Week Five Discussion Questions
Ways in which nature the of business might affect one’s decision when preparing a business’s cash budget
The amount of cash that one wishes to keep at hand depends on the nature of one’s business. Thus, it is fundamental to prepare a cash budget for the business because it can protect the business from seasonal flows (Abrahams, 2003). However, the nature of business may affect one’s decision in preparing the business’s cash budget in different ways. First, budgeting for sales may affect one’s decision especially if the business is new because sometimes one may overestimate or underestimate the budget. For instance if the business is moving into a new line of products, this will affect one’s decision because setting unexpected sales in difficult. Secondly, small business and large corporations may affect one’s decision in making a budget. For instance, the pooled organizations, especially the banks, may not be the same with the small business enterprises hence their budget may affect one’s decision. Thus, management accounting will be required to design advanced budgeting systems in away that will meet the organizational requirements.
Different budgets in Coca Cola Company and their uses
There are different budgets used in the Coca-Cola Company. One of them is sales budget, which is used to forecast sales of a particular Coca-Cola product. This type of budget is fundamental because it is used by sales managers to estimate whether the new product introduced in the market is producing high or low profits. This is the most crucial budget in the Coca-Cola Company while making their overall budget for a fiscal year. It is significant in the sense that the organization cannot make the fiscal budget when they do not know the sales of the organization. Thus, it is easier to make production budget using the sales budget and it is easier for the company to compare their performance from the previous years thus they will be in apposition of estimating if they are making progress or not.
The second type is the expenditure budget. This budget describes the capital expenses of the company in terms of refurbish, lease or buying assets such as machineries and other utilities EBSCOhost (2005). The expenditure budget is used in analyzing the way the Coca-Cola Company’s expenditure is or will be thus making adjustments where necessary. They split their budget into the production and overhead budget. The production budget is composed of materials as well as components used in making the products. On the other hand, the overheads budget takes into consideration other costs that the organizational business incurs once production budgets have been worked out. This budget includes all the employees and staff’s salaries, pension contributions and insurance coverage contributions. This budget includes also other organization costs such as telephones, Internet, insurance of the company and other money borrowed are included in the overheads budget.
The last budget is operating and financial budgets. The operating budget deals with the costs for commodities or services produced. It is prepared every year and is used in comparing the actual performance of the budget to determine the reasons for variances particularly the underperformance. It helps in identifying the problems that need to be solved in case the organization is performing poorly. The financial budget is used in the Coca-Cola Company in examining the expected assets, liabilities as well as the stockholder’s equity of production. The financial budget is vital because it ensures and maintains the financial health of the company.
Meaning of flexible budget
A flexible budget is an alternative, which has a compelling advantage and it relates the anticipated expenses to the observed revenues (Wiseman, 2010). It is an operating budget, which has characteristics of alternative estimates for diverse line items.
Types of organizations that may use flexible budgets and its usefulness
Organizations such as the profit making and non-profit making organizations may make use of the flexible budgets (Robin and Jeremy, 2003). This budget is useful because it addresses the expenses incurred for a given financial period. It takes into account the output level changes or shift in income and thus can respond faster to meet the new circumstances. The flexible budget is useful because it is used in evaluating the performance for a single level of activity and it is vital in planning as well as controlling purposes.
Meaning of variance
Variances are the actual costs that results from different estimated standards for costs (Vanzante, 2007). It is a measure indicating the way certain sets of numbers are spread from each other.
Reasons that make variances to occur
The variances occur due to some factors that may cause it to take place. These factors include quantity variance, price variance, cost variance and the differences between the actual and the standard quantities as well as the actual and the standard prices (Vanzante, 2007). For instance, when the cost variance occurs, the top management tries to determine the factors that are created in order to find out the steps of correcting the problem. In addition, one can investigate budget variances when there is a little difference between the actual results and the expected results according to the budget and standards. In case this happens, the managers should immediately start to concentrate on investigating whether the actual results do not conform to the budget.
Factors to consider when investigating a variance
There are diverse factors one should consider when deciding whether to investigate a variance. One of them is materiality whereby investigations on small variations in a single period, which are bound to occur, are investigated (Vanzante, 2007). The second factor is controllability and this influences whether to investigate on the decision or not. Another factor is variance trend, which indicates that the process in control and every standard required is set. Lastly, materials price variances would also be a favorable factor that indicates if the process used is seasonal or not seasonal.
Ways through which a manager can handle a variance
As a manager, I would handle variances through first investigating all of them to weigh if they are worth the investment. After carrying out investigations, I will handle them through establishing the schedules and cost baselines after determining the scope of the variances. Eventually, I will integrate variance tracking into the business management change processes.
References
Abrahams, R. (2003). The successful Business Plans. Secrets and strategies, 4th edition. Rhonda,
Inc. California.
EBSCOhost (2005). Understanding different types of budget. Retrieved on November 17, 2011
from http://search.ebscohost.com.ezproxy.apollolibrary.com/login.aspx?direct=true&db=bth&AN=26590624&site=ehost-live
Robin H. and Jeremy F. (February 2003).” Who needs budgets?” Harvard Business Review.
Boston, Mass: Harvard Business School Pub.
Vanzante, N (2007). Helping Students See the “Big Picture” of Variance Analysis. Management
Accounting Quarterly Spring, Vol. 8, no.3. 39-47.
Wiseman, B. (2010). Budgeting. New York, NY: Weigl Publishers.
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