BSBFIM501 Manage Budgets and Financial Plans Assignment Help

BSBFIM501 Manage Budgets and Financial Plans Assignment Help

BSBFIM501 Manage Budgets and Financial Plans Assignment Help

Assessment Task 1: Financial Management approaches

Task A

Meeting with manager

Dear Sam Gellar

As asked by you I reviewed the master budget of the company for the year ending 30 June 2012 and cost centre budgets prepared by senior accountant in accordance with the budget reparation policies of the company. During the review I identified some areas which are unclear, inaccurate and not achievable. I want to discuss the following issues:

BSBFIM501 Manage Budgets and Financial Plans Assignment Help

Issues for clarification

1. The budget preparation policies of the company require the cost allocation equally to all cost centres but they also allow exception after negotiations with authorities and approval of CEO. In the cost centre budget the expenses have been allocated equally but the sales at cost centre A are generally more than the total sales of other two sales centres. According to the fundamental accounting principle of prudence the cost allocation shall be made on a fair basis (Lienert, 2013).

2. It is estimated that the sales of Q2 are likely to be$1,000,000 whereas the sales of remaining three quarters are generally 30% less than the sales in Q2. As per the ATO legislation and accounting principles, the accounting shall be done on the accrual basis and therefore the projected sales for each quarter shall be allocated accordingly. The sales in the master budget have been allocated equally to all the four quarters.

3. The commission on sales is negotiated with the sales team members to be 2/5 =5 of sales but the commission in the master budget are included @2% of sales. ]

4. The format of presentation of elements of gross profit is not proper.

Changes required to be negotiated

In accordance with the above mentioned issues and for the compliance of accounting policies and legislative requirements he following changes are required to made in the master budget and cost centre budget prepared by the senior accountant:

1. The expenses to the cost centre A, B and C shall be apportioned in the ratio of 2:1:1 rather than allocating equally.

2. The projected sales of Q2 shall be $1,000,000 and the remaining sales of 2,000,000 shall be allocated equally to Q1, Q3 and Q4.

3. The commission on sales shall be provided @2.5%.

4. The presentation of items shall be properly made for calculation of gross profit. Revenues shall be presented at beginning from which cost of goods sold commission and direct expenses shall be deducted to arrive at the gross profit.

If you agree with the above changes required to be made in the budgets the proposal could be made to the CEO for approval.

Task B

Contingency Plan

Company name: Big Red Bicycle Pty Ltd

Person developing the plan:

Name:Tom Copeland                     Position: Managing Director

 

Risk identified:

  • Sales volume is likely to be 20% less than the target for the financial year
  • 10% variation in projected profit for the year
  • Adverse effect on liquidity resulting in difficulty to pay obligations and invest in the business operations

Strategies/activities to minimise the risk

By when

By whom

 

Effective marketing and advertising to increase the product demand

By the end of Q1

Operations general manager/ Marketing Manager

Customise the products in accordance with customer needs and requirements to increase sales volume through increased customer base

At the beginning of production processes

Production Manager

 

Increase in productivity of workers  to reduce wage expenses and increase the profits

By the end of Q1

Production Manager/HR Manager

 

Effective management of working capital to manage funds within the business operations and pay short term obligations.

At the beginning of Q1

Operations General Manager/ Finance manager

 

Develop effective financial management plan on the basis of cash budget to make arrangements for procurement of funds for business.

By the end of 1 month

Senior Accountant/ Finance Manager/ CFO

 

 

Assessment Task 2: Implement financial management approaches

Task A

Explanation of budget information

The budget is being prepared for the company in accordance with the business plan which relates to establishing major parameters for all the financial requirements (Kung et al, 2013). The benchmarks for the budgets will be determined on the basis of comparison of results of previous periods with current profit level of cost centres and using financial statistics to identify the correlations.

Functional objectives of business– The functional objectives of the budget will include preparation of CAPEX budget on the basis of strategic plan of business. His sales budget will be prepared before the profit budget. After the profit budget is prepared the cash flow budget will be prepared for the first three months. After this the master budget will be prepared including the projection of profit and on this basis the allocation of expenses to the cost centres will be made. The overheads are to be apportioned equally unless exceptions are negotiated and approved. The expenses and incomes are divided equally unless the business situations require otherwise. The financial cycle will be one year which ends on 30 June.

