Summary
This work was carried out in the Las Tunas Dairy Products company, located in the municipality of Las Tunas, it is of utmost importance for the province since the destination of its productions is mainly directed to the basic basket.
application-of-the-operations-budget-in-the-dairy-products-company-of-las-tunasIt was structured in three chapters. Number I was dedicated to the Theoretical Foundation, where it covers the concepts and definitions regarding the economic-financial analysis and the preparation of the budget.
In Chapter II, the economic and financial analysis of the year 2005 with respect to 2006 is presented in a comparative way, making an assessment of the behavior of each of the reasons and explaining the result, as well as analyzing the fundamental variations in the behavior of the budget.
For Chapter III, according to the results of the previous chapter and perspectives for 2006, it is necessary to provide a budget proposal for 2007.
According to the conclusions reached, the recommendations to be followed are proposed in order to improve results and advance in the constant struggle to achieve economic efficiency.
INTRODUCTION
The battle to increase efficiency by taking advantage of the flow of initiatives emanating from labor groups and also by discussing and controlling plans in assemblies for efficiency, constitute elements of vital importance to achieve economic recovery and meet the historical goals to which our people aspire.
Efficiency is the central objective of economic policy since it constitutes one of the greatest potentialities that the country has. Making better use of resources, increasing work productivity, achieving results with lower costs will have a positive effect on our financial balance, given that the country has an economic and social infrastructure created over more than four decades, as well. as, of human and natural resources and a scientific-technical development that is essential to use efficiently.
In the current conditions, the business system of our country is immersed in improvement.
Being within the conditions required for companies to enter this system, among other aspects, the following :
- Profit in your economic results Increase in productivity higher than the average salary That increases in wages are covered with increases in profit.
Each year the entities within the business improvement system must plan levels of efficiency higher than the real one of the previous year, including the systems of material stimulation of workers by recent guidelines of the Secretary of the Executive Committee of the Council of Ministers (CECM) must be reviewed with the goal that they really stimulate these increases. That is why it is essential for administrations to carry out periodic analysis of the results of the activity, such as the behavior of the budgets.
The budget system is the most important tool that modern administration has to achieve its objectives.
The budget is fundamental in any entity, since it is a statement that shows estimated information on the results of an operations plan and represents a projection of future conditions and events, expressed from a monetary point of view and constitutes the forecast, objectives and goals. to be achieved, facilitating the analysis and discussion with the workers, who play an active role in its control, measurement and in the search for greater efficiency.
The economic analysis of the financial statements of a company is a key element for decision making, which allows knowing the true situation of the entity, discovering the diseases that affect it, providing information to both internal and external personnel, among others.
Taking into account the aforementioned about the extraordinary importance of the budget, as well as the economic-financial analysis to evaluate the economy and the efficiency with which human, material and financial resources have been used, this diploma work has been carried out in the company Productos Lácteos Las Tunas; whose productions are essential for the territory since they are of first necessity for the population.
For the development of this research, the following is considered as a problem: The fact that there is no diagnosis of the financial situation that serves as the basis for the application of the operating budget in the company Productos Lácteos Las Tunas.
In order to solve the problem raised, the objective is to diagnose the financial situation of the company and apply the operating budget methodology for future periods, thus guaranteeing better results.
This diploma work has been prepared on the basis of the dialectical-materialist method, which proposes, starting from the general of the phenomenon and the effect, to penetrate into the particular, the essence and the causes that originate it through analysis and synthesis..
CHARACTERIZATION OF THE COMPANY
The Las Tunas Dairy Products Company is located in the Tunas municipality itself, it is located in Circunvalación Sur Km. 2 ½ between Ángel Guerra and Adonis Cabrera. Integrated to the Lactea Union (UNILAC) and subordinate to the Ministry of the Food Industry, it was created by Resolution No. 351 of the MINAL on 12/15/76, although its origins date back to June 1952, the date on which it was founded by the former capitalist entity "CIA Nacional de Alimentos Nestle".
After the triumph of the revolution on October 14, 1962, it was nationalized and passed into the hands of the Cuban state, at which time the conditions began to be created to achieve a true development of the dairy branch in the province since until that date it was considered only as a collection center, from which all the milk left for a larger plant located in the city of Bayamo.
At present and after a constant investment process, in which the innovators and rationalizers have not ceased to be present, the mission of the company is directed to: guarantee the collection, production and distribution of milk and its derivatives as well as products of soy anticipated in the basic basket.
The vision is aimed at: consolidating a development that allows inserting the company in the MLC market, as well as consolidating the growth and quality of the products in MN.
To guarantee the production and marketing of these, the entity has a plant that processes milk, ice cream, soy derivatives, physical mixtures (soft drink, custard, etc.) and cheese production, it also has the following areas:
- An ice cream store Industrial maintenance workshop Automotive transport workshop Central warehouse Dining room and cafeteria for workers Central office A collection and distribution center for milk and cheese (from peasant purchases) in the municipalities of Manatí, Puerto Padre, Colombia and Amancio. (Look at annex 1)
The entity's fundamental raw material is milk, both powder and fluid, and it depends to a greater extent on imports made by the country as well as purchases made from the Ministry of Agriculture (MINAGRI).
The entity markets the products of the basic basket in MN, milk being subsidized by the State Budget, assuming that the cost of production is higher than the sale price. Income in foreign currency is obtained from the production and purchases of merchandise (which are made from other dairy product companies), marketing them to foreign currency store chains, tourism and other organizations (ACINOX, LUDEMA, Construction Materials, Company of Specialized Services and Industrial Gases).
