Format of the Report: 1. You should at least have the following details: a. Assignment Cover page clearly stating your name and student number b. A table of contents, executive summary c. A brief...

STUDENT NAME        -
STUDENT NUMBER    -
TABLE OF CONTENTS
            
    TOPICS
    PAGE NO.
     
     
    EXECUTIVE SUMMARY
    3
    INTRODUCTION
    4
    MASTER BUDGET AND ITS ELEMENTS
    5 to 6
    COMPARISION OF TOP DOWN & BOTTOM UP APPROACH
    7 to 9
    BUDGETED INCOME STATEMENT FOR 2019
    10 to 11
    
COMPARISON OF BUDGETED INCOME STATEMENT FOR 2019 WITH ACTUAL FOR 2018 AND ANALYSIS OF SUITABLE APPROACH FOR AERIS RESOURCES LTD
    12 to 15
    CONCLUSION
    16
    LIST OF REFERENCES
    17
EXECUTIVE SUMMARY
Elements of Master budget-
This report tells about the various elements of a master budget like- Sales Budget, Production Budget, Materials Budget, labour budget etc. The budgets are prepared in a sequence so that output of one budget acts as input for next budget.
Top down and Bottom up approach and their comparison-
In Top down approach, the high-level budget is prepared by top management and on the basis of that lower management has to prepared the budget for their respective function/department to match those estimates.
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 pros and cons which have been explained below in detail.
Budgeted Income Statement for 2019 for Aeris Resources Ltd-
A budgeted income statement has been prepared for Aeris resources 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 showing the comparison of these has been prepared and results have been compared.
Overall, there is an increase in profitability in year 2019.
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.
The report also shows the Budgeted Income Statement for 2019 for Aeris Resources Ltd, which has been prepared on the basis of its Actual Income Statement for 2018. Also, there is a
ief analysis telling which approach of budgeting- Top-down or Bottom-up would be suitable for Aeris Resources Ltd. Lastly, 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.
1. MASTER BUDGET AND ITS ELEMENTS
Master Budget
A master budget is one big budget plan in which all other sub- budgets of the company are combined to produce the master plan. 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.
Elements of a Master Budget
· Sales Budget
It is the first and most important element of master budget. It is the management’s estimation of sales for a future financial period. 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.
· Direct Labor Budget
This budget estimates the number of labor hours required to produce the units as per production budget. This is done simply by multiplying number of units to be
produced by 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, accounting, human resources etc. This budget is not dependant on any other budget but this is prepared on general level of corporate activity to estimate the administrative expenditure. These expenses are shown in master budget profit & loss statement.
· Capital acquisitions budget
This budget estimates cost of capital acquisitions to be made during the year like- machinery to be purchased, land to be purchased or investments to be made in equity or debt instruments.
· Cash Budget
This budget comprises of the expected cash receipts and payments during the period. It shows
the expected cash position of the company. It shows expected cash inflows and outflows. This budget is usually prepared after the sales, purchase and capital acquisitions budget has already been prepared. These must be prepared before...