Running Head: COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa a aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa a aa aa aa aa aa aa aa aa aa aa 1
7-2 Final Project II Submission
ACC311
Southern New Hampshire University
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 2
Introduction
The SRS Educational Supply Company offers educational supplies and materials to
educational institutes, especially K-12 schools. Some of the major offerings of the business
entity include visual aids for classrooms, workbooks, art supplies, administrative office
supplies, support materials for instructors, etc. Even though the sales turnover of the
business varies from one month to another, there is a specific pattern that K-12 school
follows that influences the financial performance of the business. The company has
succeeded in showcasing exceptional performance in the year 2017. This is evident from the
revenue (USD 8,000) that the company was able to generate in the specific period of time. aa
The company makes strategic use of budgeting in order to effectively predict its
financial aspects and make vital business decisions. Budgeting is considered to be a good
business practice since it enables accompanies across diverse industries and sectors to make
an in-depth comparison between their predictions and the actual performance. The
information can be used to identify the reasons for variance and take the necessary
corrective measures in the future so that the financial performance of the entity can be
improved (Sulaymonov, 2018). In the context of SRS, budgeting plays an instrumental role
since it aids in the planning as well as cash flow purposes.
The report gives an in-depth insight into the financial aspects of the organization.
The financial information from diverse departments of the organization, namely sales,
purchase, operations, and finance, has been used for creating a master budget that can
influence the decision-making process within the organization. The master budget, as well as
the other departmental budgets, can be of great help for the managerial and strategic team of
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 3
SRS while making key business decisions. In the initial section of the report, the relevance
of departmental budgets for different departments has been identified. Then an in-depth
insight into each of the departmental budgets spanning from July to September has been
presented for making predictions relating to sales, production levels, expenses, and purchases
during the specific period. The main variance areas have also been identified and examined
since they might act as a cause of concern for SRS.
Relevance of budgets for diverse departments within SRS
In an organizational context, a budget acts as a useful strategic tool since it helps the
leadership team for planning out the expenses and reaching the business goals and objectives
in a cost-efficient manner. Apart from creating value at the macro or organizational level, a
budget can also be of high use at the micro level. In other words, budgets can also act as
important strategic tools that can be used by business units or departments which carry out
their respective functions. The essence of budgeting involves the preparation of
interconnected plans relating to the financial and economic activities of a firm and its
divisions on the basis of its tactical and strategic functioning targets (Kovaleva et al., 2016).
Sales budget –
In the SRS organization, budgets can be of great help for all the departments that
work within the entity. For instance, in the case of the sales department, the sales budget
can act as a vital strategic component that can help in forecasting the sales and making the
optimum use of available organizational resources. Additionally, the information can also
enable the sales manager within the organization to determine the appropriate selling price
that can help the firm to maximize its revenue (Grønhaug & Ims, 1988).
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 4
Purchase budget –
The purchase budget can also be of immense help in the organizational setting since
it can shed light on the volume of inventory that SRS will have to procure during the
budgeted period in order to meet its obligations towards its customers and clients. The
purchase managers can use the information captured in the purchase budgets to keep a tab
on the price of the raw materials and inventory items. Additionally, they will be able to
keep track of the time when additional purchases will have to be made so that SRS can
consistently conduct its business operations.
Operations budget –
The operations budget is another important kind of budget that enables a firm to
carry out its business operation in an efficient manner. In the case of the SRS entity, the
operations budget can shed light on the selling and administrative aspects. The information
can be utilized for the purpose of making plans relating to the fixed and variable costs
during a specific period of time. The insight can help organizations to improve their
efficiency in relation to the utilization of available financial resources to run the business on
a day-to-day basis (Wedyan et al., 2017).
Cash budget –
A cash budget can be defined as the estimation relating to cash flows of a business
entity over a particular period of time. Such a budget can be of high value for a business
entity since it can help to evaluate whether the firm has ample financial resources available
or not to carry out its operations in the future (Kareem et al., 2019). In the context of the
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 5
SRS organization, the information from the cash budget can be used by the financial team to
ascertain whether ample capital is available or not to accomplish the business goals.