Budget overview– The budget is prepared for the financial year ending 30 June 2012 and the bifurcation of incomes and expenses has been for all the four quarters equally. The expenses are classified as general and administration expenses, marketing expenses, employment expenses and occupancy costs. The sakes cost centre expense budget has also been prepared which includes bifurcation of commission, wages, and telephone and office supplies equally to all the cost centres (Ferry et al, 2014).

Expenses allocation

Expense reimbursement policy– This policy relates to reimbursement of expenses which are reasonable and authorised for conducting the Red Cycle business incurred by employees, The expenses for which staff will not be reimbursed are specifically provided. The details of clams to be made for travel expenses, accommodation expenses and employee’s own meals have also been provided. A signed Expense Reimbursement Form has to be submitted with the relevant documents attached.

Petty Cash Policy– This policy relates to procedures for tracking the petty cash expenses under which the authorised business persons could make small business payments. The disbursement of petty cash is made by one team member with one alternate for emergency. The cash is locked in safe and secured. All the receipts are issued for cash and are reconciled at the end of the day. The amounts of cash receipts exceeding 800 are deposited into bank. The expenses are recorded as miscellaneous expenses.

Task B

Training needs

Bill Good ale who is one of the team members is required to keep tracking of petty cash and expenses throughout the financial year. In order to keep the track record of actual expenditure incurred for different accounts he will help to develop the spread sheet. Bill possesses good accounting skills but he needs to learn about the policies and procedures of company for petty cash. Apart from this he will also be required to learn how to use formulas ad functions in Microsoft Excel. 

Procedures to be followed

In order to update and improve his skills Bill shall adopt the GROW model of training. This model includes four components which are as follows:

1. Goal

2. Current Reality

3. Options or obstacles 

4. Will or way forward

The goals to be achieved shall be determined first which include learning the formulas and functions in excel and understand organizational policies of expense reimbursement and tracking of petty cash. After this the goals are to be compared with the current situation of reality. The options shall be explored to achieve the goals and at last stage the ways shall be adopted to learn the processes (Pascanu et al, 2013).

Spread sheet techniques

The spread sheet techniques will include the formulas of calculating sum of many columns or rows, using variance function and statistical functions to calculate the deviations of petty cash expenses and tracking actual expenses by each account.

Record keeping requirements

The organizational policies require keeping records for all the budget variation and deviations of expenses reimbursements with the actual expenses. The tracking of petty cash shall be recorded properly and regularly. Bill will have to maintain proper records of petty cash in the petty cash register. The documents required by ATO and for GST compliance will have to be kept with tax returns.

Assessment Task 3: Monitor and Control Finances

Task A

Calculation of budget variances

 

Budgeted ($)

Actual ($)

Absolute variance ($)

Percentage variance (%)

