A.C. 2.2 – Analyse the budget outcomes against organisational objectives identifying alternatives


Sales Revenue

The sales revenues of the organisation had consistently increased slightly apart from June where the increment was at 6.7%. Further, the material purchases and wages increased in the period which is possibly the trend of the business. Despite new machinery being purchased, there has not been a substantial increase in overall sales. Also, the marketing strategy could not have been effective to reach out to more clients as compared to those already existing in the market.

Capital Purchases

Despite capital purchases having been actualised in February, the organisation had not initiated staff cost saving upto April. The rationale of this could have been due to capital purchase taking approximately 2 months to be actively implemented or staff requiring a period of 2 months for learning the process of machine use. As a consequence, the capital purchase salary cost was reduced. On the other hand, there is no evidence of a substantial increase in cash sales. In this case, it is suggested that the organisation need to review their advertisement costs to avoid the issue of their advertisement strategy failing to target sufficient clients. Hence, an inclusive analysis needs to be actualised by the marketing department and submit the report inclusive of the information on the number of sales.

Issue 1: Corporation Tax

Taking into account of the figures, the organisation is large and as such no validation of Making Corporation tax payment in a single lump sum. The organisation financial director needs to consult with the CTA qualified tax accountant to receive essential advice to be paying monthly Corporation Tax. It is a valid belief that the organisation is a large size and as such has a potential of paying monthly amounts for their Corporation Tax which would be approximately (650/12=54£ PCM). As a consequence of this arrangement, the organisation would leverage from a reduced overdraft limit of £750K in May 2017. Additionally, this offers an improved forecast view to the manager of the banks.

Issue 2: Capital Purchase

It is not identified on the purchases of February 2017 for £2750K despite the purchase having a significant impact on Budget and cash flow. In an event alternative supplier is available; they can lease the capital purchase in their operating market. In this case, they will not be in a position of going past their agreed overdraft limit until October 2017.

Alternatively, in an event they can source a supplier for leasing arrangement; the purchasing manager with the finance director would focus on sourcing for flexible payment deals with their existing suppliers. Rather than paying in entirety by February, they could be in a position of paying different instalments in the next six months.

Issue 3: Loan repayment

The financial statement notes that the loan payment strategy used is short term. Their monthly payment of £450K is substantially high directly affecting their cash flow and budget. It is appropriate to suggest that the Finance director renegotiates a long term loan repayment strategy with their bank manager. This will ensure that the organisation repayment monthly is reduced and move past their overdraft limit.

Alternatively, the organisation finance director can engage in a negotiation process in a higher rate than their overdraft limit from the Bank which would assist their cash budget and the entire interest paid in the year and is favourable in terms of profits.

Issue 4: Cash Purchases

The budget which only indicates the cash purchases leads to an assumption that the organisation makes their purchases in cash. The organisation with over £9.4 million purchases value can in an easier way receive credit from their overall purchase. The requirement of making payments to the supplier after a period of 30 days of involve provision will lead to an overall £750K saving in the initial year of their cash payment savings.

Additionally, the organisation could review their purchases to cash payments to increase their sales costs and hence affect their profitability. Alternatively, the organisation can actively recruit a qualified purchasing manager to carry out market research identifying supplier’s offers and source for an appropriate price as opposed to their current supplier hence better payment terms.

Task 5 – Answer (1050 – 1100 words)

A.C. 3.1 – Identify criteria by which proposals are judged

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