Business & Admin Unit 6 Pass

Business & Admin Unit 6 Pass
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  Business and Administration Unit six: Principles of budgets in a business environmentAssessment You should use this file to complete your Assessment. • The first thing you need to do is save a copy of this document, either onto your computer or a USBdrive • Then work through your Assessment, remembering to save your work regularly • hen you!ve finished, print out a copy to keep for reference • Then, go to" and send your completed Assessment to your tutor via your #y Study area $ make sure it is clearly marked with your name, the course title and the Unit and  Assessment number. Please note that this Assessment document has 12 pages and is made up of 3 Sections. ame: !ames "all Section 1: #he purpose of budgets This section will help you to evidence %earning &utcome '(   Understand the purpose of budgets in a business environment . $earning ob%ectivePlace in Assessment '.' )*plain the purpose of budgets for managing financial resources to meet business re+uirements &uestion 1 Page 11a. hat is meant by the term financial resources  -'.' The term financial resources is the money available to a business for spending in the form of cash, li+uid securities and credit lines. Before going into business, a businessman needs to secure sufficient financial resources to be able to operate efficiently and sufficiently. You always need to have enough financial resources on hand to take advantage of a great opportunity if it comes along. /ompanies often need funding for starting or continuing business operations. Small businesses typically need start0up funds, while medium and large companies may need funding to e*pand operations. 1ifferent types of funding are usually available based on the companies si2e and needs. /ompanies may choose to use traditional funding sources such as banks and e+uity investors, or apply for government grants or even venture capital funds. )ach funding type offer different advantages to companies.There are three different types of financial resources( Short term: This refers to finance which is only re+uired for a short term of no more than '" months. 'edium term: This refers to finance which is re+uired for more than ' year but less than 3 years. $ong term:  This refers to finance which is re+uired for over 3 years. A budget or financial resource is an estimate of income over a set period of time and presented under specific headings. 4 /reating /areers %td "5''0"5'67age ' of '5  Business and Administration hen a budget is created it focuses on estimates for the future. &ver time, it becomes possible to compare the estimates with actual levels of performance. The aim is to make sure that there is no overspending and the targets are achieved. 1b.  )*plain why budgets are used to manage financial resources. -'.' The purpose is to make sure that there is no overspending and that targets are achieved. Budgeting is part of management accounting and focuses upon the preparation and use of financial plans for thefuture within a business, they are a management tool for monitoring and controlling a business or a function 8 department within a business. A budget needs to be presented in a way which is appropriate for all who need to access it, to confirm what information is re+uired for e*ample, a yearly budget will let you know e*actly what funds the business has available and will be used by higher management, to ensure that they meet the needs of different departments within the business, a monthly budget could be used by the departments within the business, and would be used by the respective managers of each department, and will ensure that there are sufficient funds available for spending within the department and will also encourage sound decision making from managers. 1c . )*plain how using budgets helps to meet business re+uirements. -'.' 9n business, budgeting can be a very powerful tool. #aintaining good financial plans can help a business to control its resources, rather than being controlled by them, they can be used for short medium or long term planning and allows the business owners 8 managers to know e*actly what is available, and where necessary to ad:ust spending in certain areas. Budgets help businesses achieve their ob:ectives, these can include ma*imising profits, minimising costs, developing new products, satisfying customers and managing risk. A budget can provide a plan to help the business make key decisions for the future, budgets can be used to compare planned and actual performance, which in turn helps the business to make decisions and can highlight areas where alternative plans may be re+uired. Budgetsmay well be one of the most important accounting tools in business.;ow that you have completed Section 1  of your Assessment, remember to save the (or)  you have done so far $ you will need to send your work to your tutor for marking once you have completed all 3 Sections  of this Assessment. 4 /reating /areers %td "5''0"5'67age " of '5  Business and Administration Section 2: "o( to develop budgets This section will help you to evidence %earning &utcome "(   Understand ho( to develop budgets . $earning ob%ectivePlace in Assessment ".' )*plain the purpose of agreeing the format in which a budget will be presented &uestion 1 Page 2 "." )*plain the purpose of using estimations when developing a budget and ways of doing so &uestion 2 Page 3&uestion 3 Page 3 ".< )*plain the purpose of identifying timescales, priorities andfinancial resources needed when preparing a budget and ways of doing so &uestion * Page *&uestion + Page * ".6 1escribe the purpose of negotiating and agreeing a budget &uestion , Page +1a. hy is it important that key staff agree on the format in which a budget will be presented )*plain this below. -".' 9t is important to agree on the format in which a budget will be presented, as this will ensure that it is easily and readily understood by all who need to use it, when a budget is consistant across the organisation staff moving across the organisation are totally familiar with its standardised format and there is less scope for confusion. 1b. hat are the conse-uences of not using an agreed format  to present a budget 7rovide an e*planation below. -".' hen there is no agreed and understood format for a budget, the organisation is in risk of creating confusion and chaos among its budget managers. 9t would be harder to plan for future growth and e*pansion and the organisation would be left open to possible failure. 