Sales

3000000

2400000

-600000

-20

Cost of goods sold

400000

320000

80000

20

Direct Wages

200000

100000

100000

50

Commission

60000

60000

0

0

Gross profit

2340000

1920000

420000

17.95

General & administrative expenses

116500

58250

58250

50

Marketing expenses

200000

200000

0

0

Employment expenses

565000

600000

-35000

-6.19

Occupancy costs

520000

550000

-30000

-5.77

EBIT

938500

511750

426750

45.47

Income tax @25%

234625

127937.5

106687.5

45.47

Net profit after tax

703875

383812.5

320062.5

45.47

Variance Report

The sales variance is adverse due to changes in economic climate. This resulted in decline in sales of business during the year by 20%. The change in sales volume also resulted inn decline in direct cost of sales by 20%. The commission on sales was negotiated with the sales team members to be 2. % on sales instead of 2% which resulted in no decline even after decrease in sales. The direct wages reduced by 50% resulting in favourable variance since the 50% direct labour was short term contractors which were no longer needed for the business. Due to decrease in sales by 20% the gross profit also declined but the rate of decline was less which is 17.95%. The general and administration expenses reduced by 50% which is an advantage for the business. The employee expenses increased substantially since the full time workers and sales personnel were involved in time wasting and also distracted other contracted employees. The objectives of training and incentive program were not achieved. There were no variations in the marketing cost since the advertisement expense is the fixed cost. The occupancy costs increased since less attention was paid by the employees towards the reduction in cost of wastage, raw material, water, electricity and paper. He employees feel dissatisfied due to lack of participation in decision making for budget. The net profit declined substantially by 45% however the projected profits could be reduced only up to 10%. Thus managers will have to adopt effective measures to improve efficiency and reduce costs (Reid, 2016).

Task B

Revised contingency plan

Contingency Plan

Company name: Big Red Bicycle Pty Ltd

Person developing the plan:

Name: Tom Copeland                    Position:Managing Director

Risk identified: Profit for FY more than 10% less than budgeted

Strategies/activities to minimize the risk

By when

By whom

Produce quarterly variance reports to identify income/ expenditure and profit shortfalls over 10%.

Q2

PR

Implement sales training/coaching.

Q2

PR

Introduce customer reward program to increase sales

Q2

PR

Participation of employees in budgetary decision making

Q2

PR

Increase attention towards wastage, water and electricity, paper and raw materials

Q2

PR

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Modified contingency implementation plan

Risk identified: Profit for FY more than 10% less than budgeted

Activity

Monitoring activity and date

Person/s

Monitor variance.

Completion of variance report: Q2.

PR

Analysis of report to identify issues.

Management report: Q2.

PR

Email to warn employees of risk to jobs.

Monitoring of variance report results: Q4.

PR

Email to announce rise of commission from 2% to 2.5%.

Monitoring of variance report results: Q3.

PR

Email to inform employees that overtime will no longer be approved.

Monitoring of variance report results: Q3.

PR

Email to inform employees of mandatory sales skills training: set program.

Monitoring of variance report results: Q3.

PR

Emails to customers and employees about the consumer reward program

Monitoring of variance report results: Q4.

PR

Voluntary training conducted.

Monitoring of variance report results: Q3.

PR

Modifying procedures to reduce occupancy costs

Monitoring of variance report results: Q3.

PR

Assessment Task 4: Review and evaluate financial management processes

Response document

Task A

From the data which relates to financial information of BRB the following ratios can be calculated:

1. The average debtor days = Debtors/Average daily sales = $362,500*365/2,900,000 = 45.63 days

2. The average creditor days = Creditors/ Average daily purchases = 80,000*365/1,000,000 = 29.2 days

3. The average stock turnover = Net sales/Average inventory = $2,900,000*2/(100,000+300,000) = 14.5

On the basis of information gathered from data sources, needs and policies of the organization and analytical techniques, the following recommendations could be made to improve the cash flow:

1. Adopting the practices of working capital management by reducing debtors collection period, increasing trade credit or creditors payment period, inventory management, cash rotation etc. By performing these activities the company will be able to make optimum utilisation of its cash funds and improve its cash position throughout the year.

2. `By adopting cash management and financial management practices the business will be able to invest the cash funds properly and reinvest the returns into business operations.

The sources of information used in making the above calculations and recommendations can be listed as follows:

1. Statement of financial performance

2. Scenario information

3. Ledger accounts

Task B

Calculation of number of units required

Price per bicycle = $500

Variable cost per unit = $250

Contribution per unit = Price per unit – Variable cost per unit

                                    = $500 - $250 = $250

Total fixed cost = $1,280,000

Target profit = $1,000,000

Total contribution required = Fixed cost + Profit

                                                = $1,280,000 + $1,000,000

                                                = $2,280,000

Number of units required to be produced = Total required contribution/Contribution per unit

                                                            =$2,280,000/$250 = 9120 units

Calculation of variable cost

Total contribution required = $2,280,000

Current plant capacity = 8,000 units

Contribution per unit required = $2,280,000/8000

                                                = $285

Price per unit = $500

Variable cost per unit = $500-$285

                                    = $215

Recommendation– On the basis of above calculations made it can be observed that in order to achieve the target profit the company will have to reduce its variable cost to $215 or increase its production capacity to 9120 units. The current plant capacity is only 8000 units therefore the company shall reduce its variable cost. If the variable costs could not be reduced the business will have to shift to India plant.

