The company in question for the purpose of this work is engaged in the retail of building accessories and furnishings like tiles, taps, bathtubs, shower heads, wooden flooring and granite worktops. The company sales from showrooms located in three different towns. The goods are collected from the stores which are at the showrooms for less bulky items and at warehouses far from showrooms for bulky items. The company delivers goods worth more than $1000 they are destined to the same town. Each showroom is headed by a branch manager while the top managemet are located at the headquarters which has the largest showroom space and makes the largest sales.
A budget is a set of connected plans that describe a company’s projected future quantitatively. It is used as a meter with which actual results of operation is measured, funds allocation and a future operations plan (Wagh and Gadade 2013). The company is compelled to prepare and manage a budget. The company depends on sales for survival therefore a budget is necessary to have a plan of how much sales is needed and how to achieve them in terms of inventory needed. From its form of operation, the company undoubtedly has a great portion of expenditure from delivering purchased goods considering that in construction matters most clients are bound to make purchases warranting delivery. This brings the need to plan for factors like the fleet needed to deliver the targeted amount of sales. The company also has numerous operations due to the number of showrooms, warehouses and managements levels which need a proper and strict control system to ensure there are no lapses in operations in terms of implementing the budget strategies in order to achieve targeted sales.

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A high level budget is a summary of estimates of costs to implement high value company target. The company may allocate 40 percent of resources to the purchase of goods to be sold, 30 percent operational services including after sales services, 25 percent to salaries and wages and 5 percent to maintenance of showrooms, systems and fleet. The most appropriate phases for this budget will be the preparation phase as this is when the company sets out what it wants to achieve and the execution phase because if operations are not run according to the set plans then there will be danger of operations like the delivery of goods sold being crippled.

To better manage its budget, the company may keep separate accounts of sales for each sales showroom to be able to monitor how much sales is being made by each branch to be able to easily and rapidly identify any deviations from the budget (Mitchell and Price 2003). The same should apply for the different warehouses. Each warehouse should have a separate expenditure account to monitor the number of deliveries made from respective warehouses and also check on the efficiency of how the deliveries is being done. This will help to monitor any expenditures from warehouses that may be causing variances in the budget and swift actions of remedy may be taken. The company also may supply information about the budget to the employees. The information may be channeled down as the budget to branch managers who in turn can channel to employees as targets. This is good with changing budgets as the managers can have weekly meetings with branch employees and discuss what roles they should play to ensure the budget for the period is achieved.

On the hypothetical situation that the company is faced with financial difficulties that is making actual amounts being spent to significantly vary from the budgeted amounts, the company will need to take plans to counter this variations. Variances between the budget and actual expenditures should be investigated regardless of whether they are positive or negative variances. The company may first of all re-evaluate the budget and check that the estimates placed were realistic and adjust the budget accordingly to make it as realistic as possible. It must also check for any changes in conditions or quality of management before setting the action plans to remedy the variances.

It is important that effort is made to identify the exact cause of the variances, this can be in terms of department, branch, warehouse or employee (Meigs and Mary 1998). This will help in putting in place actions that will have rapid impact and reduce the variances in the budget from the actual expenditures. From the companies setting, variances if positive in terms of expenditure is only highly likely to occur if the sales are way below the budgeted volumes. In the case that expenditures are higher than had been budgeted for this particular company, investigation should be done to ensure that company policies are being adhered to for example employees may be delivering goods to clients for purchases less than the set threshold, deliveries might be made in a way that is not efficient and in distances longer than the company allows free deliveries. If any of these happens, the warehouse managers should be warned to strictly follow the company’s policies. The company may also consider eliminating free deliveries and provide transport services to clients at a zero profit cost to help the clients. The company may also need to evaluate job descriptions and check if the current workforce is more than needed. Given the nature of the goods, the company may need to higher support stuff on short term contracts basis for example loaders, to cater for high sales season since when sales are low there will be a great amount of company hours paid for idling time.

  • Meigs, F.R. & Mary. A (1998). Financial Reporting. 9th Ed. United States of
    America Irwin McGraw Hill Publishers.
  • Mitchell, J & Price, A. (2003). Economics: Principles in Action. U S.: Pearson Prentice Hall.
    p. 111.
  • Wagh, D & and Gadade, S. T. (2013). Evaluating Budgeting and Budgetary Control Process in
    Colleges. International Monthly Refereed Journal of Research In Management & Technology. 107 ISSN – 2320-0073.