It is also self-financed because it depends on the result of your work so you must leave a profit margin that allows you to carry out your own operations. It is within the tax system (ONAT), to which self-financed companies are incorporated.
The Company made a diagnosis of current conditions and is preparing the file to enter the Business Improvement system.
The group of workers has highly qualified workers and productive experience, making every effort to increase their knowledge and skills in order to obtain the highest quality in each of their productions. The total workforce is 629 workers, divided into different occupational categories:
| Occupational category | Quantity | % |
| Leaders | 39 | 6.20 |
| Technicians | 88 | 14.00 |
| Administrative | 39 | 6.20 |
| Service | 58 | 9.22 |
| Workers | 405 | 64.38 |
| Total | 629 | 100 |
Chapter 1. Theoretical Framework.
1.1 Economic - Financial Analysis
Theoretical framework.
Analysis
It is the ability to examine an objective or a complex situation and appreciate its constituent parts or elements and the relationships between them.
Analysis is a totally necessary condition to achieve the successful operation of any economic system in the analysis process, where information is obtained about the state of the system, about the successes and negligence in its activity, about the advantages and disadvantages of one or another method of managing the economy. As a result of this, the possibility arises of selecting the optimal decisions or close to these, which largely respond to the interests of a given system and of society as a whole, which guarantee the rational use of financial, material and labor resources. that are owned.
Economic analysis
Within the balance sheet analysis, the economic analysis consists mainly of determining the profitability percentage of the capital invested in the business; Therefore, it can be considered that the decomposition of economic phenomena into their component parts and the study of each one of them in particular, constitutes in itself the Economic Analysis.
Financial analysis
To analyze is to know something through the elements that make it up. Financial analysis is the study of the financial reality of the company through the Financial Statements: Balance Sheet, State of Origin, Application of Funds and Income Accounts. Financial analysis aims to interpret the facts on the basis of a set of techniques that lead to decision making.
Analysis and Interpretation of States
It is a technique of application of the head of the accounting area, it consists of the analysis, interpretation and systematic purification of the balances of the items of a system of accounts and financial indexes calculated with the purpose of:
- Help maintain healthy and reliable accounting Guarantee the preparation of an economic - financial analysis on reliable data Provide the Corporation's management with sufficient advance knowledge of the position or financial situation of the same, as well as the result of its activity economic during a given accounting period (month, quarter, year) with a view to making decisions to constantly correct the course of business management in a satisfactory framework.
The analysis can be economic or financial, the latter allows interpreting financial facts based on a set of techniques that lead to decision-making, it also studies the financing of the entity, preferably from the Financial Statements.
The main Financial Statements are:
- Balance sheet Statement of profit or loss Statement of origin and application of funds
In this case, the sources used to carry out this analysis will be the Balance Sheet, which shows the economic situation of an entity on a fixed, past or future date and the Statement of profit or loss, which is the statement where income and income are presented. expenses of a period, associates them showing results that can be profit or loss.
The objective of financial analysis is that it allows to know:
- The real financial and economic situation of the entity Make the right decisions to optimize profits and services.
Financial statements provide information to facilitate effective decision-making by management of entities, creditors, and government agencies. The sources to be used to analyze this analysis will be the income statement and the balance sheet.
The financial ratios used were the following:
- Liquidity and activity ratios Debt reasons Profitability reasons
Liquidity ratios:
They study the ability to pay in cash or money of a company.
Within them we determine:
Solvency index: Ability to pay in the short term.
Ind. Solv. = AC / PC
Where:
Ind. Solv. : Solvency Index.
AC: Current Assets.
PC: Current Liabilities.
Liquidity index: It is similar to the solvency index, but in this case inventories are not included as they are considered the same, as the least liquid within current assets; therefore, it indicates the degree to which available resources can meet short-term obligations.
IL = AC-INV / PC
Where:
IL: Liquidity Index
INV: Inventories
PC: Current Liabilities.
Working capital: It is the difference between the assets and current liabilities of a company.
This working capital allows the company to measure its liquidity, for this reason it must be positive, thus ensuring that current assets are greater than current liabilities; which means that the company has the financial means to pay its short-term obligations.
CT = AC - PC
Where:
CT: Working Capital.
AC: Current Assets.
PC: Current Liabilities.
Reasons for activity:
They measure the efficiency of accounts receivable and payable, the efficiency of material consumption, production, sales and others.
Within these reasons we will analyze:
Turnover of accounts receivable: It allows knowing the number of times the average number of clients of the company is renewed, the number of times the commercial circle is completed in the period to which the net sales refer.
To find out how many days the company makes its accounts receivable effective, the collection cycle is determined.
Turnover of accounts payable: Indicates the number of times that the average of accounts payable to suppliers is renewed in the period or fiscal year to which the net purchases refer. It allows to know the speed or efficiency of payments in the Company.
To know how many days the company pays its debts to suppliers, the average payment is determined.
Inventory turnover : Indicates the speed of the company in the consumption of materials, raw materials and the speed of production.
In addition, it is determined how many days these inventories rotate
Debt ratio:
It allows to measure the total proportion of assets contributed by the creditors of the company, the higher this index, the greater the amount of money of another person that the company is using.
Cost effectiveness:
Net profit margin = Net profit
Sales
Net profit margin: It tells us for each weight of net sales how much profit has been obtained.
1.2 General aspects of budgeting.
1.2.1 Definition of the budget.
- According to cost accounting, part one, by Charles T. Horngren:
"A budget is a quantitative expression of an action plan and an aid for coordination and execution."
