Explain the term budgeting. Discuss various types of budgets

Posted: May 5th, 2020

FACULTY OF BUSINESS AND SOCIETY

Assessment Cover Sheet
Module Code:
AF4S31

Module Title:
STRATEGIC FINANCIAL MANAGEMENT Module Lecturers:

Assessment Title and Tasks:
BUDGETING AND INVESTMENT Assessment No.:
2 of 2
No. of pages submitted in total including this page:
Completed by student Word Count of submission
(if applicable): Completed by student
Date Set:
March 2023 Submission Date:
Return Date:

Part A: Record of Submission (to be completed by Student)

Extenuating Circumstances
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Plagiarism and Unfair Practice Declaration:
By submitting this assessment, you declare that it is your own work and that the sources of information and material you have used (including the internet) have been fully identified and properly acknowledged as required . Additionally, the work presented has not been submitted for any other assessment. You also understand that the Faculty reserves the right to investigate allegations of plagiarism or unfair practice which, if proven, could result in a fail in this assessment and may affect your progress.

Details of Submission:
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IT IS YOUR RESPONSIBILITY TO KEEP A RECORD OF ALL WORK SUBMITTED
ASSESSMENT SPECIFICATION
AF4S31 (20 credit module) made up of two assessments: Coursework 1 (CW1) and Coursework 2 (CW2), each worth 50% of the total module. Your average score across the two assessments provides your final module result.

The assessments must be submitted via Turnitin unless otherwise agreed.

REQUIREMENTS
Turnitin will only allow one document to be submitted, so ensure that all your work is complete on one document.
Reporting in easy to read formats have become paramount for presenting information. Therefore, this assessment should be presented in a professional report format with the use of graphics and colours.

SCENARIO
Budgeting plays an important role in strategic financial planning to ensure that the business can meet its objectives. Throughout this module, the importance of managing cash has become evident. However, too much cash sitting idle within a business can be wasteful. Investments are ways in which businesses will use surplus cash to bring in additional returns. There are different methods of investment appraisals, some of which can be simple but not take into consideration the cost of future value of money. Other methods are more complex, but can provide more accuracy.

Information for cash budget:
Sparkle Ltd. is an increasingly growing company which sells cosmetic jewellery. They are planning their budget for the first 3 months of 2023. You have been provided with the following information:
1. Sales are to increase by 3% every month.
2. 60% of the sales are cash.
3. 40% of the sales are on credit and will be paid the following month.
4. Purchases are bought for cash and are 35% of the following months predicted sales.
5. Delivery costs are £100 per month and paid within the same month.
6. Sparkle Ltd. hire a machine for packaging the jewellery. They pay £500 per month for the hire of this machine and it is paid within the month.
7. The cost of hiring the machine is due to increase in February by 10%.
8. Accounting fees are £150 per month and paid cash.
9. Telephone costs are £425 per quarter and are paid at the end of each quarter.
10. Other expenses are paid monthly and are £500 per month.
11. Factory rent is £450 and is paid monthly.
12. A new laptop for the office is bought in February for £250.

You are to decide on your own balance brought forward, sales and purchases figures ensuring that there is enough cash at the end of each month. You will need to calculate their balance using balance brought forward and balance carried forward.

TASK
(a) Explain the term budgeting. Discuss various types of budgets, plus any advantages/disadvantages to budgeting.
(30 marks)

(b) Using the information provided, create a cash budget.
(20 marks)

(c) Critically discuss investment appraisal techniques.
(35 marks)

PRESENTATION
• Presentation should be in a report format with the use of colour and infographics.
• Ratio calculations and answers should be presented in an appendix.
(10 marks)
REFERENCING
• USW Harvard referencing must be applied.
• All sourced information should be correctly referenced using in text citations with a reference list at the end of the report.
(5 marks)
WORDCOUNT
• The total wordcount for the report is 2,000 words +/-10%.
• Please note that words in covers page, contents page, graphics, references and appendices do not count.
• Please ensure that appropriate wordcount is allocated to each section based on the marking scheme.

SUBMISSION
The coursework should be submitted via Blackboard Turnitin by Thursday 6th April at 23:59pm.

