Professional Diploma in Accounting and Financial Management

Programme: Professional Diploma Management

ACCOUNTABILITY AND FINANCIAL ANALYSIS

For a very long time now since the past up until the present moment, budgets had had a key and integral role to play in accounting and also management control. Budgeting is an aspect or notion that is by now ingrained and deep-rooted in the viewpoint of business (DeWaal, 2005; Becker, Messner and Schaffer, 2009). The following paper will seek to show what budgeting is, its importance and also its application. Furthermore, the paper will seek to demonstrate the application and integration of input data into a practical budget. In conclusion, the paper will demonstrate a hypothetical budget prepared on a spreadsheet and explain how the budget was prepared and calculated. It will also show the knowledge gained and the interesting aspects noticed whilst preparing the hypothetical budget.

Budgeting Concept, its role and use

A budget can be defined as a management's quantitative expression of plans for a forthcoming period. Budgets are prepared at various levels of an organization as it can be done by managers and also by the workers as well. Budgeting is an implement or an instrument of planning. It encompasses description of the basic aims and goals that the organization will follow and the important guidelines that will monitor it (Khan, 2004). Budgets have several uses and purposes. To begin with, a company can use budgeting as a technique of planning how to make use of its resources. It is also perceived as a means of estimating the expenses a business is bound to incur and the profits that the business is bound to generate. Another use for budgeting is as a way of monitoring the activities of different departments within the company. Budgeting is also used as a way of encouraging personnel to attain performance heights arranged and fixed as well as a way of interconnecting the desires and objectives of senior management. Budgets are also employed as a means of determining conflicts of interest between different departments within the company.

The budgeting concept also plays numerous roles to individuals and also entities. The following are some of the roles played by budgeting:

i. To help the scheduling of the organization in a methodical and rational manner that observes to the long-term policy

ii. To offer a context for assessing the performance of supervisors in meeting personal and division objectives iii. To create objectives and criteria which personnel are inspired to accomplish

iv. To control undertakings by assessing development against the primary strategy, making alterations where needed

v. To bring forth goals, prospects and strategies to different managers

vi. Enable delegation of duties without giving up any kind of control vii. To assess performance against the budget viii. To control revenue and costs

Hypothetical Scenario: Business of Corn Maze

One of the growing businesses in the agricultural sector is the creation of corn mazes inside farms particularly corn fields for tourists to tour and walk past. This is a business idea that is fast becoming more lucrative than rearing animals and even opting to plant crops only. The following will be a hypothetical budget for this particular business. As mentioned earlier, budgeting is an implement of planning and therefore before constructing the budget there are several factors to consider. First off is the revenue which encompasses the number of visitors that can be handled at the field. There is also the consideration of expenses such as ascertaining whether there is need for additional personnel and also how to advertise the maze in order to lure in the customers. Cautious budgeting for the creation and process of this business is a significant constituent in shaping its financial viability and handling farm economic risk. The following is a hypothetical budget showing the expenditures related with planning, launching, and operating the business (Schilling, 2013).

Hypothetical Budget

1. Input data

A. COSTS

The data to be employed in the budget is completely hypothetical. However, it is imperative to not that the data to be incorporated into the budget is split into different categories.

i. Corn production:

The expense incurred in producing corn centered on references intended for optimal grain yield fluctuate, but naturally range from about $480 to $550 for every acre. This mirrors fixed production costs, comprising spores, manure, petroleum, and reaping, administration, and land rates. On the other hand, in numerous occurrences, farmers become accustomed to their production practices to simplify the formation of a maze. For instance, to make certain leavings or stems keep on being green in the course of the operation period, the operators every so often postpone corn planting, which may decrease grain produces.

The input data required for this category is as follows:

Total cost of production = (planted number of acres) x (production costs/acre)

____ (acres) x ____ (production costs/acre) = ____ Estimated Total Cost of Production

In this particular case, the number of acres is five acres with a production cost of 500 for each one of them.

Quantity

Price/Unit

Total

Production in Acres

5

2,500

ii. Design and cutting expenses

Designing of the maze can be done by the individual owner or procuring can be done to other designers who can undertake such tasks. The usual range of making such designs can vary from $1,300 to about $2,000 for a size similar to the farm which is 5 acres. This whole process encompasses creating the design and cutting the whole field to fit such a design. One of the variations that can take place to make it more realistic is that some farmers opt to undertake this on their iown which makes it much cheaper.