1c . hat are the benefits of using an agreed format  to present a budget 7rovide an e*planation below. -".' A carefully managed budget will(  )nsure all essential tasks in the budget are planned and reduce the chance of overlooking an essential necessity in the budget plan.   Allocate tasks efficiently to each respective budget manager, and ensure that no duplications are made.  #ake the business aware of short term priorities and how individual performances will be assessed.  )stablish a pro:ect schedule that can be tracked and monitored.  Set e*pectations for pro:ect progress and establish accountability.   Analyse problem areas more effectively.  1evelop a more accurate budget and ensure ade+uate funding is available.  4 /reating /areers %td "5''0"5'67age < of '5  Business and Administration 2.  hy do you use estimations  when developing a budget 9n the space below provide at least two reasons why you might use a budget, giving a conte*tual e*ample to support each reason. -"." eason 1 ( hen insufficient sales figures are available, a budget is prepared based on estimates from the previous year and this is called a =orecast Budget. You want to have an idea of what your sales are likely to be in the ne*t year, sales budgetingis an integral part of business management. ithout a solid idea of what your future sales are likely to be, you can!t manage your inventory or your cash flow or plan for growth. The purpose of sales forecasting is to provide information that you can use to make intelligent business decisions eason 2 ( You could use an estimation to calculate how much you might need to start up a new business venture. To do this you would need to produce a chart allowing you to head each section in your startup plan, such as e*penses $ these are the costs needed in preparing to open your business which may include market research, mileage costs involvedin researching a location, advertising, training, wages and any fees where you might need the help of professionals such as consultants, accountants or lawyers. 3.  )*plain t(o methods  that can be used in order to identif/ realistic estimations  when developing a budget. -"." 'ethod 1: Sales Budget( A sales budget is an estimation of sales for a future accounting period. Sales budgets are often divided into first, second third and fourth fiscal +uarter estimations, the critical components of a sales budget are estimated units sales, price per unit and the allowance for discounts and returns. )stimationed unit sales multiplied by the price per unit e+uals budgeted gross sales. Budgeted gross sales less estimated sales discounts and returns is the budgeted net sales for the period. 'ethod 2: 7roduction Budget( A production budget is e*pressed in terms of physical units and not costs. 7roduction budget period often depends on the product cycle as well as the operating environment of the business, as a result in length >+uarterly, product year, product cycle etc. for e*ample during difficult economic times it might be better to shorten the product budget period due to higher uncertainty regarding product demand >i.e sales?.7roduction budget incorporates not only budgeted sales data but also e*pected ending inventory levels. hen determining the re+uired inventory levels, it is important to consider both costs and benefits. 4 /reating /areers %td "5''0"5'67age 6 of '5  Business and Administration *.  There are three key considerations when preparing budgets( #imescales0 priorities and financial resources . 9n the space below give two conte*tual reasons to explain the purposeof of identifying each of these considerations. -".< #imescales:eason 1  At the strategic level senior management will consider organisational performanceover three year, five years or even longer timescales. As timescales increase, forecasts and estimates may be less certain. @owever, senior managers must consider the actions that must be taken in the short term, so that longer termoutcomes can be achieved.hen senior management work with budget managers to e*plore the impact of seeking to achieve outcomes over longer timescales, they will be able to work across several budgets to ensure that the organisation is working in a way that achieves long term outcomes, working this way will also develop a deeper understanding of how work at the operational level may impact on longer term outcomes eason 2 1ue to adverse publicity, the board want to train their staff towards legal compliance $ in health and safety $ to be completed in the first two months of the ne*t financial year, rather than spreading it throughout the year.The board have also responded to a proposal from the training manager, suggesting that a bespoke, accredited company0wide supervisor and management programme be developed with a local college. =or this reason, the training for supervisors and managers is to be paired for a minimum of ' months, and then increased with the introduction of the new programmes.The training department will now need to revise their budgetary work as priorities and timescales have changed Priorities:  An organisation may have large scale plans for what it wants to achieve. These plans and activities will be prioritised to identify the importance of these in terms of what the organisation is seeking to achieve, with the priorities of the highest importance being established. Senior managers in an organisation see the bigger picture. They will know the overearching priorities of the organisation and are able to identify the importance of those priorities. eason 1 Senior managers will work with   budget managers 0 this is to ensure that their budgets ma*imise the organisation!s   ability to achieve things with the highest priority.By working with budget managers the senior manager can ensure that. eason 2 Senior managers can improve the budgetary process by providing feedback on the priorities of the organisation. If the organisation aims to continue in the same way as the previous year, the budgets will be an excellent indicator of the priorities for the next year. However, priorities change and these need to influence future budgets. inancial resources:eason 1 The purpose of financial resources within a budget is about getting the most from your available funds. 9t involves implementing resource management procedures and controls, and can also include managing costs and ma*imising opportunities.   4 /reating /areers %td "5''0"5'67age 3 of '5
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