Revision question on budgeting and budgetary control (difference between functional and cash budget)



Denis flynn has just established his company, Df Biscuits limited, and hopes to commence production next month. While he has extensive experience in the food industry, specifically biscuits and confectionery, he has very little management accounting knowledge. To finance his manufacturing operation Denis has applied for a bank loan. However, the bank manager has reviewed the application and is seeking further information. He has asked to see the budget for Df Biscuits limited for the year ahead. In addition, he has also requested a monthly cash budget for the first year of trading. Denis is unsure how to proceed and has asked for your help with this matter.

REQUIREMENT:

Draft a memorandum for Denis flynn that:

(a)     Differentiates between functional budgets and cash budgets.

(b)     explains the benefits of preparing budgets.

(c)     Outlines potential problems that may arise when setting budgets

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