Table of Contents
Proposed Income & Expenditure Budget. 5
Introduction
This report entails a report producing not only the analysis of the previous six months of performance of the Refrigerated goods division of Clark Casc Logistics plc but also the forecast for the next six months. Keeping in account the profit of £32 million achieved last year, the company has overachieved the target by generating a profit of £18 million in the first six months of this year indicating the achievement of a little over half of the last year’s profit. Nonetheless, this report illustrates the expected income and expenses that would deem the performance of the company in the overall year. This would further delve into how this can be made more promising for going over the expectations. Therefore, this report provides a brief of the company’s performance in the last six months, its predicted performance in the next six months, and the overall scenario for the whole year encompassing recommendations and strategies for the company to take better measures. This is further supported by the different approaches to budgeting and the ideal one that fits the current scenario of the company. The calculations and forecasts only verify and make the case strong which have been considered after careful analysis of the historical trend as well as the current policies of the company.
It is only necessary for an organization to adopt the right budgeting strategy to avoid unnecessary debts and select the optimal choices to make the bottom line of the company more robust and justified. This assists the company in not only the short-term but also long-term goals by setting clear objectives and measures to boost the reputation of the company in the market. In addition to this, it helps the firm in considering major risks and planning accordingly to tackle emergencies. Hence, this report ponders over how Clark Casc Logistics plc can achieve its targets this year.
Budgeting Approach
Before diving into the details of the budgets of the company, I would like to ponder upon the basics of budgeting to lay down the foundations for a stronger comprehension. Budgeting can be defined as a financial plan that is laid down for the future scenario based on historical trends and other research about the market and the company (İpek, 2018). It is a quantitative plan that illustrates the future predictions and uncertainties lying ahead for the company (Kovaleva, Gavrilov, Nikeryasova, Glukhova, & Khvostenkoa, 2016). A company needs to prepare a budget to ascertain the risks and measures for mitigating them. It assists the firm in controlling business activities, discovering ways to reduce unnecessary expenditures, and investigating opportunities that may lead to profitable approaches and outcomes. In addition to this, it helps with evaluation, coordination, delegation, authorization, and even motivation (Ibrahim, 2013).
Therefore, it is fundamental for Clark Casc Logistics plc as well to develop a budget. It will help significantly in comparing the performances of previous years, determining a historical trend, discovering the risks related to the operations and procedures of the business, ascertaining the aspects of cost-savings in different elements, and proposing a cost-effective budget (Mollah, Rouf, & Rana, 2021). This can help make a great positive change in the bottom line of the company. In addition to this, it will illustrate the budget and the tasks derived from that setting rigid targets for the team. However, there are different approaches to how budgeting is done (Bartocci, Ebdon, & Grossi, 2022).
The first and foremost approach is called ‘Incremental Budgeting.’ This approach takes the figures of previous years to make adjustments to those. These are made based on the market situations and the demands of the business. This method of budgeting is very simple to comprehend and use. The second approach to budgeting is ‘Zero-based Budgeting.’ This is deemed to be the modern method of budgeting as it initiates from scrap and does not consider historical data. This indicates that this method does not regard the previous regards of the company. Instead, it produces a fresh start to the budgeting approach (Kagan, 2022). This makes it more accurate and offers optimization in the allocation of resources. This is because no methods and errors of previous records are carried forward. However, the accuracy comes with a heavy cost of training as it is not easy to configure the forecasts with exact numbers without using historical information. This is why it requires extensive training for execution. The third approach is ‘Activity-based Budgeting.’ This approach is a top-down process that considers the target during the budgeting process (Gabriela Lidia, 2014). Therefore, it takes into regard different activities that are essential to meet the targets and objectives of the company. Subsequently, the cost expectations for each step are also analyzed for this procedure. This methodology is ideal when the targets are clearly defined. The fourth approach is ‘Value Proposition Budgeting.’ This approach studies every aspect from the perspective of the stakeholders of the company. Due to this, each item has to be justified and be in alignment with the interests of customers, employees, investors, and other stakeholders. Each approach has its pros and cons. Nonetheless, a company needs to select the ideal budgeting approach as per its needs (Coyte, Zhou, & Messner, 2021).
