payment of overhead expenses (Assumptions)

11. Break-Even & Margin of Safety (MoS) calculations for the year:

· Break-Even point in Units & £ Sales value

· M. o S. in Units & as a % (Is it Realistic?)

12. Cash Budget on a monthly basis, plus Total for the Year:

· starts with Opening Balance (from own finances)

· Receipts: use Sales Budget adjusted according to credit terms offered to customers, include bank finance (borrowings)

· Payments: use Purchases Budget + credit taken from suppliers + Overheads Budget + Direct Labour Budget

· Opening Balance + Receipts – Payments = Closing Balance (Monthly)

· Consider any need for an Overdraft (incl. overdraft interest)

13. Budgeted Income Statement (Trading, Profit & Loss Account) for the Year:

· Use the correct & detailed format to summarise your relevant figures

14. Budgeted Balance Sheet for the Year:

· Use the correct headings & format

· Non-Current Assets: show Cost – Depreciation = N.B.V. per asset class

· Inventory: use Closing Inventory

· Trade Receivables (Debtors) = Sales – Receipts

· Bank = Closing Balance from Cash Budget

· Trade Payables (Creditors) = Purchases + Overheads – Supplier Payments

· Overdraft or loan needs to be included to complete project financing

· Equity (Capital & Reserves) = Amount Invested + Profit/(loss) for Year

· Balance Sheet needs to balance as the final ‘proof of your pudding’!