Solution
Pallavi answered on
Jan 31 2021
STUDENT NAME -
STUDENT NUMBER -
(WORD COUNT- 3100)
TABLE OF CONTENTS
TOPICS
PAGE NO.
EXECUTIVE SUMMARY
3
INTRODUCTION
4
MASTER BUDGET AND ITS ELEMENTS
5 to 7
COMPARISION OF TOP DOWN & BOTTOM UP APPROACH
8 to 11
BUDGETED INCOME STATEMENT FOR 2019
12 to 13
14 to 16
COMPARISON OF BUDGETED INCOME STATEMENT FOR 2019 WITH ACTUAL FOR 2018 AND ANALYSIS OF SUITABLE APPROACH FOR AURORA MINERALS LTD
CONCLUSION
17
LIST OF REFERENCES
18
EXECUTIVE SUMMARY
Elements of Master budget-
This report explains various elements of a master budget like- Sales Budget, Production Budget, Materials Budget, labour budget, Overhead budget etc.
Top down and Bottom up approach and their comparison-
In Top down approach, the high-level budget is prepared by top management and lower management prepares budget for their respective departments in order to match the budget set by top management.
In Bottom up approach, budget is prepared by lower-level management as they are aware of the actual requirements of their respective department. It starts from bottom level employees and moves towards
Higher level employees.
Both approaches have their advantages and disadvantages which have been discussed in detail in this report.
Budgeted Income Statement for 2019 for Aurora Minerals Ltd-
A budgeted income statement has been prepared for Aurora Minerals Limited on the basis of actual Profit & Loss statement for 2018. Figures for Sales, Cost of goods sold and Expenses have been estimated by applying the given % of increase for each of these items.
Comparison of Budgeted Income statement for 2019 with actual Income statement for 2018 and analysis of results-
A table has been prepared showing the comparison of Budgeted Income Statement for 2019 with Actual Income Statement for 2018..
INTRODUCTION
This report is aimed at describing all the elements of a master budget. Also, the report explains the 2 approaches of budgeting- Top-down approach and Bottom –up approach, how these approaches work, their advantages and disadvantages. A comparative study of these 2 approaches has been included in below report.
Also, this report shows the Budgeted Income Statement for 2019 for Aurora Minerals Ltd, which has been prepared on the basis of its Actual Income Statement for 2018. Aurora Minerals Limited (ARM) is a company listed in the ASX under Metals & Mining sector. [Aurora Minerals Limited engages in the exploration, evaluation, and development of mineral properties in Australia, South Korea, Burkina Faso, and Cote d’Ivoire. The company explores for gold, silver, copper, lithium, graphite, zinc, skarn, lead, diamonds, and other precious and base metal deposits.]
This report also shows a comparison of Budgeted Income Statement for 2019 with Actual Income statement for 2018 and comments on changes. At the end there is a small conclusion provided.
A.MASTER BUDGET AND ITS ELEMENTS
Master Budget
A master budget is a set of interconnected budgets of sales, production costs, purchases, incomes, etc. and it also includes pro forma financial statements. It is the sum of all individual budgets that are prepared by various divisions. The sequence in which sub-budgets are completed is important because output for previous sub-budget becomes the input for next sub-budget. It may be prepared on Quarterly basis or Yearly basis.
Preparation of master budget is quite important for any organization. It helps to co-ordinate activities of sales, purchasing, production, and other divisions and serves as a planning & control tool for management as they can plan the business activities during the period on the basis of master budget.
Elements of a Master Budget
· Sales Budget
It is the first and most important element of master budget. Sales budget reflects what management expects to sell and expected revenue from these Sales. It involves preparing the budget for expected sales volume and budgeting selling price per unit. This is the basis on which various other budgets are prepared, for example- production budget, receipts from customers etc. Creating a sales budget is quite difficult as it is difficult to estimate sales and forecast demand. Various factors are considered in preparing this budget like cu
ent economic conditions, market factors, production capacity etc.
· Production Budget
The production budget estimates number of units to be produced/manufactured. It is prepared by considering 2 factors- Sales forecasted as per Sales Budget and finished goods inventory to be maintained. This budget acts as the basis for materials budget.
· Direct Materials Budget
This budget calculates the direct material that is to be purchased by the given time period in order to meet the production requirement as per Production budget. This budget has the majority of costs that are incu
ed by a company, so it should be prepared very carefully. This budget helps to analyze not just the quantity but also the price of material.
· Direct Labor Budget
This budget calculates the number of labor hours required to produce the units as per production budget by multiplying number of units to be produced with number of standard labor hours per unit. This gives the total number of labor hours required. Then, the total cost of direct labor is found out by multiplying total number of labor hours required by the labor cost rate per hour. The labour cost rate per hour should be budget burdened so as to include the cost of allocated indirect cost.
· Manufacturing Overhead Budget
All manufacturing costs except direct materials and direct labour are included in this budget. After that a per unit overhead allocation rate is computed. This rate is applied to finished goods inventory to estimate the cost of finished goods inventory. The information provided by this budget goes to “Cost of goods sold” which is an important element of budgeted financial
Statements.
· Selling and administrative Budgets
This budget estimates the cost of selling expenses and the administrative expenses of all non-production departments like marketing,...