Considering Clark Casc Logistics Plc, the budgeting that has been employed is a mixture of incremental budgeting and value proposition budgeting. This is because incremental budgeting is simple, consistent, and stable from the aspects of operations and funding, and coordinating between the departments of the company. The value proposition approach not only considers budgeting from the point of view of earning the highest possible profit margin but also the perspectives of employees, customers, and investors (Sharma & Frost, 2020). This establishes a strong brand image that is essential for the company’s profitability in the long term. Even though the incremental approach has the disadvantage of overspending if proper justifications are not provided for each segment, the value proposition approach caters to this flaw and makes the overall decision more efficient and effective. Therefore, only the cost-effective aspects will be regarded that will augment the value of the company for almost all the stakeholders. The other approaches of zero-based budgeting and activity-based budgeting are not the best fit for the company for now because of different limitations. First of all, the company lacks a determined sales target for now apart from the unavailability of time, expertise, and cost of using the expensive methodology (Douglas & Overmans, 2020).
Relevant Calculations
The Budget for the initial six months of this year is as follows with the budget and actual amounts and the changes between them:
| Budget Full Year | Budget (First Six Months) | Actual (First Six Months) | Percentage Change | ||||
| £000 | £000 | £000 | |||||
| Income from Refrigerated Goods Customers Expenditure | 24,760 | 12,380 | 12,967 | 4.74% | |||
| Salaries and Associated Payroll Costs | |||||||
| Drivers | 8,540 | 4,270 | 4,321 | ||||
| Depot Operatives | 1,952 | 976 | 994 | ||||
| Administrative Staff | 324 | 162 | 163 | ||||
| Total | 10,816 | 10,816 | 5,408 | 5,408 | 5,478 | 5,478 | 1.29% |
| Buildings Depreciation | 56 | 28 | 28 | 0.00% | |||
| Buildings Maintenance | 84 | 42 | 42 | 0.00% | |||
| Vehicle Depreciation | 1,356 | 678 | 694 | 2.36% | |||
| Vehicle Maintenance | 1,266 | 633 | 648 | 2.37% | |||
| Other Equipment Depreciation | 254 | 127 | 114 | -10.24% | |||
| Other Equipment Maintenance | 152 | 76 | 72 | -5.26% | |||
| Vehicle Fuel | 4,758 | 2,379 | 2,434 | 2.31% | |||
| Other Power Supplies | 176 | 88 | 90 | 2.27% | |||
| Vehicle Excise Duty | 86 | 43 | 44 | 2.33% | |||
| Vehicle Insurance | 358 | 179 | 184 | 2.79% | |||
| Staff Training | |||||||
| Drivers | 240 | 120 | 124 | ||||
| Depot Operatives | 22 | 11 | 11 | ||||
| Administrative Staff | 4 | 2 | 2 | ||||
| Total | 266 | 266 | 133 | 133 | 137 | 137 | 3.01% |
| Total Expenditure | 19,628 | 9,814 | 9,965 | 1.54% | |||
| Profit | 5,132 | 2,566 | 3,002 | 16.99% | |||
As can be observed in the table provided above, the company achieved over the set target in terms of sales. Nonetheless, the total budgeted expenditure only increased by 1.54% which did not negatively impact the final result. Rather, the company had a positive influence on the profits as it increased by almost 17%. Therefore, it can be inferred that the company did not ascertain the depreciation and maintenance of other equipment correctly.
Furthermore, the breakdown of salaries can be observed in the table below:
| Salaries | Per Employee | Per Month | 6 months | 12 months | |
| Drivers | |||||
| Count | 202 | ||||
| Salary | 35000/yr | 2,917 | 589,167 | 3,535,000 | 7,070,000 |
| Bonus | 10% | 292 | 58,917 | 353,500 | 707,000 |
| Apprenticeship levy | 1% | 16 | 3,240 | 19,443 | 38,885 |
