MANAGING FINANCIAL RESOURCES

Managing Financial Resources and Decisions

Managing Financial Resources and Decisions

Part A: Analyze budgets and make appropriate decisions

Budgetary control determines the list of tasks of budgeting and list management function while doing it. One of the main functions of budgeting is planning which involves a detailed plan of the company. This function coordinates action to achieve the company's goals. Hence, it is a business management tool that helps companies to keep their costs under control and maximize profitability. The budget, which is usually prepared annually, shows the planned expenditures for the firm to reach its profit target. In preparing a detailed budget, management is able to make better decisions about what expenses are most important and which can be eliminated or postponed (Jerry J., Paul D., Donald E., 2011, pp. 263).

The numerical analysis of variance is presented in the form of a Table. The actual financial results and budget figures for each category are presented in columns. The next column to the right shows the subtraction of the above, this is the variance. Often the next column to the right shows the percentage of variance of the results of the current budget. This helps the analyst to get a better idea of ??the meaning of the variance. Negative variance represents that budgeted amount was greater than the actual amount spend i.e. unfavourable variance.

Furthermore, the below of table of Yuri's budget variance is negative which means that the budgeted amount was greater than the actual amount spend. Hence, they have a deficit budget at the end of the year (Asish K., 2012, pp. 572).

 

Budget

Actual

Variance

Units sold

100, 000

75, 000

-25, 000

Materials £

15, 000

22, 500

-7, 500

Direct labour £

22, 500

24, 375

-1, 875

 

Material

Labour

Price/rate variance

-4, 500

3, 750

Usage/efficiency variance

-3, 000

-5, 625

Total variance

-7, 500

-1, 875

The total variance indicates that actual Material and Labour exceeds the profit provided. The increase in earnings is explained as follows: unfavourable variance of Units sold, unfavourable Materials costs, unfavourable for the cost of direct labour. This further shows that company decision regarding budget was not string as they had negative variances which has further impacted on the profitability of the company.

The reason for this negative variance might be due to the market condition i.e. increases in the cost of material which has increases the overall cost of manufacturing. Furthermore, due to bad market condition the customers were not willing to purchase the product on the market price. Hence, the entire effect is due to the non favourable market conditions which have increased the actual budget from the estimated budget. Another reason could be the market analysis was not properly and in-deep conducted by the analyst of the Yuri's which has increased the estimated figures.

Furthermore, the only favourable variance is the labour rate, which suggests that they recruited less well-trained labour than they had planned. In the current market, it is not surprising that they have an adverse material price variance but this could also have had an effect on material usage as well, if poorer quality steel was ...