ABF205SL - Management Accounting

Coursework – Developing a Budget

Developing a budget to the YMS products company for a selected future period in year 2019

By

Name of the student Plymouth Reg. No. NSBM Reg. No.

D. M. A. W. 10637898 10020693
Dissanayake

Mendis H Ravindu I 10637869 10020557

Wijesinghe Nimesh D 10639223 10020751

E. A. T. Deshan 10637901 10020770

An Independent Budget report

Submitted to the Plymouth University -UK in partial fulfillment of the requirements for the module of
ABF205SL – Management Accounting
2018

BSc (Hons.) Accounting and Finance

Plymouth University
United Kingdom

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BUDGET
REPORT

OF 2019
Y.M.S.
PRODUCTS

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Abstract

The purpose of this report is to use the budget for the sale budget, product budget, material use
budget, purchase budget, labor budget document, cash flow budget and the concepts of the
budget for the course in the living business world. Experience in practical applications of
theoretical knowledge gained through course activity. The study was used to assess the
organization's recent historical financial statements and the use of budgetary concepts to predict
the financial performance and financial position for the next financial year. Furthermore, the
study reveals that theoretical concepts can be practically inconvenient, and that changes should
be made to the basic theoretical concepts in dealing with the inherent factors of the industry and
market. It should also be noted that predicting future performance can lead to more complex
methods, and the cost and returns to trade should be used to determine the best budget
implications. Moreover, with more accurate results, there may be circumstances that can be
followed without additional cost. Considering other factors that provide suggestions and
conclusions, findings and suggestions for improving current practices have been included. These
findings and suggestions will be useful in making future decisions. Conduct accurate judgment
based on historical patterns and other environmental and structural specific factors.

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 Table of Content

1. Introduction………………………………………………………………………… 01
1.1. Course work introduction………………………………………………………...01
1.2. Introduction to the company……………………………………………………. 01
1.3. Budgetary process of the company………………………………………………02
2. Developing Budget……………………………………………………………………03
2.1. Sales Budget………………………………………………………………………03
2.2. Production Budget…………………………………………………………….......04
2.3. Material Usage Budget……………………………………………………………05
2.4. Material Purchase Budget…………………………………………………………06
2.5. Labor Budget………………………………………………………………………07
2.6. Manufacturing Overhead Budget………………………………………………… 08
2.7. Cash Budget……………………………………………………………………….09

3. Findings………………………………………………………………………………..10

4. Suggestions & conclusion……………………………………………………………...12

4.1. Suggestions……………………………………………………………………........12
4.2. Conclusion………………………………………………………………………….12

5. References………………………………………………………………………………..13

6. Appendices……………………………………………………………………………….13

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1. Introduction

1.1 course work introduction

Time and money are limited resources to all individuals and organizations. Therefore, it is
important to plan and use these resources in an efficient and effective. A budget is a tool used by
managers to plan and control the use of limited resource. And a budget is a plan showing the
company’s objectives.

Under the coursework we have to prepare different types of budgets including the master budget
to that manufacturing organization for a selected future period in year 2019.However the
company has not yet develop a budget. Therefore we had to go to this company to collecting
information and create a new budget.

1.2 Introduction to the company

After performing a detailed analysis over manufacturing companies which follows budgetary
control framework. We have chosen the following company.

Company Name: Y.M.S production (Pvt) ltd

Business nature:

Y.M.S products is plastic flower pots Production Company. It was started in year 2015 and
registered in 2017 as a proprietor owner ship under Mr. J.M. Danushka Chandimal
Jayakody.their production factory is located at IhalaLabbala, Labbala near to Giriulla. There are
four sizes of pots at the production and their production rate is around 3500 pieces per day. And
They use the plastic injection Molding system as their basic technology. There is a great demand
for such productions in the local market. they are planning to enhance the production by adding
more machines and mold to the factory. And they hopes This productions are expand in to
several areas as Producing many house hold plastic items (Kitchen items), Toys, Industrial
applications, PVC pipe & Fittings .etc.