| Superannuation scheme | 9% | 273 | 55,087 | 330,523 | 661,045 |
| Depot Operatives | |||||
| Count | 97 | ||||
| Salary | 19000/yr | 1,583 | 153,583 | 921,500 | 1,843,000 |
| Employer’s National Insurance Contributions | 13.80% | 117 | 11,333 | 68,001 | 136,002 |
| Apprenticeship levy | 0.50% | 8 | 768 | 4,608 | 9,215 |
| Superannuation scheme | 8.50% | 135 | 13,055 | 78,328 | 156,655 |
| Administrative Staff | |||||
| Count | 11 | ||||
| Salary | 27000 | 2,250 | 24,750 | 148,500 | 297,000 |
| Employer’s National Insurance Contributions | 13.80% | 209 | 2,297 | 13,783 | 27,567 |
| Apprenticeship levy | 0.50% | 11 | 124 | 743 | 1,485 |
| Superannuation scheme | 8.50% | 191 | 2,104 | 12,623 | 25,245 |
| Total Salaries | 8,001 | 914,425 | 5,486,549 | 10,973,099 |
In addition to the above, the costing for Vehicle cost has been segmented based on variable and fixed costs with the numbers derived from the actual figures and using the Tonnes of Km delivered. The calculations are as follows:
| Vehicle Fuel | Total cost | = | VC*x | + | FC | |
| 409 | = | VC*11205 | + | FC | ||
| -407 | = | (VC*11095) | – | FC | ||
| 2 | = | 110 VC | + | 0 | ||
| 0.0181818 | = | VC | ||||
| 409 | = | 0.018*11205 | + | FC | ||
| 409 | – | 203.73 | = | FC | ||
| FC | = | 205.27 |
Proposed Income & Expenditure Budget
The proposed budget for the next six months as well as the whole year is as follows:
| Year May’22-Apr’23 | Budget Full Year | Actual (First 6 Months) | Actual (Last 6 Months) | Actual Full Year | Difference | ||||
| £000 | £000 | £000 | £000 | ||||||
| Income from Refrigerated Goods Customers Expenditure | 24,760 | 12,967 | 13,633 | 26,600 | 107% | ||||
| Salaries and Associated Payroll Costs | |||||||||
| Drivers | 8,540 | 4,321 | 4,238.47 | 8,559.47 | |||||
| Depot Operatives | 1,952 | 994 | 1,072.44 | 2,066.44 | |||||
| Administrative Staff | 324 | 163 | 175.65 | 338.65 | |||||
| Total | 10,816 | 10,816 | 5,478 | 5,478 | 5,486.55 | 5,486.55 | 10,964.55 | 10,965 | 101% |
| Buildings Depreciation | 56 | 28 | 28.00 | 56 | 100% | ||||
| Buildings Maintenance | 84 | 42 | 42.00 | 84 | 100% | ||||
| Vehicle Depreciation | 1,356 | 694 | 689.40 | 1,383 | 102% | ||||
| Vehicle Maintenance | 1,266 | 648 | 699.00 | 1,347 | 106% | ||||
| Other Equipment Depreciation | 254 | 114 | 114.00 | 228 | 90% | ||||
| Other Equipment Maintenance | 152 | 72 | 72.00 | 144 | 95% | ||||
| Vehicle Fuel | 4,758 | 2,434 | 2,536.23 | 4,970 | 104% | ||||
| Other Power Supplies | 176 | 90 | 90.00 | 180 | 102% | ||||
| Vehicle Excise Duty | 86 | 44 | 44.04 | 88 | 102% | ||||
| Vehicle Insurance | 358 | 184 | 184.40 | 368 | 103% | ||||
| Staff Training | |||||||||
| Drivers | 240 | 124 | 123.73 | 247.73 | |||||
| Depot Operatives | 22 | 11 | 10.91 | 21.91 | |||||
| Administrative Staff | 4 | 2 | 1.51 | 3.51 | |||||
| Total | 266 | 266 | 137 | 137 | 136.15 | 136.15 | 273.15 | 273 | 103% |
| Total Expenditure | 19,628 | 9,965 | 10,121.77 | 20,087 | 102% | ||||
| Profit | 5,132 | 3,002 | 3,511.23 | 6,513 | 127% | ||||
The proposed budget indicates that the company can achieve more than the targets. The sales have been set at the maximum capacity the company could achieve since it sets a target and considering the last year’s performance, it is feasible for the company to achieve the desired target as proposed. Due to this, the target deducted the number of sales already achieved and divided the remaining in the next six months. Furthermore, there are no significant changes in the amounts of expenditure. However, the greater revenue would result in greater profits with an impact of around 27%.