Sales Budget
According to the sales budget of SRS for the period July to September, the total
amount of sales that has been estimated for the quarter is USD 1,985,000. The monthly sales
of the entity have helped to make the budget for the specific period. The numbers that have
been presented in the table are based on the previous sales figures of the business entity.
Some of the considerations that have been made while preparing the sales budget of SRS
include the vacation and holiday seasons in the academic setting of K-12 schools.
The figures that have been presented in the cash collections section show that 30 %
of revenue was collected in the current month, and the remaining 70 % was collected in the
subsequent month. For example, in July month only 30 % of the sales amount was collected
in the same month which amounted to USD 180,000, and the remaining 70 % i.e., USD
420,000 was collected in the month of August. The same principles have been applied for
the following months as well, including August and September. It has been estimated that in
the July month, SRS will collect a total of USD 5,20,000. However, its sales figure is
expected to gradually increase in the coming months because in August and September, it is
expected that the figure will reach USD 693,000 and USD 779,500, respectively. During the
entire budgeted quarter, the collections that the business will make is USD 1,992,500 which
will include sales for the three months and the Accounts Receivable that already exists in
the balance sheet for the former months’ sales.
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 6
Sales Budget (in USD)
July
August
September
Quarter
Sales
600,000
910,000
475,000
1,985,000
Cash Collections - Schedule
July
August
September
Quarter
June Sales (Accounts
Receivable from Balance
Sheet beginning)
340,000
340,000
July Sales (collected in the
current month – 30 %)
180,000
180,000
July Sales (collected in the
subsequent month – 70 %)
420,000
420,000
August Sales (collected in
the current month)
273,000
273,000
August Sales (collected in
the subsequent month)
637,000
637,000
September Sales (collected
in the current month)
142,500
142,500
Total expected cash
collections
520,000
693,000
aa aa aa aa aa aa aa aa aa aa aa aa aa
779,500
1,992,500
Total Sales for the Quarter (July to September)
1,985,000
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 7
(Accounts Receivable from B/S beginning)
332,500
Purchasing Budget
The purchasing budget that has been prepared for SRS covering July, August, and
September months gives an insight into how much inventory the company would require so
that it can maintain its sales budgets. The starting inventory for each month has been taken
into consideration while creating the purchase budgets for the respective months. The cost of
merchandise as a % of sales that has been taken for the budgeting purpose is 45 %. For
every month during the budgeted period, the desired ending inventory has been computed at
20 %. Thus, in the months of July, August and September, SRS will have USD 81,900,
USD 42,750, and USD 34,650, which will enable it to carry out its business operations
without any halt due to the lack of raw materials or inventory items. aa aa In order to determine
the exact inventory that will have to be purchased by the company each month, the
beginning inventory figures have been deducted. In the month of August, the business will
have to make maximum purchases out of the three months, which will amount to USD
370,350. The budget can act as a useful guide that can be used by the purchasing team to
manage the finances so that the business will have adequate funds with itself to effectively
carry out its disbursement obligations. While arriving at the final figure of the total
disbursement, the ‘Accounts payable from balance sheet’ has also been taken into
consideration since it is a financial obligation that must be fulfilled within the budgeted
period.