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1.3 Budgetary process of the company

Budgeting process is the Process of making financial goals for a company and creating a plan to
achieve those goals. Budget control the inflows and outflows of finance of a company. The
budgeting process for most large companies usually begin four to six months before the start of
financial year to complete. Most organization set budget and undertake variance analysis on a
monthly basis. Starting from the initial planning stage, the company undertakes a series of steps
to finally implement the budget common process include communication within executive
management, establishing objectives and targets, developing a detailed budget compilation and
revision of budget model budget committee review, and approval and broad approval. And
having a proper budgeting process is essential for a company because without a proper budget
company cannot identify the earning and expenses during previous period.

There is no budgeting policy for Y.M.S production (PVT) Ltd. Therefor they have not develop a
budget for previous years. So we can’t prepare budget for the future period to compare the
previous years. Therefore we had to go to this company to collect information and develop a new
budget for the 2019 to compare the performance during the budgeted period.

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2. Developing the Budget
According to the discussion we made with the owner of the company we identify the following
details about Y M S Production. In developing this budget, we use that details to develop this
budget and assume the company’s demand is constant throughout the year. This is the estimated
budget report 2019 year ended.

2.1. Sales Budget

Y.M.S PRODUCTION
2019
Estimated Sales Budget
12 cm 17 cm 24 cm 28 cm
Total
Flower Pot Flower Pot Flower Pot Flower Pot

Expected Unit Sales 240,000 240,000 480,000 120,000

Sales Price 9 17 24 35

Total Revenue 2,160,000 4,080,000 11,520,000 4,200,000 21,960,000

 According to the discussion we identify the sales units & sales price per month. We
assume both are constant throughout the year.

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2.2. Production Budget

Y.M.S PRODUCTION 2019

Estimated Production Budget
12 cm 17 cm 24 cm 28 cm
Total
Flower Pot Flower Pot Flower Pot Flower Pot
Expected Unit Sales 240,000 240,000 480,000 120,000
Desired Closing Stock 24,000 24,000 48,000 12,000
264,000 264,000 528,000 132,000 1,188,000
Opening Stock Available (24,000) (24,000) (48,000) (12,000) (108,000)
Number Of Units To Produce 240,000 240,000 480,000 120,000 1,080,000

 Unit sale was taken from sales budget as above

 The company didn’t maintain a stock count. We obtained last year production and assume
10% for opening stock. 10% closing stocks for this year production.

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2.3. Material Usage Budget

Y.M.S PRODUCTION 2019

Estimated Material Usage Budget
12 cm 17 cm 24 cm 28 cm Total
Flower Pot Flower Pot Flower Pot Flower Pot
Material Usage Budget
Number Of Units To Produce 240,000 240,000 480,000 120,000 1,080,000
Direct Material Requirements :
Recycled Material (kg) 0.05 0.10 0.15 0.21

Total Recycled Material (kg) 12,000 24,000 72,000 25,200 133,200

Master batch Color (kg) 0.0003 0.0005 0.0008 0.0011
Total Master batch Color (kg) 62 123 370 130 685

 Unit to produce taken from production budget developed before

 They use two main materials to produce flower pots.
 According to the discussion we identify material usage per each pot size and calculate
the total material usage

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2.4. Material Purchase Budget

Y.M.S PRODUCTION 2019

Estimated Material Purchase Budget
Recycled Master Batch Total
Material (kg) Color (kg)

Total Material Usage (kg) 133,200 685

Desired Closing Stock 10,656 100
143,856 785
Opening Stock Available (10,656) (100)
Material To Purchase 133,200 685
Purchase Price Per kg 105 700
Total Material Purchase Cost 13,986,000 479,513 14,465,513

 Material usage taken from the material usage budget

 We assume opening stock and closing stock as follows
 Company provide per Kg material price

