FNSACC503 - Manage Budgets and Forecasts

FNSACC503 - Manage Budgets and Forecasts

FNSACC503 - Manage Budgets and Forecasts

Task 1

Patrick Sablo has been working in a manufacturing company getting his monthly salary. The information presented below relates to the actual incomes and expenses of Patrick during the month. This information has been obtained from various sources on a realistic basis.

List of all monthly incomes and expenses:

Incomes:

Incomes

Incomes

Amount($)

Income from salary

9600

Digital marketing

1100

Extra Income

400

Total monthly income

11100

Expenses

Expenses

 

Amount($)

 

 

Amount($)

Housing

 

 

Entertainment

 

Housing rent

960

 

Video gaming

35

electricity charges

35

 

Movies

50

Transport

20

 

Badminton

70

Phone

25

 

Live theatre

120

Water

25

 

Subtotals

275

Maintenance or repairs

32

 

 

 

Others

40

 

Loans

 

Subtotals

1137

 

Personal

1300

 

 

 

Student

100

Transportation

 

 

Credit card

250

Vehicle payment

1800

 

Subtotals

1650

Insurance

120

 

 

 

Fuel

250

 

Taxes

 

Licensing

40

 

Personal

250

Maintenance

120

 

Business

50

Subtotals

2330

 

Subtotal

300

Variance analysis:

Variance - Variance analysis refers to the identification of budgeted performance for the enterprise and then comparing the actual results with budgeted performances to record the variances obtained. These variances will be properly evaluated for the purpose of identifying the reasons for the same and getting solutions (Hancock, et. al., 2017). The variance has been calculated for Patrick for the year with the help of actual results obtained:

Actual monthly income

Incomes

Amount($)

Income from salary

9600

Digital marketing

1100

Extra Income

400

Total monthly income

11100

Projected monthly income

Incomes

Amount($)

Income from salary

9600

Digital marketing

1050

Extra Income

300

Total monthly income

10950

Expenses

 

Actual($)

Budgeted($)

Difference

 

Actual($)

Budgeted($)

Difference

Housing

 

 

 

Entertainment

 

 

 

Housing rent

960

960

0

Video gaming

25

35

10

electricity charges

40

35

-5

Movies

60

50

-10

Transport

25

20

-5

Badminton

80

70

-10

Phone

30

25

-5

Live theatre

100

120

20

Water

20

25

5

Subtotals

265

275

10

repairs

32

32

0

 

 

 

 

Others

40

40

0

Loans

 

 

 

Subtotals

1147

1137

-10

Personal

1200

1300

100

 

 

 

 

Student

100

100

0

Transportation

 

 

 

Credit card

300

250

-50

Vehicle payment

1800

1800

0

Subtotals

1600

1650

50

Insurance

110

120

10

 

 

 

 

Fuel

350

250

-100

Taxes

 

 

 

Licensing

50

40

-10

Personal

260

250

-10

Maintenance

70

120

50

Business

56

50

-6

Subtotals

2380

2330

-50

Subtotal

316

300

-16

Variance analysis:

Particular

Amount($)

Projected balance(Projected income minus expenses)

5258

Actual balance(Actual income minus expenses)

5392

Difference

134

Introduction:

The report helps in discussing the fact about how efficiently Patrick has been able to manage budget prepared for the month. The results of actual expenditure have been estimated on a reasonable basis and these results have been compared with budgeted figure to identify and analyze various variances.

Content:

The above variance analysis conducted on the basis of available information shows that the overall variance obtained by Patrick is $134 which is favorable for him as the actual amount of balance as realized for the month is greater than the budgeted balance expected during the month (Bonin, 2013). The same includes variance obtained in estimated income and actual income realized which is favorable for Patrick and the unfavorable variance obtained in budgeted expenditure of $16.

The favorable variance obtained in income realized by Patrick is due to the wrong estimations made in income to be realized form digital marketing and other income sources. Patrick has been efficient enough to earn the income from other sources and the source of digital marketing has provided him with enough opportunities to increase his income source with innovation in new technology (Sponem & Lambert, 2016).

The unfavorable variance in overall expenditure of Patrick is obtained due to heavy expenditure incurred on fuel and credit card expenses. The budgeted expense for fuel was $250 but the actual expense incurred was $350, same as in the case of credit card expenses which exceeded its budgeted expenses by $50. The other variances were in the permissible limit and being set off with the efficiencies and less expenditure incurred in various other expenses of Patrick. Therefore it can be observed that the total expenditure of the company is within its permissible limit. Also, the estimations regarding his tax expenditures should be made accurately by applying reasonable assumptions and the same should be controlled (Rutherford, 2016).