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 8
Inventory Purchase Budget (in
USD)
July
August
September
Sales
aa aa aa aa aa aa aa
aa 600,000
910,000
475,000
Cost of merchandise as % of sales
45%
45%
45%
Budgeted cost of sold merchandise
aa aa aa aa aa aa aa
aa 270,000
409,500
213,750
Subsequent month's COGS
aa aa aa aa aa aa aa
aa 409,500
213,750
173,250
Intended ending inventory %
20%
20%
20%
Intended ending inventory in USD
aa aa aa aa aa aa aa
81,900
aa aa aa a aa
42,750
aa aa aa aa aa aa aa aa
34,650
Budgeted cost of sold merchandise
aa aa aa aa aa aa aa
aa 270,000
409,500
213,750
(Add)Intended ending inventory in USD
aa aa aa aa aa aa aa
81,900
aa aa aa aa
42,750
34,650
Total inventory requirement
aa aa aa aa aa aa aa
351,900
452,250
248,400
(Less) Beginning inventory
aa aa aa aa aa aa
50,000
aa aa aa aa
81,900
42,750
Purchases Needed
aa aa aa aa aa aa aa
301,900
370,350
205,650
Schedule for expected cash
disbursements - Purchases
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 9
Purchases
July
August
September
Quarter
June (Accounts payable from the
balance sheet)
aa aa aa aa aa aa aa
aa 130,000
130,000
July
aa aa aa aa aa aa aa
aa 150,950
150,950
301,900
August
185,175
185,175
370,350
September
102,825
102,825
Total Disbursements
aa aa aa aa aa aa aa
280,950
336,125
288,000
905,075
Budgeted Cost of Merchandise sold (Quarter)
893,250
Ending inventory at the Quarter end
34,650
Ending Accounts payable at the Quarter end
102,825
Operations Budget
The operations budget of SRS sheds light on a diverse range of areas in which the
business will have to incur expenses during the budgeted quarter. The expenses have been
categorized into variable and fixed expenses. The variable expenses might fluctuate based on
the volume of production of the business entity. However, the fixed expenses will have to be
incurred by the entity irrespective of the output that is generated by the entity while
conducting the business operations. While creating a budget, it is vital to differentiate
between the expense items that belong to the variable expense category and that belong to
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 10
the fixed expense category since it can influence the accuracy of the budgeted figures during
the quarter. The information that has been captured can be of high value for the operations
manager so that the business entity will have adequate funds available with itself to carry
out its day-to-day business operations.
While computing the final sales and administrative expenses, the non-cash items such
as the depreciation for the specific quarter as well as the prepaid insurance amount have
been excluded since they will not be a part of the cash disbursement. The two main variable
expense items that have been taken into consideration in the operations budget include
shipping expenses and expenses that are associated with sales. These items are variable in
nature as they are tied with the sales turnover that the business will have during the
budgeted quarter.
Operations (Selling and Administrative)
Budget
July
August
September
Quarter
Sales
600,000
910,000
475,000
1,985,000
Shipping as a % of sales
5 %
5 %
5 %
5 %
Other expense items as a % of
sales
8 %
8 %
8 %
8 %
Variable Expenses:
Shipping
aa aa aa aa aa aa
30,000
45,500
23,750
aa aa aa aa aa aa aa aa aa aa aa
99,250
Other expenses
aa aa aa aa aa aa
48,000
72,800
38,000
158,800
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 11
Total Variable Expenses
aa aa aa
78,000
118,300
aa aa aa aa aa aa
61,750
aa aa
258,050
Fixed Expenses:
Salary, Remuneration, and Wages
aa aa aa aa aa aa
85,000
85,000
85,000
255,000
Advertising
aa aa aa aa aa aa
50,000
50,000
50,000
150,000
Prepaid Insurance
aa aa aa aa aa aa
aa 3,000
aa aa aa aa aa aa aa
3,000
aa aa aa aa aa
aa 3,000
aa aa aa aa aa aa aa aa aa aa aa
aa aa aa 9,000
Depreciation
aa aa aa aa aa aa
25,000
25,000
25,000
aa aa aa aa aa aa aa aa aa aa aa
75,000
Total Fixed Expenses
163,000
163,000
163,000
aa aa
489,000
Total Selling and Administrative
Expenses
241,000
281,300
224,750
aa aa
747,050
(Less) Non-cash components
(Depreciation and Prepaid
insurance)
aa aa aa aa aa aa
28,000
28,000
28,000
aa aa aa aa aa aa aa aa aa aa aa
84,000
Total Cash Disbursements
213,000
253,300
196,750
aa aa
663,050
Prepaid Insurance expensed during the budgeted period
aa aa aa aa aa aa aa aa aa aa aa
aa aa aa 9,000
Depreciation amount recognized during the budgeted period
aa aa aa aa aa aa aa aa aa aa aa
75,000
Cash Budget
The cash budget captures the main areas in which cash flows, including both inflows
as well as outflows, will take place during the forecasted months. While working in the cash
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 12
budget, the cash that will be generated from the budgeted sales has also been taken into
consideration since they will have a direct influence on the cash position of the SRS entity.
The total cash disbursement for the month of July has been estimated at USD 743,950.
Since it is higher than the available cash with the business, it might give rise to financial
constraints for the business during the specific month. As there exists a shortage of cash
worth USD 183,950, a feasible solution that has been designed to address the cash
deficiency issue is that SRS will have to take a loan from a financial institution.
