Scenario Management Springer International â€Myassignmenthelp.Com

Question: Discuss About The Scenario Management Springer International? Answer: Introducation Financial budget is made in order to evaluate the costs incurred of a year at the beginning of the period. This is prepared to observe the difference between the actual and estimated data and thus may be used by the management for making decisions. Budgets may be classified into two categories: Fixed and flexible budget. Fixed budget is formulated on the basis of output of the business. Even the output is forecasted and thus it may be different from the estimated value. Because of this reason flexible budget is made in comparison to fixed budget. The flexible budget is prepared after analysing all the items available in the income statement on the basis of the actual profit (Bruner, Eades and Schill, 2017). The following tables show the use of fixed and flexible budget: Statement showing fixed budget. Particulars Budget amount for each unit Static budget Actual budget Variance 5000 units 8000 units Revenue 30 150000 200000 -50000 Variable cost: Material 12 60000 78000 -18000 Labour 8 40000 70000 -30000 Overhead 5 25000 42000 -17000 Total 25 125000 190000 -65000 Contribution 5 25000 10000 15000 Fixed cost: Manufacturing 50000 45000 5000 Marketing 25000 26000 -1000 Total -50000 -61000 11000 Statement showing flexible budget. Particulars Budget amount for each unit Flexible budget Actual budget Variance 8000 units 8000 units Revenue 30 240000 270000 -30000 Variable cost: Material 12 96000 125000 -29000 Labour 8 64000 70000 -6000 Overhead 5 40000 42000 -2000 Total 25 200000 237000 -37000 Contribution 5 40000 33000 7000 Fixed cost: Manufacturing 50000 30000 20000 Marketing 25000 20000 5000 Total profit -35000 -17000 -18000 The budgeted costs are prepared on the basis of the number of units produced so that the company may check it afterwards in order to identify the variations and its the reason (Clarke and Clarke, 1990). Thus it is found that flexible budget is more preferable because it helps to calculate profit more accurately after observing all the costs incurred. The cash budget is made by every firm so as to ascertain the source of the cash generation and also to know where the money is being invested. The biggest motive of a firm is to make products and sell them so it is important to make production budget and sales budget (Fairhurst, 2015). Sales budget: It is made by the firm so as to ascertain the estimate of the sales for a short period of time. It is prepared for a short period of time because it is having a volatile nature. The main income of a firm is generated by sales and thus it is necessary to find the information relating to the cash inflow which may be used to prepare the budget. Production budget: In order to generate income it is necessary for a firm to manufacture goods. It is also important that the firm should know about the adequate quantity it needs to produce. So it is necessary to prepare a production budget as there is outflow of the cash. The two most important feature of a cash cycle are the operating cycle and working capital. The operating cycle starts when the purchase of raw materials is done and ends with the payment of the finished goods which means that the entire cycles shows the conversion of resource to cash. Working capital ratio may be acknowledged as the ratio between the current assets and the current liabilities of a firm. There are several types of working capital: I totally disagree with the statement because like private firms there are many other such individuals like investors, creditors, government officials, public, etc who may use the information for making economic decisions (Galbraith, Downey and Kates, 2002). The government organisations are not just entitled to look after generating profit but they are also given the responsibility of satisfying wants of people and economic development of the country, and thus the information is considered important for the shareholders too. A costing system may help the firm to decide the purchases and method of production. The management looks at every corner of the situations and take decision based on the decisions of cost controlling and outsourcing thus formulating the plan which may fetch the firm with the maximum amount of profit. There may be an order which may be harmful for the firm, so the activities are planned accordingly. Also, the shareholders are being able to be updated about the financial position of the company. The manufacturing overhead allocation rate of wonder products is calculated below: Manufacturing overhead rate= Manufacturing overhead = 598080 7000 = 85.44 Per machine hour. Note: Manufacturing overhead are calculated as per the machine hour. The administrative overhead allocation rate of wonder products is calculated below: Administrative overhead rate= Administrative overhead Labour hours = 695520 14000 = 49.68 per labour hour. Note: Administrative overhead is calculated as per labour hours. (c ) Calculation of total cost: Direct material 19000 Cost due to labour hours (750*49.68) 37260 Cost due to machine hours (400*85.44) 34176 Total cost 90436 Quoted price = Total cost + Profit margin. Total cost 90436 Profit (40%) 36174.4 Quoted Price 126610.4 Any indirect costs that are related to the manufacturing process are known as overheads. These overheads form a huge part of the total cost. It is important to allocate overhead rate properly because there will lie a risk of over absorption or under absorption of overheads. Also there are various problems in the traditional approach, in the single blanket as there is a single cost driver whereas there are huge number of activities that are carried out (Hassani, 2016). Time frame is the main reason for choosing the idea of predetermined rate. The overhead is estimated when the process of production starts. However, the actual figure of overhead is determined when the work comes to an end, It is not easy to estimate the correct amount of overhead. There always lies a doubt that whether the overhead that is determined will be close enough to the estimated overhead or not (Holland and Torregrosa, 2008). References: Bruner, R., Eades, K. and Schill, M. (2017).Case studies in finance. Dubuque, IA: McGraw-Hill Education. Clarke, R. and Clarke, R. (1990).Strategic financial management. Homewood, Ill.: R.D. Irwin. Fairhurst, D. (2015).Using Excel for Business Analysis A Guide to Financial Modelling Fundamenta. John Wiley Sons. Galbraith, J., Downey, D. and Kates, A. (2002).Designing dynamic organizations. New York: AMACOM. Hassani, B. (2016).Scenario analysis in risk management. Cham: Springer International Publishing. Holland, J. and Torregrosa, D. (2008).Capital budgeting. [Washington, D.C.]: Congress of the U.S., Congressional Budget Office.