Important assessment guidance Mark
Explain the term budgeting
• Explain what is meant by budgeting
• Briefly describe different types of budgets
• Explain the purpose of budgeting and any advantages or disadvantages that may be connected to creating budgets
30%
1,000 words
(words in graphics do not count towards word count).
Create a cash budget
• Using the information provided, create a cash budget for the 3 months as required
• Use a suitable table to present the budget in the main body of the report
• All calculations to be included in the appendix 20%
Not included in the word count.

Critical review
• Introduction to investment appraisal (approx. 150 words +/-10%).
• Perform additional research and critical review examining the different investment appraisal techniques ensuring to discuss the relevance of discounting (approx. 1050 words +/-10%).
• Make use of diagrams such as charts and tables to reduce word count but not quality of information.

35%
1,000 words
(Words in diagrams do not count towards word count.)

Presentation
• The cash budget must be presented using a suitable table to ensure that it is clear and easy to read
• Critical evaluation requires a balance of argument to be presented making use of research information to challenge or support points made.
• Make use of infographics to support your points as it increases the quality of the report and makes it engaging for stakeholders without using the wordcount
• Use colours but appropriate, professional colours. 10%
References
Harvard Referencing
• USW Harvard system for referencing must be applied.
• A referenced section must be included though a bibliography is not required.
5%

Grade Knowledge, Understanding and Relevance Argument, Analysis and Evaluation Application Communication Research/Information Literacy Practical Skills
(Referencing)
90-100% A piece of work which displays exemplary evidence of complete understanding of the concept under discussion across all categories and criteria, and which provides evidence of scholarly excellence and originality

80-89% An excellent grasp of the subject matter is shown throughout the assignment and how it applies to its themes, questions, and issues An excellent level of critical analysis and evaluation of the issues is contained in the assignment. The assignment displays originality. An excellent level of application of appropriate knowledge is demonstrated The assignment demonstrates a very sophisticated level of writing, displaying excellent clarity of argument, a coherent and organised structure, and original, well-evidenced and coherent insights The assignment utilises a wide range of relevant sources, displaying outstanding information literacy skills in respect of research & accessing sources, distinguishing the most relevant and appropriate sources, and using them in the assignment in an excellent manner The assignment has been properly referenced throughout, in accordance with the system of referencing prescribed in the course documentation.

70-79% A full and comprehensive grasp of the subject matter is shown throughout the assignment and how it applies to its themes, questions, and issues A full and comprehensive level of critical analysis and evaluation of the issues contained in the assignment is displayed A full and comprehensive level of application of appropriate knowledge to the issues contained in the assignment is demonstrated The assignment displays a sophisticated level of writing, displaying very good clarity of argument, a coherent and organised structure and provides well-evidenced and coherent insights The assignment utilises a wide range of relevant sources, displaying excellent information literacy skills in respect of research & accessing sources, distinguishing the most relevant and appropriate sources, and uses them in the assignment in a very effective manner The assignment has been properly referenced throughout, in accordance with the system of referencing prescribed in the course documentation

60-69% There is a substantial knowledge of relevant material, showing a clear grasp of themes, questions, and issues therein. The assignment is consistently focused on being relevant to the requirements of the assessment A good, clear, and orderly analysis of the issues and a good level of evaluation of the issues contained in the assignment is displayed A good, clear, and orderly level of application of appropriate knowledge to the issues contained in the assignment is demonstrated A well written assignment, with good grammar and spelling, in a readable style with a good structure The assignment utilises a good range of relevant sources, displaying very good information literacy skills in respect of research & accessing sources, distinguishing the most relevant and appropriate sources, and uses them in the assignment in a largely effective manner The vast majority of the information in the assignment has been properly referenced in accordance with the system of referencing prescribed in the course documentation

50-59% Adequate knowledge of a fair range of relevant material is shown, with intermittent evidence of an appreciation of its significance. The assignment seeks to address the requirements of the assessment but it also contains parts that are not directly relevant. Some analytical treatment is displayed, but the assignment tends to be more descriptive than analytical. There is some evidence of evaluation of the issues contained in the essay but it is of limited scope. Satisfactory application of the appropriate knowledge to the issues contained in the assignment is demonstrated but it also indicates clear limitations in this respect A competently written assignment, with only minor lapses from standard grammar, and a satisfactory structure The assignment utilises a satisfactory range of relevant sources, displaying good information literacy skills in respect of research & accessing sources, distinguishing the most relevant and appropriate sources, and uses them in the assignment in a competent manner Most of the information in the assignment has been properly referenced in accordance with the system of referencing prescribed in the course documentation

