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The process of strategic identification, allocation, usage, and management of financial resources in the continuation of operational activities is considered as financial management (Shapiro & Hanouna, 2019). In the case of managing the financial resources of an organization, budgeting plays a significant role as it helps in deciding how much-working capital should be allocated to each functional unit and at what time it should allot (Miller, 2018). The assessment is performed to have an understanding of the concept of different budgeting approaches like beyond budgeting and functional budgeting.
For gaining an experimental insight into the budgeting approach, a functional budget is prepared for a hypothetical company, PL Ltd, based on financial values provided by its managing director, Mr. Cameron. PL Ltd is a UK-based automobile component manufacturing company and it has faced a situation of developing a budget for the forthcoming quarter starting from August and lasting at October. Before August, the management of PL Ltd was following a conventional budgeting approach, incremental budgeting, for preparing a budget for its manufacturing work but now, its director wants to use an innovative approach as its accountant has resigned.
With the support of the assessment, a functional budget for the upcoming quarter is developed for PL Ltd and appropriate recommendation regarding competitive budgeting method is suggested based on qualitative and quantitative analysis outcome.
Functional Budget Development and Findings
Development of Functional Budget
Functional budget refers to the budget prepared for the different functional units like manufacturing, sales, procurement, and labor deployment of an entity for a given fiscal period and this plays a significant role in assisting its management in taking corrective funding-related action (Adah, 2016). As per the case study, it is found that the functional units which are associated with the business of PL Ltd are sales, production, raw material usage, purchase, labor, and production and these are responsible for its operational cost and revenue amount for the upcoming fiscal quarters. Based on the financial information including sales and costing provided by the managing director of PL Ltd for the upcoming months ranging from August to December, the necessary functional budget for the 3rd quarter (August to October) is developed as follows-
As per the developed functional budget, the total sales budget for the upcoming quarter is around GBP 245, 100 while the entire budget for raw material usage is 70, 983. Apart from it, the budget which is estimated for the raw material procurement-related function of PL Ltd is GBP 519, 935 for the quarter starting from August and ending in October. Besides this, the total budget of PL Ltd in terms of skilled labor hours is around GBP 10, 647, 45 while the value for the unskilled workforce is GBP 236, 610 for the forthcoming period. Above all, the total budget for continuing the production activities related to automobile components for the next 3 months is GBP 24, 817, 21.50.
Findings of the Functional Budget
As per the analysis of the developed functional budget, it is interpreted that there is a progressive pattern in the sales value-related performance metric of PL Ltd on shifting from August to October.
It is predicted that the sales value of PL Ltd is supposed to be GBP 732, 000 in August and this value is expected to be surged by 21.72 % in September of the fiscal year but this will be decreased to GBP 828, 000 in October. It means that maximum sales performance might be achieved by PL Ltd in September of the upcoming quarter but it will be minimum in August. Apart from it, it is analyzed that for accomplishing the production activity of automobile components for the entire upcoming quarter, the units of finished goods that the management of PL Ltd will need is around 23661 out of which 49 % will be consumed in August month and 30 % will be utilized in September.
In other words, the administration should focus on the procurement of finished goods precisely during August as its maximum consumption is predicted for the month in comparison to another fiscal period (de Vries & Nemec, 2019). On the quantitative outcome of the functional budget, it is forecasted that for meeting the automobile component-related needs of customers in the upcoming quarter, the total raw material which the business head of PL Ltd will need in total is 70, 983 Kg out of which 30, 030 will be consumed in August month only and rest 28 % will be consumed in September.
Since the maximum consumption of raw materials is predicted in August and September month in comparison to October due to which the team of PL Ltd should be ready for purchasing abundant raw materials for the first two months of the quarter for curbing the possibility of idle hours.
On the evaluation of the operational framework of PL Ltd, it is found that both skilled and unskilled laborers are required for accomplishing its production-related activities due to which it has been predicted that it will have to incur around GBP 13, 013, 55 for meeting staffing needs. Since the maximum consumption of raw materials is predicted in August and September due to which a higher labor budget is expected for the respective month in the comparison to last month of the upcoming quarter (P., 2017). Based on the consideration of the estimated budget of each functional unit, it is predicted that the total working capital which the administration of PL Ltd will need for continuing its production activities in the upcoming fiscal period is GBP 24, 817, 21.50.
It is forecasted that 44 % of the total predicted budget for the production of the upcoming quarter will be spent in August while its 30 % will be incurred in September and the rest 26 % will be used in October. It means that the management of PL Ltd will have to source and deploy a maximum portion of its working capital in the first two months of the quarter for continuing its operational activity appropriately.
