CODE: MBA 1003

ACCOUNTING AND FINANCE

WONG CHIN YIK

940117-10-5616

201679

JANUARY 2018
9.0 COURSEWORK

Q1: List and briefly explain the stakeholders mentioned by the Corporate Reports.

The stakeholders mentioned by the Corporate Report are:

 Shareholders – existing and potential investors need information to help them

to decide whether to hold, buy or sell shares in a company.

 Lenders – both existing and potential lenders need to assess the risks involved

– the possibility of default. They will be concerned to judge the ability of the

borrower to service interest charges and to repay current and future amounts

outstanding.

 Employees – individuals and their representatives need financial information to

assess job security and job prospects and to support collective bargaining

negotiations.

 Investment analysts and professional advisers – the financial press, ‘the City’

and financial advisers need access to and need to be able to understand

financial information to advise their readers and clients.

 Business partners – suppliers, customers and competitors are all interested in

an organization’s financial performance, its reputation and its future prospects.

 Government – in addition to the possibility of the government being a

customer or a creditor (a person or an organization to whom a business has a

 commitment), the taxation of profits requires the disclosure of certain financial

information.

 The general public – information supplied, for example, to shareholders and

business partners helps to inform employment and wealth creation issues.

Q2: The preparation of the sales budget is the starting point for the preparation of

the overall or master budget. Explain carefully.

The preparation of the sales budget is the starting point for the preparation of the overall

or master budget. The marketing and sales team will need to consider the present level

of trading, anticipate future conditions, and use feedback from the sales force and

market research to prepare a sales budget. The sales budget, of course, is not a single

figure for the financial year but a detailed analysis of sales based on selling prices and

sales volumes as follows:

 by product and service offering;

 by customer;

 by region;

 by month.

Once the first draft of the sales budget has been completed, the production or operations

budget can be put together. In the case of a manufacturing company, the sales budget
will need to be considered and allowances will need to be made for changes in stock

levels, the use of sub-contractors and lead times so that the full operational implications

of the sales budget can be highlighted. These will focus on:

 the level of output by product and service line;

 when it is needed;

 which activities or departments will produce it; and

 the associated costs of the labour, materials and facilities.

The sales and operations budgets determine the level of activity for the whole of the

organization. This affects the resources required for marketing, the sales force,

distribution, and administrative activities such as finance and human resources which

will need to prepare their own cost budgets. The budget-setting process is illustrated in

Figure 11.2. In the case of a non-manufacturing or service business such as an

advertising agency or a management consultancy, there will be no ‘cost of goods sold’

or ‘production’ budget. Instead, the focus of attention will be the ‘operating cost’ budget

which will be particularly concerned with (a) personnel costs, and (b) the cost of

facilities such as office accommodation and information technology.

There are additional important points to bear in mind when a budget is being prepared.

First, do make sure that you understand the actual results for the current period – the

period before the start of the budget period – so that the impact of the different factors

affecting overall performance, such as the product mix and the breakdown of operating
costs, is fully appreciated. This will help to ensure that next year’s budget fully reflects

these inter-relationships.

Second, be clear about what is going to be different in the next budget period. For

example, the introduction of a new product range and the expansion of facilities will

affect the overall revenue and cost structure. These differences need to be reflected in

the budget.

Third, take care to specify all the assumptions you have used in preparing the various

drafts of the budget. Sales volumes, selling prices, head count, and percentage salary

increases are all examples. Your budget submissions will almost certainly be challenged

and if you are not clear about the assumptions on which they were based, it will be very

difficult to defend them since there will be no benchmarks against which they can be

justified.