- According to the Budget, Planning and Preparation CP; Rodolfo Coeto Mota:
"It is the previous calculation and balance of the expenses and income of the state and other public corporations that must contain the detailed expression of said expenses and the anticipated income, to cover them during a determined period, generally one year."
- According to the illustrated dictionary of the Spanish Language:
"It is the anticipated calculation of the cost of a work and also of the expenses or income of a company or community."
- According to Larousse:
“It denotes the income and expenses for a given period in a corporation, a public body, a state.
- According to Cristóbal del Río:
"It is a set of forecasts referring to a specific future period."
- According to Administrative Accounting, by DN Ramírez Padilla:
"It is an integrating and coordinated plan, which is expressed in financial terms regarding the operations and resources that are part of a company for a specific period, in order to achieve the objectives set by senior management."
In summary form, it can be defined as a budget: An integrative, coordinated plan, expressed in monetary terms, which reflects expenses and income; as well as the activities carried out in a given period in order to achieve the objectives set by the entity.
- Plan: It means that the budget expresses what the administration will try to do in such a way that the company achieves an upward change in a certain period. Integrator: It indicates that it takes into account all the areas and activities of the company. It is a plan seen as a whole but it is also directed to each one of the areas in such a way that it contributes to the achievement of the global objective.
It is indisputable that the plan or budget of a company department is dysfunctional if it is not identified with the final objective of the organization. This process is known as the Master Budget; formed by the different areas that comprise it.
- Coordinated: It means that the plans for several of the company's departments must be prepared jointly and in harmony, if these plans are not coordinated, the master budget cannot be equal to the sum of the parts, thus creating confusion and errors. Financial terms: Indicates the importance of the budget being represented in the monetary unit, to serve as a means of communication since otherwise problems will arise in the analysis of the annual plan.
Example: Labor Budget, first in man-hours and then in pesos. If we did not convert everything to weight, we would talk about manpower hours and it would undoubtedly bring confusion.
- Operation: One of the fundamental objectives of a budget is the determination of the income that will be obtained, as well as the expenses that will be produced.Resources: It is not enough to determine future income and expenses of a company, they must also plan and carry out their plans of operations. This is basically achieved with financial planning that mainly includes:
- Cash Budget: Asset Budget (inventories, accounts receivable, fixed assets, etc.)
- Specific period: A budget always has to be based on a specific period, generally a year.
- It presses for senior management to adequately define the basic objectives of the company Helps to achieve greater effectiveness and efficiency in operations It facilitates the administration the optimal use of different inputs It encourages the definition of an adequate organizational structure determining responsibility and authority of each of the parts that make up the organization Facilitates the co-participation and integration of the different areas of the company Forces periodic self-analysis Facilitates administrative control Increases the participation of different levels of the organization, when there is a Proper motivation Requires maintaining a controllable historical data file.It is a challenge that is constantly presented to the executives of an organization to exercise their creativity and professional criteria in order to improve the company.
Like any budget tool, it has certain limitations that must be considered when preparing them, or during their execution.
- They are based on estimates: This limitation forces the administration to try to use certain statistical tools to ensure that uncertainty is reduced to a minimum, since the success of a budget depends on the reliability of the data we are handling, correlation and regression Statistics help to partially eliminate this limitation. They must be constantly adapted to the important changes that arise: This means that it is a dynamic tool because if any inconvenience arises that affects it, the budget must be adapted since otherwise it would lose meaning. Its execution is not automatic:We need the human element of the organization to understand the usefulness of this tool in such a way that all the members of the company feel that the first beneficiaries of the use of the budget are them because otherwise all efforts to carry them out will be unsuccessful. It is an instrument that should not take the place of the administration, one of the most serious problems that causes the failure of administrative tools is to believe that by themselves they can achieve success, we must remember that it is a tool that serves the administration so that its mission is fulfilled and not to enter into competition with it.One of the most serious problems that causes the failure of administrative tools is to believe that by themselves they can achieve success, it must be remembered that it is a tool that serves the administration to fulfill its mission and not to compete with she.One of the most serious problems that causes the failure of administrative tools is to believe that by themselves they can achieve success, it must be remembered that it is a tool that serves the administration to fulfill its mission and not to compete with she.
- Planning and organization: the unification and systematization of activities by means of which the objectives of the activity and the adequate organization to achieve it are established Coordination: means the development and maintenance of the entity's activities in order to avoid situations of imbalance in the different areas of the same Direction: is the executive function to guide or lead and inspect or supervise the activities of subordinates according to plan Control: is the action by means of which it is appreciated if the plans and objectives Are being fulfilled.
- Knowledge of the entity: budgets are always linked to the type of entity, its objectives, its organization and its needs, the forms of its content from one unit to another, mainly in the degree of analysis required, for which it is essential to broad knowledge of the company in which they are applied Presentation of the plan: knowledge of the criteria of the entity's executives regarding the objective sought with the implementation of the budget Coordination for the execution of the plan or policy: there must be a director of the budget that will act as coordinator of all the departments involved in the execution of the plan. Setting the budgeted period: the determination of this period operates based on various factors such as:
- Stability (long periods) Instability of the entity's operations Period of the production process Seasonal sales
- Direction and Surveillance: once the plans are approved, the areas or departments must prepare their plans or budgets in accordance with the instructions or recommendations that will help the bosses to put said plans into practice.Management support: it is essential for the proper implementation and development of the budget that turns them into an operational action plan and a pattern of what has been executed and not only informative.