In this calculation, we consider both options. The first one is contracting professional designers which would be calculated as:

____ Estimated Cost of Design (professional design)

Or if the whole process is done by the owner:

____ Estimated Cost of Design (labor and petroleum cost) = ____ (Number of hours) x ____ (Average wage rate) = ____ Estimated Labor Expense for Design + ____ (Number of gallons of petroleum) x ____ (Amount per gallon) = ____ Estimated Fuel Expense of Design

Part of this category also covers the expense of maintaining the paths that are cut for the design of the maze. The paths ought to be sheared or trimmed from time to ensure that they do not have weeds. The rate of recurrence will be determined by a number of factors including weather conditions, kind of pesticides, and wildflower pressure. The labor hours required to sustain a maze will be different centered on the extent, intricacy and sophistication of the network.

In this case, we make the assumption that the shearing process will take roughly five hours every week for seven weeks. The hypothetical budget demonstrated makes the assumption that the individual farmer has possession of a suitable lawn mower and for that reason takes account of only hourly remunerations. For realistic purposes, expenses such as repairs and fuel ought to also be counted in for accurate budgeting.

Labor expense of maintaining the path = (Number of hours/week) x (Number of weeks) x (Average remuneration fee)

____ (Number hours/week) x ____ (Number of weeks) x ____ (Average remuneration fee) = ____ Estimated Labor Expense

Fuel expense of maintaining the path = (Number gallons for every session of cutting) x (Number of cuttings) x (Average fuel expense per gallon)

____ (Number of gallons per cutting) x ____ (Number of cuttings) x ____ (Amount per gallon of fuel)

= ____ Estimated Fuel expense

In this particular case, we assumed that the owner will be more comfortable in creating his own design.

Quantity

Price/Unit

Total

Design and Cutting

Design Costs and Initial Cutting

1

1,800

1,800

Creating path Maintenance (labor hours)

35

9

Fuel in gallons

40

5

Total design and cutting

2,315

iii. Promotion and Advertising

Proper promotion and marketing are vital to the accomplishment of this particular business. These expenses are extremely variable. It is largely suggested that marketing and advertising encompass ten percent to thirty percent of the total operating expenses. Marketing and advertising costs and approaches will also fluctuate and differ over the course of time, particularly as the use of IT and social media to influence consumers continues to advance and progress. It is imperative to be premeditated by selecting advertising media that aim at the customer base most probable to stopover or make a social call to the business. Considerations should also be made to determine whether the owner has the time and knowledge to be an operational salesperson, or whether it is more economical to employ or appoint an expertise. Rough estimations of marketing and advertising of a farm that is five acres large can cost between five thousand and ten thousand or even higher with regards to the kind of marketing and advertising is done each season.

In this particular hypothetical budget, we assume that each advertisement made for the business will cost $2,800.

____ (Price of promotion/advertisement 1)

+ ____ (Price of promotion/advertisement 2)

+ ____ (Price of promotion/advertisement 3)

+ ____ (Price of promotion/advertisement 4)

= ____ Estimated Marketing and Advertising Expenses

iv. Online Marketing

With the advancement in technology in the present world, majority of the marketing that is done is undertaken online as the internet has progressed. This implies online marketing on sites such as Facebook, advertisements on sites such as YouTube and others as well. Online advertisements are not as costly as billboards, posters or commercials. This can be done individually or use famous sites which have a lot of hits and numerous uers.

In this particular hypothetical budget, we assume that each online ad made for the business will cost $10. We shall assume that the business will make use of more than thirty advertisements and that will cost the business $300.

____ (Price of promotion/advertisement 1)

+ ____ (Price of promotion/advertisement 2)

+ ____ (Price of promotion/advertisement 3)

+ ____ (Price of promotion/advertisement 4)

+ & #8230;..

