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A. Objective of preparing a budget for Twin Rivers Café:
Budgets are general revenues/sales forecasts and various expenses for the specified period ahead and are typically collected and reviewed on a periodical basis. A budget acts as an internal structure by managers of corporations like Twin Rivers Café and is not often required to be communicated by external entities like interested parties. Overall production activities are subject to financial budgets. The budget is main method used to monitor expenditure and budgetary discrepancies by financial analysts.
(Finance and Network, 2013). Company should consider inconsistencies between plans and actual-costs by comparing the forecast with actual figures. The bigger the variances, the bigger the need for managerial assistance. A budget could help to set priorities, track progresses and make contingency planning, in addition to apportioning resources. This also encourages the corporation to have those employees accountable for reducing budget disparities. A well-designed budget allows a corporation to monitor where it is financially. It makes long-term strategical and visionary planning feasible by showing deviations from the current operating expenditures. In this regard, some main budget objectives are as follows:
It is an universal aim of generating a budget, which is based on budgeting differences, to measure the efficiency of personnel. This is a complex job as managers want to adjust their plans to help them achieve their personal goals.
Predict cash flows:
Budget is valuable for fast-growing companies, with seasonal revenues, or with erratic patterns of sales. Such corporations have a hard time predicting how much money they are going to have in near term, leading to frequent cash-related problems.
A budget is particularly beneficial to provide instructions to a corporation as to the route it is intended to go forward. It therefore sets the foundation on which to decide what to do next (Makings and et.al., 2014).
Many businesses like Twin Rivers Café use budgeting mechanism as a tool to determine where to assign funds for different activities, like acquisitions of fixed assets. Although a legitimate goal, this should be paired with an evaluation of capacity constraints to decide where assets should be assigned (Senthilkumar and et.al., 2012).
If an organization has a range of possible directions it can move down, company can develop a series of budgets to predict financial outcomes for each tactical route, each focused on various scenarios. this aim can lead to extremely unlikely outcomes if manager allows itself to become extremely optimistic in incorporating assumptions into design of budget.
Tool for decision making:
The aim of budget is to provide a fiscal structure for decision-making processes. It help to ensure that all decisions taken by company are as per the targets determined in budget. Management by analysing budgets and any variance can take financial or operational decisions (Gago-Rodríguez and Purdy, 2015).
Monitoring business performance:
Budgeting is intended to allow the current business results to be evaluated against business output prediction, i.e. business that meets expectations. It enable corporation to track the overall business performance as on a particular date.
Forecast of income and expenditure:
This is core purpose of a budget to predict business's income, receipts and expenditures reliably and accurately. Company by framing budget determines the base for making estimation of incomes and expenses.
B. Report showing the company’s revenue and spending variance for July along with explanation:
Planning And Actual Budgets For The Month Ended July 31, 2018