It is the great budget of a company, that is, the culmination of an entire planning process and therefore, it includes all the areas of a business, such as: sales, production, purchases, etc. That is why it is called a teacher.
1.2.8 Structure of the master budget.
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One of them, the operating budget, is made up of smaller ones. The sales budget, where it is anticipated how much is expected to be sold, based on this it will be known how much to produce and how much it costs to produce it. It will then be necessary to see what raw material is needed, how much labor will be used, what will be the indirect production costs and most important of all, how much will it cost. Once you know how much raw material you need, you can plan or budget for purchases with every opportunity so that you do not start with the rush and can get good prices. Finally, what will be defined with the operating budget is what the profit will be.
The other financial budget is simpler. In it, the cash that will be available is budgeted and the investments that can be made in the short term so as not to underuse the money. At the end, the financial situation of the company will be known, that is, if good or bad times will come.
The present work was carried out at Productos Lácteos de Las Tunas.
For the methodology and application of the budget, the data corresponding to the year 2002, 2003 and the budget approved for 2004 were taken. Its development is fundamentally based on the dialectical - materialistic method.
The budgeting systems to be used are the following:
- Conventional system: It is an incremental budget, based on the actual activities achieved in the previous period, plus expectations for the next one. Zero-based budget: each activity is planned and its estimated total cost must be justified as if it were the first time that is carried out Planning and budgeting system by programs: it is a system that allocates scarce defective resources in those activities or programs in which the organization's objectives are best achieved.The budget system increases productivity and results: its objective is Identify all the activities of the entity and establish an action plan where the cost of the activity and its contribution to profit can be elaborated.
The technique for carrying out the work was based on obtaining data from financial statements, planning, statistics, accounting and the development of annexes to determine the results, on which the conclusions were made.
The materials used were: bibliography, norms and methodology, legislation, calculator, printers and automated computer equipment.
1.3 Methodology of the operating budget.
In the current conditions of the country, according to the prospects for the development of market relations, it is necessary to project more objective budgets capable of measuring, on a scientific basis, the immediate future of our entities.
Below we will explain what makes up the operating budget:
1.3.1 Sales budget.
In the sales budget, the first thing that arises is the income or advantages, since purchases and operating expenses will depend on the volume of sales expected.
To develop the sales budget, the following sequence is recommended:
- Clearly determine the place that the entity wants to achieve with respect to the level of sales in a given period, as well as the strategies they develop to achieve it.Perform a study of the future of demand, supported by certain methods that generate objectivity in the data such as: Regression and correlation analysis, Industry analysis, Economy analysis. The task of preparing this budget is approached from two different angles:
- Judge and evaluate external influences. General trends in industrial activity, government policies, cyclical phases of the nation's economy, population purchasing power, population movement, and changes in purchasing habits and lifestyles Consider the internal influences of sales, company capacity, estimated seasonal product of the sellers and the establishment of quotas by the sellers of the territory, last but not least, the profit desired by the company plays a very significant part.
Sales forecast
The preparation of sales estimates is usually the responsibility of the marketing manager, assisted by individual salespeople and market research staff, because there are many differences in the product market, the actual methods used to forecast sales vary widely. between companies.
Each vendor supplies his territory manager with calculations of what he thinks he will be able to sell in his territory during the next period. Estimates are consolidated and adjusted by the district sales manager before passing them on to the general marketing manager.
In these adjustments, conceptions are made for the expected economic conditions and for the competitive conditions of which the sellers are not aware, for the sales returns.
In many companies, the method described has been supplied by special marketing research or analysis divisions and salespeople in the process of arriving at more accurate estimates.
The forecasting procedure begins with the main known factors:
- The company's sales in recent years classified by product groups and profit margins. Sales volume by or business. Uncommon factors that influenced past sales.
Seasonal variations.
Once the forecast has been approved, it must be placed on a one-period operating basis.
Experience will show that each merchandise sold has its own seasonal sale modality, emphasizing the causes of fluctuations (habits based on local or national characteristics, weather, holidays, etc.). All this information is used in the preparation of a monthly sales budget.
Sales budget on a territorial and customer basis.
It should be put on the basis of territories or districts and classified in terms of customer types.
Your ranking by customer will show sales to wholesale distributors, retailers, institutions, schools, foreign businesses, etc. It also indicates the contribution that each type of business makes to total sales and profits, so the budget per client can be converted into a strong means to analyze possible new business outlets. It also helps to uncover the causes of a decline to various classes of customers, so that such a decline can be quickly investigated and corrective action taken.
Calculation methodology
- Needed information.
Sales forecast in units
Sale Price per Unit
- Formula:
Sales budget = Sales budget (Units) * Sales price per unit
1.3.2. Production budget.
The quantities in the production budget should be closely tied to those in the sales budget and desired inventory levels. This is the sales budget adjusted for inventory changes. Production must be planned at an efficient level, so that there are no large fluctuations in the payroll of employees it is also necessary to maintain the
inventories at an efficient level. If these are too low the production can be interrupted, if they are too high the cost of handling may be exaggerated.
Calculation methodology.
Needed information
Sales budget (units).
Ending inventory (units).
Initial inventory (units).
- Formula:
Production budget = Budgeted sales (units) + Ending inventory (units) - Beginning inventory (units).
1.3.3 Raw material consumption budget.
At the same time that the purchasing budget is prepared and the required material is ordered, it is necessary for the purposes of the budget to prepare the direct material consumption.
This budget includes only direct material, since indirect materials (lubricants, accessories, etc.) are included in the indirect cost budget.
- Indicates the raw material needs for a specific budgeted period, thus avoiding bottlenecks in the
production due to lack of supply.