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2.5. Labor Budget

Y.M.S PRODUCTION 2019

Estimated Labor Budget
12 cm 17 cm 24 cm 28 cm
Total
Flower Pot Flower Pot Flower Pot Flower Pot

Skilled Labour
Expected Production Units 240,000 240,000 480,000 120,000
Labor Cost Per Unit 1.00 1.00 1.50 2.40
Total Skilled Labor Cost 240,000 240,000 720,000 288,000 1,488,000

Unskilled Labor
Expected Production Units 240,000 240,000 480,000 120,000
Labour Cost Per Unit 0.50 0.50 0.60 0.80
Total unskilled Labor Cost 120,000 120,000 288,000 96,000 624,000
Total Labor Cost 360,000 360,000 1,008,000 384,000 2,112,000

 We have taken the labor requirement in two main categories

i. Skilled labor
ii. Unskilled labor
 According to the discussion we identify labor cost per unit

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2.6. Manufacturing Overhead Budget

Y.M.S PRODUCTION
2019
Estimated Manufacturing Overhead Budget
Total
Manufacturing Overhead Budget

Variable Overhead Cost

Indirect Labour (Unskilled) 624,000
Electricity 100,000
Transport 378,000
-
Fixed Overhead Cost -
Director salary 600,000
Rent 720,000
Depreciation 600,000

Total Overhead Cost 3,022,000

 We assume that unskilled labor as indirect

 Indirect labor taken from labor budget developed before
 We identify electricity, transport and other cost referring after company accounts

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2.7. Cash Budget

Y.M.S PRODUCTION 2019

Estimated Cash Budget

Receipts:
Cash sales 19,764,000
Collect From Credit Sales 2,032,000
Total Receipts 21,796,000

Payments:
Cash Purchase 11,572,410
Credit Purchase 2,782,220
Wages 1,488,000
Overhead Cost 3,022,000
Lease payment 1,220,000
Total Payments 20,084,630
Net Receipts Payments

 Company sells 80% of its goods for cash. The remainder of customers receive one
month’s credit
 80% purchase is cash basis.
 Assume that accounts payable is settled in the month following purchase
 Wages, overhead cost taken from the previous budgets

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3. Findings
 Sales details

Monthly Production
Size of the production Average selling price Annual Turnover
(Pcs)
per Piece (Rs)
12 cm 20000 9.00 2,160,000.00
17 cm 20000 17.00 4,080,000.00
24 cm 40000 24.00 11,520,000.00
28 cm 10000 35.00 4,200,000.00
Total 21,960,000.00

 Cost Calculation for production

Basic Cost = Raw material + Labor + machine + Master batch (color) +Transport

Cost for 12 cm pot

Basic cost = 5.25+ 1.5 + 1 + 0.18 + 0.35

= Rs 8.30 per piece

Cost for 17 cm pot

Basic cost = 10.5+ 1.5 + 1 + 0.36 + 0.35

= Rs 13.70 per piece

Cost for 24 cm pot

Basic cost = 15.75+ 2.10 + 1 + 0.54 + 0.35

= Rs 19.75 per piece

Cost for 28 cm pot

Basic cost = 22.05+ 3.20 + 1 + 0.76 + 0.35

= Rs 27.36 per piece

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 Profit Calculation for production

Profit
Size of the Basic Cost per Average Selling Profit per Piece
percentage
production Piece (Rs) Price (Rs) (Rs)
(%)
12 cm 8.30 9.00 0.70 8
17 cm 13.70 17.00 3.30 19
24 cm 19.75 24.00 4.25 18
28 cm 27.36 35.00 7.64 22

 The company didn’t maintain a stock count. We obtained last year production and assume
10% for opening stock. 10% closing stocks for this year production.

 According to the discussion we identify material usage per each pot size and calculate
the total material usage.