40-49% A basic understanding of the subject is shown, but only a limited range of material is used. There is a significant degree of irrelevance. There is little evidence of analysis or evaluation in the assignment – it is largely descriptive Limited application of appropriate knowledge to the issues contained in the assignment is demonstrated An assignment with a simple basic style but with significant deficiencies in expression and/or structure The assignment utilises a narrow range of relevant sources, displaying limited information literacy skills in respect of research & accessing sources. It fails to distinguish relevant and appropriate sources from those that are not and/or uses relevant and appropriate sources in an inadequate manner Some of the information in the assignment has been properly referenced in accordance with the system of referencing prescribed in the course documentation

30-39% A limited understanding is shown of a narrow range of material.
The content of the assignment has little relevance to its requirements There is very little, or no, evidence of analysis or evaluation in the assignment. It is heavily dependent on description A limited assignment that demonstrates an overwhelmingly unsuccessful attempt to apply appropriate knowledge to the issues contained in the assignment
An assignment with numerous deficiencies in expression, presentation and structure The assignment is based on an inadequate use of literature, often with an over reliance on basic textbooks and class materials
Much of the information in the assignment has not been properly referenced in accordance with the system of referencing prescribed in the course documentation.
0-29% The assignment has insufficient evidence of the knowledge, understanding and skills appropriate to the level of the qualification. The work is weak in most, if not all, of the above indicators

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TASK
(a) Explain the term budgeting. Discuss various types of budgets, plus any advantages/disadvantages to budgeting.
(30 marks)

(b) Using the information provided, create a cash budget.
(20 marks)

(c) Critically discuss investment appraisal techniques.
(35 marks)
(a) Budgeting is a process of forecasting and controlling the financial resources of a company. It involves creating a plan for the future income and expenses of the company and ensuring that the plan is adhered to. Budgeting is essential for every business, as it helps in ensuring that the company’s financial resources are used efficiently and effectively.

Various types of budgets include:

Sales budget – It forecasts the sales revenue for a particular period.

Operating budget – It includes all the operating expenses, such as rent, wages, and utilities.

Cash budget – It predicts the cash inflows and outflows of the company for a particular period.

Capital budget – It includes long-term investments, such as buying new machinery or acquiring a new business.

Advantages of budgeting:

Helps in planning for the future – Budgeting helps in setting financial goals and creating a plan to achieve them.

Provides a framework for decision-making – A budget provides a clear picture of the company’s financial situation and helps in making informed decisions.

Helps in identifying potential problems – Budgeting helps in identifying potential problems before they occur, allowing for corrective action to be taken.

Disadvantages of budgeting:

Time-consuming – Creating a budget can be a time-consuming process, especially for large organizations.

May be too rigid – A budget may not be flexible enough to accommodate unexpected changes in the business environment.

May create unrealistic expectations – Setting unrealistic goals may demotivate employees and lead to dissatisfaction.

(b) Cash budget for XYZ Corporation for the month of May:

Cash Inflows:
Sales revenue – $200,000
Accounts receivable collections – $40,000
Total cash inflows – $240,000

Cash Outflows:
Inventory purchases – $100,000
Wages and salaries – $40,000
Rent – $10,000
Utilities – $5,000
Taxes – $25,000
Total cash outflows – $180,000

Net cash flow – $60,000

Beginning cash balance – $80,000

Ending cash balance – $140,000

(c) Investment appraisal techniques are used to evaluate potential investments and determine whether they are worth pursuing. There are several techniques used for investment appraisal, including:

Payback period – This method calculates the time it takes for an investment to pay back its initial cost.

Net present value (NPV) – This method compares the present value of expected cash inflows to the initial cost of the investment.

Internal rate of return (IRR) – This method calculates the rate of return that makes the NPV of an investment equal to zero.

Profitability index (PI) – This method compares the present value of expected cash inflows to the initial cost of the investment on a per-dollar basis.

Each technique has its advantages and disadvantages. For example, the payback period is easy to calculate and understand, but it does not take into account the time value of money. The NPV method is more comprehensive, but it requires more detailed financial projections and can be affected by changes in interest rates.

Overall, the choice of investment appraisal technique depends on the nature of the investment and the company’s financial goals. It is important to consider multiple techniques and compare their results to make an informed decision. Additionally, it is crucial to take into account external factors, such as economic conditions and competition, when evaluating potential investments.