- b) Generates information for purchases, which allows this department to plan its activities c) Determine adequate levels of inventories for each type of raw material d) Exercise administrative control regarding the efficiency with which raw material is handled.
Calculation methodology.
Needed information
Production budget per unit.
Standard per unit of direct raw material.
Purchase price per unit.
- Formula:
Budget of
|
consumption of = Budget of Produc. (Units) x Standard (Units) x Price
Raw material
1.3.4. Direct raw material purchase budget
This is one of the cost estimates that must be prepared since quantities to be purchased and delivery plans must be established quickly so that materials are available when needed.
The benefits provided by this budget are very important, because with it it is possible to know how much raw material you need, avoiding having to stop production due to lack of supply. It also allows you to request several quotes and buy at the best prices; Furthermore, it also helps you determine adequate inventory levels for each raw material.
Once you know how much raw material you are going to need, then you can plan purchases, but considering that, like production, purchases are planned according to inventories, that is, you must also define maximum and minimum inventories for each material.
Calculation methodology.
Needed information
Required production of raw material (units).
Ending inventory (units).
Initial inventory (units).
Purchase price per units.
- Formula:
Formula.
Budget Production required raw material (units) +
de = Ending inventory of raw material -
Purchase Initial inventory x Purchase price per (units).
It tries to clearly diagnose the needs and human resources and how to act, according to said diagnosis, to satisfy the requirements of the planned units.
The methodology used must be suitable to determine the standard in labor hours for each type of sales line the entity, as well as the quality of labor required, with the above we can detect if more human resources are needed or if the current ones are enough.
The labor budget is very useful because with it you can know exactly the personnel that is needed to sell the planned, so that you can foresee if you will need more human resources or if the current personnel is enough.
These are the final desired inventories of the merchandise, which is used in the preparation or preparation of the cost of sale budget.
The constituent elements of the cost of goods sold budget can be taken from the individual budgets previously described and adjusted for changes in inventories.
Calculation methodology
Needed information.
Purchasing budget.
Direct labor budget.
Indirect manufacturing cost budget.
Initial inventory of merchandise.
Final inventory of merchandise.
Formula.
| Budget
Cost of = sales |
Purchase budget + direct labor budget + indirect cost budget + beginning merchandise inventory - ending merchandise inventory. |
The last step that must be taken to have an operations budget ready is to budget for the expenses that will have to be made to run the company, which are sales expenses and administrative expenses, some are very easy to consider, such as expenses fixed. However, there are others that are not so predictable, such as promotion or advertising, or freight costs, which depend on sales, but also on other factors, for example: freight costs may vary according to the destination of the goods and the agreements agreed with the clients. Promotion or advertising expenses are often made on an allocation basis of the amount to be spent, etc.
Calculation methodology.
- Needed information.
Selling expenses
Administrative expenses
Financial expenses.
Formula.
Budget of operating expenses = Sales Expenses + Admon. + Financial expenses.
The bottom line for all operating budgets, such as sales, cost of sales, selling and administrative expenses, are summarized in the budgeted income statement. It presents the net result of operations for the budgeted period, that is, the fundamental objective pursued with the operations budget will be the possible profit to be expected in the immediate future.
To prepare this result, the following costing methods must be taken into account:
Absorption costing: Low cost method in which both variable and fixed production costs are charged to product costs.
Direct or variable costing : Costing method under which only costs that tend to vary with the volume of goods are charged to the cost of the product.
In this case we are based on the first method, which is absorbent costing, which is approved by the Ministry of Finance and Prices.
Calculation methodology.
Business:
Budgeted Income Statement.
Period:
Sales (Budget 1.3.1) ------------ xxx.xx
Less:
Cost of sale (Budget 1.3.8) -------– xxx.xx
Gross profit or loss ------------- xxx.xx
Less:
Operating expenses (budget 1.3.9)
Selling expenses --------- xxx.xx
Administrative expenses ------ xxx.xx ---- xxx.xx
Net profit or loss -------------- xxx.xx
Chapter 2. Economic Analysis.
2.1 Analysis of Financial Ratios
The analysis of the indices and indicators of an activity will indicate in a general sense the existence or not of a deviation with a standard or known comparison value. That is, it indicates that there is a problem and probably where, but does not indicate in any way its causes, so that the analysis of the indices and indicators and the evaluation of their absolute or relative values, constitute only the initial process of efficiency measurement, which is completed with in-depth analysis of the factors involved, investigations, special studies, etc. These will allow to reach conclusions about the causes of the deviations and therefore, the corrective measures to be applied.
Index analysis is a useful technique, but the analyst must recognize and understand the limitations of this technique when evaluating a company, as an analysis tool, indices are attractive because they are easy to calculate and understand, but it should always be remembered that Indices will be only as good as the information on which they are based or compared and that analysis of the indices is only one of the ways to obtain an understanding of the financial position of an entity.