= ____ Estimated Marketing and Advertising Expenses

v. Utility Bills

All through the season for the business, the owner will incur numerous expenses for the utilities. This encompasses things such as petroleum for tractors and also for greasing sheers, utilities for washrooms, water charges, sewer charges and the like. In this hypothetical budget, it is assumed that the costs incurred for the utility for the whole season amounts to $430 dollars.

vi. Infrastructure Maintenance

The business does not incur any kind of expenses for infrastructure because the owner makes use of the infrastructure already in the farm. However, the business will have to incur expenses in terms of maintaining such infrastructure for optimal use. Regular maintenance for infrastructure such as tractors, sheers, and even washroom facilities will necessitate the employment of experts. In this hypothetical budget, we will make the assumption that such expenses will amount to about $220 in total.

vii. Hired Labour

Majority of the individuals in this line of business opt to employ friends, relatives, neighbors and homegrown pupils on a cyclical basis to operate the mazes and supplementary occupations. The hypothetical budget takes account of four employees and a manager. The budget assumes one employee is required for taking care of movement and space, one worker is required for ticket transactions, and two workers are necessary to cater for the operations inside the maze. The hypothetical budget mirrors a wage payment of $8 per hour for workers and $20 per hour for a manager.

The hypothetical budget assumes a seven-week season for the business operation, with the business open to the general public during three days per week. Personnel are expected to be at work prior to, in the course of, and afterwards the business hours of operation. The budget suppositions are as follows. Personnel are required to work Friday late afternoon (five and a half hours), Saturday afternoon and late afternoon (eleven and a half hours), and Sunday afternoon (five and a half hours). The labor budget therefore shows four employees working 22 1/2 hours per week for seven weeks (630 hours total). Manager hours include about 23 hours per week for seven weeks which amounts to 160 hours in total.

Labor expense for the whole season (workers) = (number of hours/week) x (number of weeks) x (average compensation rate)

____ (number hours/week) x ____ (number of weeks) x ____ (average compensation rate)

= ____ Estimated Labor expense for the whole season for workers

Labor expense for the whole season (managers) = (number of hours/week) x (number of weeks) x (average compensation rate)

____ (number hours/week) x ____ (number of weeks) x ____ (average compensation rate)

= ____ Estimated Labor expense for the whole season for managers viii. Tickets In order to make sure that all of the consumers entering the business premise have paid, the owner seeks to use wristbands and stamps from ticketing. The assumption in the budget is that the bands can be acquired for a price of $0.035 each.

Total cost of bands = (number of units) x (cost per unit)

____ (Number of bands or tickets) x ____ (cost per unit)

ix. Employee Apparel

So as to aid with the marking and classifying of the farm, marketing it and also detecting personnel, it is recommended that the apparel for the personnel to consist of a logo of the far, itself. It is assumed in the budget that this cost $625 in total.

Total cost of apparel = (number of clothing items) x (cost per unit of clothing)

____ (number of clothing items) x ____ (cost per unit of clothing)

= ____ Estimated Total Cost of Clothing

x. Insurance Cover

Before developing and establishing the business, it is imperative to make consultations with the insurance provider for the correct and applicable coverage amounts and rates for the business. It is vital and advisable to have a risk management strategy which takes account of, at least, welfare inspections and satisfactory indemnification. The hypothetical budget makes an assumption of $1,200 for the insurance policy though in reality such costs will be reliant on the situation of the business and that of the farm.

____ Estimated Expense of Insurance

B. REVENUES

i. Receipts Proceeds

Picking an appropriate price for the entry fee necessitates plenty of consideration with regards to the factors that impact the fee. These include for instance the demand levels of the consumers for the maze trips, competing mazes in the vicinity, and the expected profit that is desired from the whole business. It is imperative to take note of what kind of offers are made in other mazes. For instance, in other areas, consumers might be given free bananas or mangoes when leaving the maze. If the maze does not give out any offers it is imperative to make proper considerations on the price.

It is also imperative to consider whether any other additional revenues are generated from the business for instance parking fees. In this hypothetical budget, the assumptions made is that the owner charges $8 for every individual and in turn has a total of about 8,300 customers in the whole period till closing which as a result generates $66,400 in proceeds.

Total Entry fees = (number of anticipated visitors) x (entry fee per head)

____ (Number of visitors) x ____ (Entry fee per visitor)

= ____ Estimated Total Entry Fees

ii. Revenues from Corn

Along with maze receipts proceeds, the farmer has the luxury of harvesting from the field and thereafter retails the corn once the business is closed for the season. In this particular case, it is estimated that due to late plantation as well as harvesting, the yield attained reduces by almost twenty percent of the optimal yield. In this hypothetical budget, the assumption made is that there is a yield of 120 bushels for every acre totaling six hundred bushels and each one of them is retailed at $4.