Size of the production Recycled Material (kg) Master batch Color

Per unit (kg)
Per unit
12 cm 0.05 0.0003
17 cm 0.10 0.0005
24 cm 0.15 0.0008
28 cm 0.21 0.0011

 Company provide per Kg material price

Average Raw material cost (Recycled) = Rs. 105.00 per kg

Cost per master batch (Color) = Rs. 700.00 per kg

 Company sells 80% of its goods for cash. The remainder of customers receive one
month’s credit
 80% purchases are cash basis.

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 4. Suggestions & conclusion
4.1. Suggestions

 Before preparing the budget it’s good to ask all managers & employees ideas &
opinions.
 YMS Products Company haven’t a finance department, therefor they should
create a budget committee or hire an accountant to prepare the budget.
 The company should focus their performance during the past years before
developing the budgets.
 Overheads are the higher expense among all of other expenses then
company should reduce their overhead expense from their future budgets.
 The company should communicate their budget to all the departments in the
organization to get feedback from all the department.

4.2. Conclusion
Y.M.S production is a manufacturing company established in 2015. The company currently
produces plastic pots for the local industry. Their basic technology for the production is plastic
injection molding and it categories under high tech machine category. They use raw material for
the production is recycled plastic and purchase from Narammala area around 20 km away from
the factory. The company produces about 3500 pieces per day. They expect to sell those products
at a fair price range to the local market and they are planning to enhance the production by
adding more machine and mold to the factory. The company use social media networks and
develops its own website. According to their promotional activities they could be able to increase
their sales.

The main purpose of this report is to apply budgetary control concepts such as sales budget,
purchase budget, material usage budget, labor budget, cash budget and other forecasting which
we learn under the course. Throughout this assignment, we learnt that, the practical application
for the budgetary control may differ from theory in dynamic business environment. When we
applying and preparing budgets we have to face some problems such as gathering correct
financial information related to the company, resources usage of the company, etc. However,
there are instances where we have to cope with industry specific limitations as well. Further, we
have to use assumptions for our developing budgets. Finally, the thing we get whole the course
work is ‘The theory can’t apply to the real world’.

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5. References
The Institute of Charted Accountants of Sri Lanka, 2017, Traditional budgetary system, Study
Text–Business Level

5. Appendices

 Transport Cost

Size of the Expected Unit Transport cost Total

production Sales Per unit

12 cm 240,000 0.35 84,000

17 cm 240,000 0.35 84,000
24 cm 480,000 0.35 168,000
28 cm 120,000 0.35 42,000

 Director salary

No of directors Salary per month Total

01 50,000 600,000

 Rent expense = Monthly rent ( 60,000 ) = Total 720,000

 Cash sales = Total sale 21,960,000 = 19,764,000

90%
 Cash purchase = Total purchase 14,465,513 = 1,157,2410
80%

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Number of items are producing = 04

28 cm 24 cm 17 cm

Figure 1 : Existing Products

Sizes of pots at the production = 12 cm, 17 cm, 24 cm, 28cm

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 Group Report
1 Introduction to the coursework.
Analysis of the budgeting process of
the organization and identifying
main budgets to develop
considering their resource
2 constraints and other aspects.
Developing a budget to the selected
organization
3 40% 28
Identifying issues of the budgeting
process and your suggestions for its
4 development
5 Adherence to provided guidelines
Overall structure and the
6 presentation
of the report including
spreadsheets
Total = 60%
Marks Comments
awarded
10% 7 Good introduction to cover all areas.
The budgeting process have been
identified by you but you haven’t come up
with the resource constraints and the
practical difficulties they face to achieve
30% 14 budgets.
You have done a good job. Appreciate it!!!
You have taken descriptive information to
prepare budgets.
You haven’t identified issues with
10% 3 the budgeting process.
Almost all the guidelines have been
5% 4 followed.
The structure and the presentation have
5% 4 been sufficiently achieved.