The financial situation of the company shows the following results, after having calculated the financial ratios explained in the previous chapter:
| Reasons | 2005 | 2006 |
|
Solvency index |
0.65 | 1.55 |
| Liquidity index | 0.55 | 1.15 |
| Working capital | (2 421 671) | 1 897 591 |
| Accounts receivable rotation | 11 TIMES | 16 TIMES |
| Collection cycle | 32 DAYS | 23 DAYS |
| Accounts payable rotation | 12.25 TIMES | 18.12 TIMES |
| Pay cycle | 36 DAYS | 20 DAYS |
| Inventory rotation | 37.49 TIMES | 23.36 TIMES |
| Inventory Cycle | 80 DAYS | 65 DAYS |
| Debt ratio | 84.30% | 42.39% |
| Net profit margin | 16.93% | 6.89% |
Solvency index:
In 2006, a solvency index of $ 1.55 was observed, which states that for each peso of short-term debt the company has $ 1.55 to cover its short-term obligations, this index being more favorable than in 2005 since it increases by $ 0.90, due to an increase in current assets, mainly cash in the bank that increased by $ 283 717.00 and the presence of a higher balance in the prepayment account of $ 5 094.00 in addition to a decrease of current liabilities, example in the account loans received of $ 329 133.00. (see Annex 3)
Liquidity index:
It reflects that for each peso of debt, the entity has $ 1.15 to face short-term debts with the most liquid assets, that is, without having inventories, resulting in a favorable index (greater than 1). Compared to 2005, the index increases by $ 0.60 since liabilities decrease by 49%. (see Annex 4)
Working capital:
The company Productos Lácteos Las Tunas in 2006 had a more favorable situation than the previous year, if one takes into account that the working capital in 2005 presented a negative balance of $ - 2 421 671. 00, motivated by a bank credit of $ 1,000,000.00, while in 2003 it was $ 1,897,591.00, which means that the company has financial means to pay its short-term obligations.
Turnover of accounts receivable and collection cycle:
The company has the possibility of converting accounts receivable into cash 16 times in a collection cycle of 23 days in that year. Regardless of the fact that this cycle improved in relation to 2005 in 9 days, the accounts receivable from customers were analyzed, verifying that of 1 184, 1 MP 2.57% (30.4 MP) are out of term, being up to 60 days 18.9 MP. Of these, 11.4 MP correspond to the Provincial Food Industry company, 0.6 MP to Retail Trade and 6.9 MP to other entities such as: health, Minagric, military units, etc. (see Annex 5)
Turnover of accounts payable and payment cycle:
Accounts payable in 2006 are converted to cash 18 times in the year, paying your debts to providers every 20 days. This index improved in the payment cycle in 16 days in relation to the previous year, although the debts with entities of the same Agency continue to represent the highest amounts, the balance at year-end being 364.5 MP. (see Annex 6)
Inventory turnover and inventory cycle:
Inventories rotate 23.36 times every 65 days in 2006. The rotation has been more effective than in 2005 as it reduced the inventory cycle by 15 days. This index is influenced by imported raw materials that are sent from the Union, such as soybeans. (see Annex 7)
Debt ratio:
In 2005, the company was financed 84.30% by creditors, the main creditor being the Bank, having improved this ratio in 2006 by 41.91%, not being necessary in this year to grant a new bank credit. (see Annex 8)
Net profit margin:
In 2006, for each peso of net sales, $ 6.89 of profit was obtained, however this indicator behaves unfavorable, decreasing by 10.04% compared to 2005, being motivated by the recording of $ 206,912.00 from expenses of years previous ones that were not counted in 2005, distorting the company's budget for this reason.
2.2 Analysis of the selected indicators.
Mercantile Production: at the end of December 2006, the entity showed an over-compliance in this indicator, since a plan of 22,395.0 MP actually obtained 23,496.2 MP for 104.9% compliance. Analyzing these results with that obtained in the same period of the previous year, a growth of 2298.7 MP is presented.
The behavior that the different products have had and that have made this result possible are the following:
- Fluid milk is fulfilled at 11.8, complying with the distribution of the basic basket. In cheeses it is fulfilled at 134.2%. Natural Yogurt reached 65.1% of execution, fulfilling the commitments made with gastronomy, nursery schools and Priority sectors, not so with the production in convertible pesos (CUC) Soy Yogurt remained at 95.4% due to equipment breakdown, lack of raw materials and nylon for packaging, but delivery to the basket is 100% delivered by delivering the 12 knobs provided per child in all months Cream Cheese is 100.0% fulfilled Lactosoy is 93.6% fulfilled, affected by the lack of raw materials, although distribution to agencies has been guaranteed in other assortments. a 65.8% due to instability of the raw material and technological problems of the cold rooms and freezers.
CARRIERS UM REAL PLAN% YEAR BEFORE.
Electricity MKW 2520.0 2207.0 87.6 2255.3
Gasoline MLTS 686.3 647.8 94.4 556.8
Diesel MLTS 565.7 481.0 85.0 370.0
Fuel Oil MLTS 746.2 628.7 84.3 723.2
In relation to the plan, there is a reduction in all carriers, but when compared with what was consumed in the previous year, it was exceeded in Gasoline and Diesel, which was produced by the increase in the collection of fresh milk and in looking for Raw Materials and materials in other provinces.
|
INDICATORS |
Um |
ACCUMULATED PLAN | REAL ACCUMULATED |
% |
LAST YEAR |
DIFFERENCE |
| Cost x weight of Prod. Mer | Ctvos | 0.7247 | 0.8193 | 113.1 | 0.7631 | 0.0562 |
| Cost x weight of sales s / imp | Ctvos | 0.8041 | 0.8343 | 103.8 | 0.8292 | 0.0051 |
| Material cost x weight PB | Ctvos | 0.6301 | 0.7106 | 112.8 | 0.6387 | 0.0719 |
| Profit or Loss period | MP | 7,557.1 | 5 139.0 | 68.0 | 5476.4 | -337.4 |
As we see in the previous table, the Cost x Weight of Mercantile Production increases by 0.0946 Ctvos in relation to the plan as a result of the increase in material expenditure and this increase is produced by an increase in material consumption by increasing the levels of fresh cow's milk, purchases of hygiene and cleaning resources and other industrial maintenance materials that were planned to be acquired in CUC, and had to be purchased in national currency at very high prices as there was no financial resources in CUC. For this same reason, it was also necessary to acquire an industrial maintenance service in national currency with much higher costs. Influenced in this growth was the rental of transportation equipment for the collection of milk, the transfer of semi-finished milk to Holguín and the transportation of raw materials from other provinces.