By choosing a suitable financing option, it will be possible for the firm to address
the shortage of cash in July month so that a positive balance can be maintained. During the
budgeted quarter, it has also been assumed that the business will be able to repay the loan
that it would borrow from an external source. In August, the business would pay off USD
11,000, whereas, in the subsequent month, it would pay off the remaining USD 208,000.
Thus, by the end of the quarter, it will not have any more unfulfilled financial obligations
relating to the loan that would be taken in the July month. The repayment pattern that will
be adopted by the firm has been divided between the two remaining months of the quarter
so that it would not face finical complications while paying off the borrowed amount to its
creditor.
Cash Budget
July
August
September
Quarter
Cash Balance (beginning)
aa aa aa aa
40,000
aa aa aa aa
35,050
aa aa aa aa a aa aa aa
35,435
110,485
(Add) cash collections from sales
budget
520,000
693,000
779,500
1,992,500
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 13
Total Cash Available
560,000
728,050
814,935
2,102,985
Less Cash Disbursement:
For inventory
280,950
336,125
288,000
905,075
For selling and administrative
expenses
213,000
253,300
196,750
663,050
For equipment
200,000
aa aa aa aa
90,000
aa aa aa aa a aa aa aa
aa aa aa aa aa aa aa -
aa
290,000
For cash dividend
aa aa aa aa
50,000
aa aa aa aa
aa aa aa aa
- aa aa
aa aa aa aa a aa aa aa
aa aa aa aa aa aa aa -
aa
aa aa aa aa aa aa aa aa
50,000
For interest
aa aa aa aa
aa aa aa aa -
aa
aa aa aa aa
aa aa 2,190
aa aa aa aa a aa aa aa
aa aa 2,080
aa aa aa aa aa aa aa aa aa
aa aa 4,270
Total Cash Disbursement
743,950
681,615
486,830
1,912,395
Excess/Deficiency of Cash
(183,950)
aa aa aa aa
46,435
328,105
190,590
Financing:
Borrowing
219,000
Repayment
(11,000)
(2,08,000)
(2,19,000)
Total Financing
2,19,000
(11,000)
(2,08,000)
Cash Balance
aa aa aa
35,050
35,435
120,105
190,590
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 14
Source: (Raji, 2019)
Budgeted Profit and Loss Account (Income Statement)
The budgeted income statement for the SRS business has been designed, which
highlights the estimated net profit that it is expected to generate during the forecasted
quarter covering July, August and September. The budgeted cost of goods sold has been
deducted from the total budgeted sales turnover to arrive at the gross revenue of USD
1,091,750. The only expense items that have been adjusted for arriving at the net profit of
the company include selling and administrative expenses and interest expenses. While
considering the operations expenses, the non-cash elements, i.e., depreciation and prepaid
insurance, have also been taken into consideration, due to which the value of the total
operations expenses is USD 747,050.
Budgeted Income Statement
Budgeted sales for the quarter
aa aa aa aa aa 1,985,000
(Less) Budgeted cost of goods sold
aa aa aa aa aa aa aa 893,250
Gross Profit
aa aa aa aa 1,091,750
Total sales and administrative expenses
aa aa aa aa aa 747,050
Interest
4,270
aa aa aa aa
aa aa aa aa aa aa aa 751,320
Net Profit
aa aa aa aa aa aa 340,430
Master Budget Balance Sheet
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 15
A proforma master budget balance sheet has been prepared for the company for the
budgeted quarter. Such a financial instrument must be designed since it can help in
safeguarding the firm’s assets, equity and liability on the basis of the estimations. After
taking into consideration the projections that have been made, the value of SRS’s total
current assets is USD 496,250. The other assets that have been taken into consideration in
the proforma balance sheet of the organization include ‘building & equipment’ worth USD
1,075,000. After taking into consideration both the items, the total asset of the company has
been projected at USD 1,571,255. In the liability section of the balance sheet, the key
elements that have been taken into consideration include the
Master Budget Balance Sheet
Assets
Amount (in
USD)
Liabilities
Amount (in
USD)
Current Assets
496,255
Accounts
payable and
Stockholder
equity
1,571,255
Building &
Equipment
1,075,000
1,571,255
1,571,255
aa
Summary of departmental budget and large variances
The budget of each of the departments, namely the sales, purchasing, operations and
finance departments for the months, shows that the SRS business is likely to demonstrate
strong financial performance. The sales budget has revealed that with the passage of the
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 16
months, the total expected cash collections for the firm will rise. Thus, at the end of the
budgeted quarter, its total cash collection is budgeted to be USD 1,992,500. It will
encompass the total sales turnover for the business during the budgeted quarter as well as
the accounts receivable amount that already exists in the firm’s balance sheet. The
purchasing budget has revealed that the in the month of August, SRS will have to spend
maximum expenses on purchasing its inventory items. It has also been assumed that the
business will maintain a 20 % inventory at the end of each month so that there will be no
sudden shortage of raw materials that could adversely affect the business operations.