The three sources of information to be used are as follows:

1. Cost and price information

2. Scenario information

3. Organizational policies

Task 3

As per the requirement of ATO, the GST records are required to be kept by a business for a period of five years from the date of relevant transaction. The Business Activity Statement for the first quarter of 2012/13 and GST budget to compute GST liability can be prepared as follows:

GST cash budget calculations (Amount $)

July

August

September

  1. Cash receipts

2,000

1,000

1,000

  1. Cash payments

430

520

525

  1. GST liability

1,570

480

475

 

 

 

 

 

 

 

 

 

 

 

Task D

Action Plan

Activity

Monitoring

Timelines

Accountability

Working capital management

Reporting working capital ratios

At the end of every quarter

Senior Accountant

Cash Management

Preparation of cash budget

Monthly

Senior Accountant

Reduce variable costs

Variable expense budget and variance report

At the end of every quarter

Senior Accountant

Task E

Basic accounting principles– The accounting principles are the fundamental policies and guidelines in relation to accounting framework which is applicable on the accounting records of the company. There are generally fc=vet fundamental accounting principles which are required to be followed for the fair and relevant presentation of accounting and financial information by an entity. The accounting principles include control, relevance, compatibility, flexibility and cost benefit. These accounting principles ensure the quality and fairness of reporting by the business. The control principle ensures that the business is regularly monitored and controlled by the managers responsible for the management of business. Relevance relates to the timely reporting of information, its usefulness, its accuracy etc. compatibility relates to the accounting information which matches and complies with the accounting and financial objectives of the organization. Flexibility ensures the incorporation of business needs into the reporting mechanism. The cost-benefit principle ensures that the benefits from reporting are higher than the cost incurred.

Cash Flows- The cash flows are the transactions in cash for receipts and payments with regards to business operations and transactions. The cash inflows and cash outflows are presented in the cash flow statement or cash budget to estimate the cash deficit or cash surplus.

Ledgers and financial statements– The ledger statements are the specific accounts which are prepared from the accounting entries and the account balance at the end of the period are reported in the financial statements which include profit and loss statement and balance sheet or statement of financial position.

Profit and loss statements– The profit or loss statement is the financial statement which presents the details of incomes and expenses which relate to the period of profit or loss statement. The net profit or loss for the period is calculated in this statement.

References

Ferry, L., Zakaria, Z., & Eckersley, P. (2014) .The role of budget speech. International Journal of Public Sector Management, 564-580.

Feuer, M. J., Floden, R. E., Chudowsky, N., & Ahn, J. (2013). Evaluation of Teacher Preparation Programs: Purposes, Methods, and Policy Options. National Academy of Education

Kung, F. H., Huang, C. L., & Cheng, C. L. (2013). An examination of the relationships among budget emphasis, budget planning models and performance. Management Decision, 51(1), 120-140

Lienert, I. (2013). Role of the legislature in budget processes. In The International Handbook of Public Financial Management (pp. 116-136). Palgrave Macmillan UK

Macinati, M. S., & Rizzo, M. G. (2014). Budget goal commitment, clinical managers’ use of budget information and performance. Health policy, 117(2), 228-238.

Pascanu, R., Mikolov, T., & Bengio, Y. (2013). On the difficulty of training recurrent neural networks. ICML (3), 28, 1310-1318.

Petty, J. W., Titman, S., Keown, A. J., Martin, P., Martin, J. D., & Burrow, M. (2015). Financial management: Principles and applications. Pearson Higher Education AU.

Reid, J. (2016). The effects of leadership styles and budget participation on job satisfaction and job performance. Asia-Pacific Management Accounting Journal, 3(1).

Yang, C., Northcott, D., & Sinclair, R. (2017). The accountability information needs of key charity funders. Public Money & Management, 37(3), 173-180.