Review of Budgeting Process
Critical Analysis of the Existing Budgeting Method of PL Ltd
The budgeting method is one of the critical approach for the growing of business financial activities and PL Ltd. currently doing the business with maintain the accounting activities that effectively justifies the nature of the business by maintain the previous activities for the budgetary plan. It is seen that the organisation has the approach to maintain the quality of services withy justifying the accounting activities to maintain financial statement that impacts on doing the business (Skott, et al., 2022).
The organisation has previously maintained the budgetary function by following the traditional incremental approach. On the contrary it is seen that they have the approach to perform the business activities to justify the business by creating functional budget (Ren, 2022). It is determined by PL Ltd. that the budgetary functions is accomplished to maintain the accounting activities by justifying the methods, which is executed by creating the budgets with forecasting the money flow.
The functional budget is prepared functionally that investigate the purpose of the business to maintain the profitability of the business to investigate the methods. The functional budget includes sales, expenses, raw materials, balanced and the deficit budget that effectively evaluates the nature of the business with the help of effective budgetary plan. It is maintained by PL Ltd. that the financial functions are needs to control by justifying the importance of functional budget in order to justify the possibilities for the financial management (He, et al., 2022).
The creating of the budget is important as it is concerned with the functions of the organisation. In order to accomplish the functional budget, PL needs to justify the sales budget, which investigate the figure of the sales of the cars that are achieved with the given period by them.
The summarizing of the expected revenue, which investigate the service of the manufacturing cars of PL to maintain the accounting process to create the budget. The creation of the production budget is also the effective process for the functional budget, where the physical units flow of the cars and out of the equivalent unit of the production is maintained to justify the budgetary changes (Valle-Cruz, et al., 2022).
Due to create the production budget, the evaluation of the cost per unit need to illustrate and the assign cost of the produced units also evaluated. The labour budget and cost budget is need to create along with the capital expenditure and overhead budgets with maintain the cash budgets is required to maintain the business activities of the cars.
Critical Evaluation of the Pros and Cons of Beyond Budgeting Approach
The beyond budgeting approach is the principle, where the organisation need to move beyond the budgeting for the inherent flaws of the budgeting. When the organisation is involved in setting the contracts, the approach is important to justify the nature of the business with maintain the financial activities that effectively investigate the process for the justification of the budgetary plan making (Marotta, et al., 2022).
It is seen that the beyond budgeting has the chance to abolishing the traditional budgeting to investigate the business process of the car manufacturing to identify the needs that are justified. It is seen that the approach is applied to establish a highly decentralized organisational system to create the effective budget.
The setting of the management process is required to investigate the issues that create the value to the development of the organisational approaches. It is seen that beyond budgeting has the benefits to justify the business process and on the contrary, the disadvantages that impacts on the growing of the business ideas to launch a new products like the sustainable cars of others. In case of PL Ltd. the beyond budgeting approach investigate the accounting activities by creating the performance that are climate based on the competitive success (Sun, 2022).
It motivates the employees by providing the challenges, clear values, and responsibilities as a guideline. On the other hand the approach requires a major shifts in justifying the company is managed with the process. The budget creation is the essential works that effectively evaluates the business nature to investigate the process, by which the budgetary function is fulfilled. It is seen that the organisation has improved the business to investigate the possibilities for the development of the car manufacturing business.
On the contrary it is seen that the approach is argued with the range of techniques like roiling the forecast and the market related target to maintain the accounting process with accomplishing the budgetary functions. It is seen that PL Ltd. has maintained the traditional budgeting process that led to the business activities with handling the market risks.
However, the beyond budgeting process also improves the process with motivating the managers to act by reducing the resources constraints that evaluates the business activities to maintain the additional changes in the structure. Of the organisation. It is justified that the business activities are demonstrated with creating the budget by following the accounting process and the policies that are maintained by the organisation, which investigate the beyond budgeting system to get effective evaluation.
The budgetary function to create the effective budget for introducing the new techniques that impacts on the development of the business activities as well as in the innovation of the production level with involving the technological development.
It is recommended to the Cameron that the business approaches are needed to justify with maintain the financial development that integrate the business for justifying the sales, production, and the effective business process. The PL Ltd. need to control the business with AI improvement in the business that investigate the manufacturing the business with initiating new innovations.
The production and increasing the profit with maintain the budget plan. the functional budget is the best budget that are the future plan for the organisation for which the improvement of the business policies with changing and improving the budget making program is need to illustrate. It is recommended that the sales and the profit making justifies the business process with initiating the business employees’ increase. The making of the budget with the best auditors, who are fully involved with creating the budget creation to integrate the value of manufacturing the products.
It is seen that the budget clarifies the organisation’s financial condition that are valuable for the investors and the approaches that investigate the functional planning of the budget making. It is found that then business activities in the online market and offline market clarifies the business nature with enhancing ten chances to create the effective budget to understand the best auditing and budget making works that values the business in future.
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