According to the operations budget, the maximum variable expenses of the business will be
incurred in the month of August because of the high sales in the specific month. However,
the total fixed expenses will remain consistent throughout the months. The cash budget has
revealed that there may be a deficit of cash in July, due to which SRS will have to borrow
from outsiders such as a bank. However, in the following two months, the amount will be
repaid since the company’s financial viability will improve.
A large variance that may arise in the specific business context is related to the
requirement for additional funds during the budgeted months. Such a requirement could arise
because of diverse factors, such as the urgent need of educational supplies by a K-12
educational institute. In the budgeted forecasts, it has been identified is that in spite of the
solid budget estimates relating to sales, there will be a deficit of USD 183,950 in the month
of July. Thus, the availability of limited funds could act as a major issue for the SRS
organization. Another large variance that may arise is related to the availability of
borrowings from an appropriate source. In case the firm is unable to address the financial
shortage that has been identified in its cash budget for the month of July, its ability to run
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 17
the business operations in a smooth and effective manner may be hampered. The business
entity must choose a suitable financing decision to address the variance so that the lack of
finance can be effectively managed. Another large variance that has been identified in the
case of the SRS business is related to disruption in the normal functioning of schools due to
environmental factors such as a pandemic, lockdowns, or other variables. It could negatively
affect the demand for SRS’ offerings and adversely affect its sales performance.
Two large variances that may cause concern
One of the main variances that may act as a source of concern for the SRS business
entity is the limited availability of financial resources to make the necessary disbursements
that arise on a monthly basis. In the highly dynamic and unpredictable business landscape,
the unavailability of finds is a key issue that needs to be addressed in a strategic manner.
For example, the business entity could adopt a number of measures such as optimum
utilization of available resources and control of avoidable costs so that the specific variance
can be tackled in an effective manner. Based on the master budget, the company could
strengthen its resource allocation capability (Raji, 2019).
Another key variance that may give rise to complexities for the SRS company in the
future is the misalignment between the required volume of inventory items and the actual
items that have been procured. Such a variance could give rise to unnecessary cash or
financial burden for the company and adversely affect its performance. For example, the
availability of excessive inventory items without adequate market demand can give rise to
unnecessary opportunity costs for SRS. The proper identification and control of opportunity
costs in the business landscape are of critical importance (Karpac & Bartosova, 2020). It can
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 18
enable the business entity to make strategic financial decisions that can enhance its financial
viability and stability in the long-run.
Conclusion
Budgeting is considered to be of paramount importance for every business since it
helps to make estimations relating to diverse financial aspects of a firm. In the context of
the SRS Educational Supply Company, the budgeting techniques have been implemented,
and several budgets have been created, such as sales budget, purchasing budget, selling and
administrative (operations) budget and cash budget. Each of these budgets is of high value
for the sales department, purchase department, operations department and financial
department. The budget that has been created for the months of July, August and September
for the company can be used by the managers from the respective areas to make strategic
decisions and action plans so that they can stick to the respective budgets and the possibility
of variance can be diminished to a considerable extent. The budgeting forecasts that have
been done indicate that the business is likely to showcase favorable performance in terms of
sales turnover. For maintaining its sales, it will have to spend funds in areas such as the
purchase of inventories as well as the operations expenses. Apart from these areas, it is vital
for the firm to ensure the proper flow of cash within the firm so that it can smoothly
function.
COMPANY FINANCIALS aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa
aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa aa 19
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