2.3 Analysis of budget variations.
When studying the behavior of the budget of the company Productos Lácteos Las Tunas, it was found that it did not behave correctly in its entirety since there are increases that are not proportional in the production and direct labor, as detailed below.
Production budget behavior
| UM TN Product | Real I Quarter 2005 (1) | Plan I Quarter
2005 (2) |
(1) / (2)
% |
Increase
% |
| Milk | 2 557.6 | 2 553.5 | 100.16 | 0.16 |
| cheese | 774.1 | 545.8 | 141.82 | 41.82 |
| Soy yogurt | 759.5 | 756.4 | 100.40 | 0.40 |
| Natural yogurt | 49.4 | 70.7 | 69.87 | (30.13) |
| Ice cream | 145.0 | 182.3 | 79.53 | (20.47) |
| Lactosoy | 284.2 | 285.0 | 99.71 | (0.29) |
| Other productions | 42.4 | 40.2 | 105.47 | 5.47 |
Behavior of the direct labor budget
| Indicator | Real I Quarter 2006 (1) | Plan I Quarter
2006 (2) |
(1) / (2)
% |
Increase
% |
| Direct labor cost | 564.30 | 490.7 | 114.99 | 14.99 |
When carrying out the analysis of the behavior of the production budget and direct labor, it was found that production increased in the period analyzed by 3.04% while direct labor increased by 14.99% Therefore, there is no correspondence between the increase of both since direct labor grows in a greater proportion than production (11.95%). This originated because the bagged yogurt filling line was put into operation, with twenty-three (23) workers.
CHAPTER 3. 2007 Budget Application.
Financial planning is the essential tool so that the administration of a company can project its operations and development, bearing in mind both the internal and external conditions that may influence the given period.
The application of the operating budget for 2007 is shown below, based on the favorable results of the economic analysis shown in the previous chapter and the information for the periods 2005, 2006 and the prospects for 2007 according to the budget approved for this year.
3.1 Sales budget
|
Concept |
Milk Fluid |
Yogurt natural |
Yogurt Soy |
Ice cream |
Others Produc. |
Total |
|
Pron. or sales plan (TN) |
11583.8 |
313.84 |
5915.2 |
770 |
1456.8 |
20039.6 |
|
Price |
$ 2500.00 |
$ 1550.0 |
$ 1000.00 |
$ 2272.00 |
$ 2335.00 |
- |
|
Total sales (MP) |
28 959.5 |
486.4 |
5 915.2 |
1 749.4 |
2 604.5 |
39 715.0 |
It states that the income to be obtained in the future is 39 715.0 MP
3.2 Production Budget
|
Concept |
Milk Fluid |
Yogurt natural |
Yogurt Soy |
Ice cream |
Others Produc. |
Total |
|
Pron. or sales plan (TN) |
11583.8 |
313.84 |
5915.2 |
770 |
1456.8 |
20 039.6 |
|
+ Inv. End of Prod.Term. |
10.00 |
0.4 |
14.9 |
7.2 |
33.1 |
- |
| -Inv. Initial of Prod.Term. |
6.3 |
1.1 |
1.6 |
4.2 |
37.9 |
- |
| Production Plan (TN) |
11587.5 |
313.1 |
5928.5 |
773 |
1452.0 |
20 054.1 |
It means that the production plan must be 20054.10 tons, to respond to the sale plan.
3.3 Budget for raw material consumption.
|
Concept |
Milk Fluid |
Yogurt natural |
Yogurt Soy |
Ice cream |
Others Produc. |
Total |
|
Production Plan (TN) |
11587.5 |
313.1 |
5928.5 |
773 |
1452.0 |
20 054.1 |
|
Consumption standard mat. Cousin |
0.11663 |
0.12614 |
0.89880 |
0.7820 |
0.7902 |
- |
| Mat requirement. Cousin |
1351.45 |
39.5 |
5328.53 |
604.75 |
1147.32 |
- |
|
Average price |
6651.33 |
6133.02 |
307.22 |
2982.48 |
1397.17 |
- |
|
Consumption cost (MP) |
8 988.9 |
242.3 |
1 637.0 |
1 803.7 |
1 603.0 |
14 274.9 |
The consumption of raw materials to solve the production plan is 14,274.9 MP.
3.4 Budget for the purchase of raw materials.
|
Concept |
Mat requirement. Premium (TN) |
+ Inv. End of mat. Cousin | - Inv. Initial of mat. Cousin | Mat. Premium to Buy |
* Price Average |
Total |
|
- |
8471.55 |
1353.48 |
5514.38 |
4310.65 |
3817.13 |
16,454.3 |
It reflects what the purchase of raw materials will cost in the budgeted period.