Considering the new depot expansion, it will take almost a year to develop. The current depot is already achieving the desired results as can be seen in the budgets and the actual numbers above. Nonetheless, the current depot has a limited capacity of delivering 140 million tonnes. With regards to its fulfillment, the company can expand its operations through a new depot that will not only increase the capacity but also provide support to increased demands. Furthermore, the calculations would not need to be highly complicated as the use case is already at hand offering a profitable scenario for the company. The new depot will only have certain additional expenses as can be seen in the table below:
| Expansion Plan | ||
| Current Sales | 26,600.00 | |
| Tonnes | 140,000.00 | tonnes/km |
| Current Expenditure | 20,144.22 | |
| New Sales Target | 31800 | |
| Additional | 5,200.00 | |
| Additional Tonnes | 27,368.42 | |
| Additional Tonnes for 1.4m | 19.55 | |
| Additional Expenditure | ||
| Drivers | ||
| Count | 40 | for 1.4 m tonnes/km |
| Cost | 139.88 | |
| Training | 4.08 | |
| 143.97 | ||
| Administrative Staff | ||
| Count | 3 | |
| Cost | 7.98402 | |
| Training | 0.06875 | |
| 8.05277 | ||
| Vehicle | ||
| Count | 20.00 | |
| Depreciation | 15.00 | |
| Maintenance | 0.01 | |
| Fuel | 266.71 | |
| Excise | 0.93 | |
| Insurance | 0.67 | |
| 283.32 | ||
| Total | 435.34 | Per Month |
| 5,224.07 | Per Year | |
| Total Expense | 25,368.29 | |
| Profit from the New Depot | 6,431.71 | |
| Depot 1 Profit | 6,455.78 | |
| Total Profit | 12,887.49 | |
As can be seen in the table above, the new depot will have almost the same expenses as the old one. However, the cost will increase based on more orders. The expansion cost related to the staff salaries and operations is variable based on how much the deliveries are made. Not to miss, it will have more cost per delivery than the old depot. The old depot can make around £ 6500 in profit by incurring expenses of around £ 21000. However, the new depot can make the same profits by incurring £ 5000 more. Even though it may seem like the company will incur a loss on the average profit per delivery, the expansion will make more profit concerning volume.
Investment Appraisal
The investment appraisal approach used for the New Depot expansion plan entails the Net Present Value Method. This is because it takes into account the time value of money. Moreover, it incorporates the discounted cash flow through the actual cost of capital of the company providing realistic measures (Gaspars-Wieloch, 2019). In addition to this, this approach is not only convenient to use but also easy to comprehend. However, there are certain drawbacks to this approach. The biggest concern is that it relies heavily on long-term projections and disregards non-financial metrics (Žižlavský, 2014).
The NPV calculated for the New Depot for Clark Casc Logistics Plc encompasses only the operational costs and not the funding that would be required to set up the project. Furthermore, the project will take almost a year to set up. Considering the project sets up before the beginning of the fiscal year of the company, the NPV derived from the year of operation of the new Depot will result in a positive £ 2287. This highlights the profitability of the project for the company.
Conclusion
This report entails the highlights of the budget made last year for the current year’s progress and the budgeted and actual amounts for the initial six months for Clark Casc Logistics Plc. Moreover, it further dives into the details and essence of budgeting the approaches ideal for the company at hand. For this purpose, incremental budgeting and value proposition budgeting has been selected since the budgets prepared for the company are based on historical data and made from the perspective of the interests of stakeholders. Upon the observation of the little variation in the budgeted and actual figures of the first six months of this year for the company, the budget has been revised for the next six months to consider the realistic figures and to set the right target for the company. Even though the company would be achieving sales less than what it generated last year, the reasoning can be pinpointed on the capacity. Nonetheless, the capability has been recognized and a new expansion plan in the form of a new Depot has been proposed. This report illustrates the figures that would be possible through the said investment plan. Even though the new Depot would be less efficient than the current Depot, its launch can produce profit for the company from the aspects of volume. The Net Present Value approach has been utilized to ascertain whether this expansion would be beneficial for the company or not and the results derived have been positive.
Recommendations
Based on the information available, there are certain recommendations that the company may employ for more efficacy. These are as follows:
- The company must find ways to allocate its resources more efficiently. This can be executed by finding a more profuse method of planning each and every delivery as well as other operations by allocating resources in the best possible way to reduce costs and increase efficacy.
- The company can adopt a better AI to smoothly run its operations to save on fuel and maintenance costs. This can be achieved by providing the resources with the optimal ways to deliver. The AI would help in configuring the optimal routes for delivery and how each driver can take a route that would best fit the strategy.
- The company must coordinate with other departments, especially with maintenance to ascertain its expenditure and discover ways to reduce them. This would help the department in recognizing the real time matters and figures to plan the budgets and strategies appropriately and accurately.
- The company can delve into Research & Development to see how it can boost its sales. The R&D department really helps a company in studying various aspects and methods that have been applied by other companies to cater to different problems. This can open many windows for the company to resolve a problem aligning it perfectly with the best solutions.
- The company may also look upon outsourcing some of its operations that could be viable with aspects of lower rates and overall cost-effective measures for the company.
References
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