Budgeting Questions and Issues

Management accountability to stakeholders first requires consideration of who those stakeholders are. When considering financial accountability, the primary defined stakeholders for annual reports are the shareholders or owners of the firm (Elliott and Elliott, 2013). Therefore, this establishes the need for management accountability towards this group of stakeholders, the process which is satisfied not only for annual accounts, but also from quarterly earnings as well as other statements. However, there are other stakeholders which will have a direct impact on the firm, and either directly or indirectly influence their performance.

This includes, but is not limited to, government, customers, and suppliers. Government accountability requires a firm to demonstrate for compliance with regulation, and where governments are not fully satisfied that firms are acting in an appropriate manner, they are likely to introduce more legislation. Customers will have needs regarding the products and services they purchase, this will not only be related to the product's features and characteristics, but the perceptions of the firm and way in which they provide those products.

For example, when Shell chose to dispose of the Brent Spar oil platform in the North Sea, the company faced a backlash from customers refusing to buy their products believing the company was acting in an irresponsible manner, causing environmental pollution (Chyssides and Kaler, 1999). Therefore, management accountability can extend to aspects such as corporate social responsibility, firm values, as well as firm image, and the way in which this is displayed to and demonstrated to all stakeholders, including customers.

Part B An organisation such as GDC needs to ensure they keep the most important stakeholders happy, otherwise they will suffer. However, it should be noted that not all stakeholders will have an equal level of influence over the firm's operations and performance. To retain sales, it is essential that the organisation satisfy customer needs, regarding products, as well as values and operational decisions (Chyssides and Kaler, 1999).

To continue operating, it is essential that the organisation is able to satisfy government requirements and regulations, otherwise they will face significant financial consequences such as fines, and may even be shut down (Mintzberg et al., 2008). If the company does not satisfy supplier needs, they may lose a supplier, but here there is also the potential for the organisation to use their own power, as this is a bilateral relationship, and suppliers may also need the company.

Secondary stakeholders, such as local residents, may be able to exert influence over the organisation, but it may be less direct, for example it may be felt if the organisation seeks to extend the offices, as local residents may object using local planning processes. Question 2 To calculate the cost of goods manufactured it is necessary to assess the costs have been incurred during the period.

The calculation for costs of goods manufactured is the cost of the direct materials used added to the direct labour used, added to the manufacturing overhead, which will give the manufacturing costs that have been incurred during that period. The figure there needs to be adjusted allowing for work in progress levels, adding the level of work in progress which was present at the beginning of the period, and deducting the work in progress that was present at the end.

First we calculate materials used Purchased Plus beginning inventory Less ending Inventory Materials used Materials 154,000 58,000 64,000 148,000 This can now be used to calculate cost of goods manufactured Materials used 148,000 Direct labor 174,000 Overhead 90,000 Manufacturing costs for current period 412,000 Plus opening work in progress 88,000 Less closing work in progress 74,000 Cost of goods manufactured 426,000 Using cost of goods manufactured it is possible to calculate cost of goods sold. The formula for this is opening finished goods inventory, plus cost of goods manufactured, less finished goods closing inventory.

Opening finished goods inventory 38,000 Cost of goods manufactured 426,000 Closing finished goods inventory 48,000 Cost of goods sold 416,000 Base on the information provided, assuming all the revenue recorded is the same period as the goods manufactured, the gross profit can be calculated. The formula is the total revenue less the cost of goods sold.

Revenue 512,000 Cost of goods sold 416,000 Gross profit 96,000 Question 3 Part A To calculate the break even point it is necessary to calculate the contribution of each unit (that is the revenue less the direct costs), and then calculate how many units need to be sold to cover the indirect or overhead costs. The first we calculate the contribution per unit.

Direct materials 24 Direct labor 70 Total direct costs 94 Revenue per unit Contribution per unit 36 Now we add together the total overheads, and divide those by the contribution per unit to assess the number of units needed to be sold to breakeven.

Factory fixed overheads 120,000 Selling and distribution overheads 160,000 Administration overheads 80,000 Total overheads 360,000 Contribution per unit 36 Unit sales to cover overhead (Breakeven point) 10,000 Part B Contribution 36 Selling price Contribution margin 27.69% Part C Contribution for 20,000 units 720,000 Overheads 360,000 Profit 360,000 Part D Here the calculation is reversed, and the required profit is added to the overheads, and used to calculate the number of units should be sold to reach the desired contribution level to cover the overheads and reach the desired profit.

Required profit 720,000 Overheads 360,000 Total level of contributions required 1,080,000 Contribution per unit 36 Number of units to be sold 30,000 Part B Question 1 Sales budget The sales forecast assumes that there are no discounts or allowances being given to purchasers, otherwise these would need to be deducted from the gross sales.

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Forecast unit sales 4,000 4,800 9,600 9,200 Price per unit 1,000 1,000 1,000 1,000 Gross sales 4,000,000 4,800,000 9,600,000 9,200,000 Production budget The production is based on the sales forecast, and the assumption that the organisation wishes to ensure there is a buffer in inventory 25% of units needed ready for the following quarter.

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Forecast unit sales 4,000 4,800 9,600 9,200 Plus buffer (ending units) 1,200 2,400 2,300 2,600 Total units required 5,200 7,200 11,900 11,800 Less opening inventory 1,200 2,400 2,300 Units to be manufactured 4,600 6,000 9,500 9,500 Question 2 Return on investment is a ratio that indicates the level of return is (profit) that is created through the use of an investment, in this case the investment are the assets. Operating income Average total assets Return on investment Division A 225,000 2,250,000 10.00% Division B 250,000 2,000,000 12.50% Division C 450,000 4,000,000 11.25% Question 3 Return on investment has a number of advantages and disadvantages.

Advantages Return on investment allows for an effective measure profitability, allowing an organisation to assess performance based.