3.5 Budget for direct labor.
|
Concept |
Milk Fluid |
Yogurt natural |
Yogurt Soy |
Ice cream |
Others Produc. |
Total |
|
Production Plan (TN) |
11587.5 |
313.1 |
5928.5 |
773 |
1452.0 |
20 054.1 |
|
Hours |
0.25 |
0.30 |
1.03 |
3.79 |
0.69 |
- |
| Hours required |
2896.87 |
93.9 |
6106.4 |
2928.0 |
2071.33 |
14096.57 |
|
MOD cost |
$ 8.90 |
$ 119.15 |
$ 4.98 |
$ 10.49 |
$ 10.96 |
- |
|
Total Cost (MP) |
25.8 |
11.2 |
30.4 |
30.7 |
2.7 |
158.3 |
It expresses the cost of the salary of the direct workers to the activity that amounts to 158.3 MP.
3.6 Manufacturing overhead cost budget.
| Concept | |
| Auxiliary materials | $ 1642.00 |
| Fuel | 6322.00 |
| Depreciation | 385.00 |
| Salary | 9000.00 |
| Total CIF. | $ 17349.00 |
|
Application rate = 17349.00
14096.57
The expected manufacturing overhead is $ 17349.00, with an application rate of $ 1.23 for each hour of MOD.
3.7 Final inventory budget.
|
Concept |
Ending Inventory (TN) |
Price |
Existence |
|
Fluid milk |
10.0 |
$ 7200.00 |
$ 72000.00 |
| Natural yogurt |
0.4 |
1750.00 |
700.00 |
| Soy Yogurt |
14.9 |
1780.00 |
26522.00 |
| Ice cream |
7.2 |
2380 |
17136.00 |
| Other Productions |
33.1 |
300.60 |
9949.5 |
|
Total |
-– |
-– |
178 156.00 |
The desired final stock must be $ 178 156.00.
3.8 Cost of sale budget.
|
Concept |
Total (MP) |
| Consumption of raw materials | 14 274.9 |
|
Direct labor |
158.3 |
|
Indirect manufacturing costs. |
17.3 |
|
Production cost |
14 450.5 |
|
(+) Inv. Initial Prod. Finished. |
113.0 |
|
(-) Inv. End of Prod. Finished. |
178.2 |
|
Cost of sale |
14 385.3 |
It shows the expense of carrying out the company's production for that period, which amounts to 14 385.3 MP.
3.9 Budget for operating expenses.
|
Concept |
|
|
Administration expenses |
$ 1983359.00 |
|
Selling expenses |
3085972.00 |
|
Total operating expenses |
$ 5069331.00 |
It reflects the expenditure that is going to be consumed outside of the fundamental activity, which is 5 069.3 MP.
3.10 Budgeted Income Statement.
Dairy Products Company. Las Tunas
Budgeted Income Statement.
Year 2007
| Concept | Total (MP) |
| Sales | 39 715.0 |
| Cost of sale | 14 385.3 |
| Gross profit | 25 329.7 |
| Operating expenses | 5 069.3 |
| Profit in operations | 20 260.4 |
| Distribution to workers (15%) | 3 039.1 |
| 17 221.3 | |
| Contribution to the State Budget (35%) | 6 027.5 |
| Net profit | 11 193.9 |
The benefit to be obtained by the entity is 11 193.9 MP
- Determination of balance point.
Cost breakdown:
Variable costs (MP)
- Raw material ------------ 30 730.8
- Direct labor -------- 158.3
- Indirect manufacturing cost ---– 6.3
Total variable costs ------– 30 895.4
Fixed costs (MP)
- Indirect manufacturing cost ----– 9.4
- Operating expenses -------– 5 069.3
Total fixed costs --------- 5 078.7
Fixed costs
PE = ---------
1- (CV / Sales)
5 078.7
= ------------
- (30 895.4 / 39 715.0)
= 22 869.6 (MP)
It means that this entity, in order not to win or lose in the business, must enter 22,869.6 (MP) and since sales are above the breakeven point, it is in the profit area, that is, profit for it.
Comments
The results obtained in the budget proposal for the company
Dairy Products from Las Tunas are listed below:
The expected income for the sales plan is 39,715.0 MP, with a production requirement of 20 054.10 TN with a consumption of raw materials of 14 274.9 MP, being the cost for the purchase of these raw materials of
16.4 MP. The cost of wages for direct workers in production amounts to 158.3 MP with a requirement of 14 096.5 hours. As well as the indirect manufacturing costs amount to 17.3 MP with $ 1.23 of unit costs for direct labor. The desired ending stock should be 178.2 MP. The expense of carrying out the company's production for that period must be 14,385.4 MP and the administrative and sales expenses amount to 5,069.3 MP.
In the Income Statement it can be seen that the cost of sale is a lower value than the profit offered by sales, reaching a gross profit of 25,329.7 MP and a final net profit of 11,193.9 MP. This entity shows an equilibrium point of 22,869.6 MP, which states that from this value the company will recover the expenses and costs incurred and from there it begins to obtain profits.
CONCLUSIONS
Once the corresponding analyzes have been carried out and based on the results obtained in this work, we reach the following conclusions.
- The net profit margin in 2007 behaves unfavorably compared to 2006, decreasing by 10.4%, motivated by the recording of $ 206,912.00 of expenses from previous years that were not recorded in 2002. It was found that direct labor cost increases grow in a greater proportion than production, originated because the bagged yogurt filling line began to operate, with twenty-three (23) workers. The result of the proposal of operations budget for the entity corresponding to the year 2007, using the calculation methodology established in this regard.
recommendations
After analyzing the conclusions we reached, the following recommendations are suggested:
- Register all expenses in the corresponding economic period, in order to avoid distortions in the company's budget. Increases in the cost of labor must correspond to the increase in production in a proportional manner. At the end of a period, the operations budget is prepared for the following period, allowing the company to obtain superior results.
Bibliography
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