Conclusion:

The above report leads to the conclusion that Mr. Patrick has been efficient enough to maintain and manage its budgeted results. However, a proper attention has to be made for the variances recognized in fueland credit card expenses and the same should be controlled by Patrick.

Task 2

Budgets:

The budgets refer to the actions plan in a form of a financial document which is prepared and used for the purpose projecting various incomes and expenses of the enterprise. The preparation of budgets allows the organization to operate control and cost reduction activities in the enterprise.

Market trends and factors which affect business growth:

At the level of the local market, the hospitality industry is affected by short-term economic, physical and political factors. There are certain keydrivers which also affect the performance of this industry and these are as below:

Major drivers –

1. GDP growth in the economy – The GDP growth in economy increases the earning capacity and purchasing power of the individual and thus affects the demand in hotel industry.

2. Rising middle class – The rising number of middle class also affect the demand in this industry.

3. Shift to multi-purpose trips – The major shift of middle-class families is from a single-purpose trip to multi purposes and they are leaning towards multi tours projects (Bonin, 2013).

Major trends

1. Increased number of mobile bookings – It can be observed that mobile booking will account for 40 percent of online booking by the time of the year 2020.

2. Social networking – The emergence of social networking has helped majorly in planning trips and share experiences so that a large number of other potential tourists gets attracted.

3. The growth of travel intermediaries – there has been significant growth in travel intermediaries due to which more customers get influenced (Näsi, et. al., 2014).

Preparation of budgets:

The budgets of the enterprise are prepared on the basis of business’s financial and operating goals. The results in the preparations of budgets are expressed in quantitative terms. The preparation of budgets requires setting realistic goals and objectives which should be consistent with organization success and stability in the long run. In the concerned case of All GUEST AND WELCOME RESORTS, thepreparation of budgets for the year 2018 will include certain goals and objectives which are:

1. Cost reduction – It can be observed for the income statement of the year 2017 thatthecompany has been expanding lot on its operating expenses and therefore the main goal of the company for the year 2018 will be to reduce its operating expenses. The cost of sales has been increasing with each year and the same has to be controlled in order to achieve desired results. The budgeted cost and revenues will be based on these goals only. The information regarding the cost estimations and trends are as follows:

a. Cost of goods sold – Thecost of goods sold for the company in the year 2018 will be estimated to be at the same level as there is no significant change in the sales structure and factors of the industry. The cost items and the inflationary rate will be assumed to be moderate (Rutherford, 2016).

b. Transport – The transport expenses of the company will increase by 4% due to increase in fuelprices and change in the international crude prices.

c. Payroll – The payroll expenses of the company will increase by 5% due to revised labor budget policy of the government of Australia. The increase will give a rise to the expenses of next year.

d. Interest expense – The interest expense of the company will experience a slight high due to burden of additional cost imposed by the government. Also, the growth opportunity of the company will give rise to this expense.  

e. Other expenses – The other expenses of the company will be increased by 2%.

2. Business growth – The strategic goal of the company regarding business growth has been to explore new opportunities and increase its sales by increasing the levels of activity. The same will result in increase in the sales of the company. On the basis of examining the industry trend related hospitality industry, there will be an increase of 15% in ten sales of the company (Näsi, et. al., 2014).

3. Debt reduction – The debt structure of the company will be revised as per the revised estimates in capital structure of the company. The aim here will be to shift to equity as a source of funding because of the increased number of regulations imposed on debt financing in Australian market. The company All GUEST AND WELCOME RESORTS will maintain a debt-equity ratio of 2:1 in the year 2018 (Gelman, et. al., 2014).

The various budgets and forecasts have been prepared on the basis of the previous year information of All GUEST AND WELCOME RESORTS and the market trends of the industry and the same has been presented appropriately:

Sales forecast:

Sales forecast

Particulars

2017 ($)

2018 ($)

Departments:

 

 

Rooms

   1,200,000.00

   1,380,000.00

Food

       600,000.00

       690,000.00

Beverage

       240,000.00

       276,000.00

Telecommunications

         35,000.00

         40,250.00

Other Income

           9,500.00

         10,925.00

Total sales

   2,084,500.00

   2,397,175.00

Assumption:
The sales have been increased by 15% in the year 2018.

Expense budget:

Expense budget

Particulars

2017 ($)

2018 ($)

Cost of sales:

 

 

Rooms

                           -  

 

Food

         178,200.00

179000.00

Beverage

            37,620.00

38000.00

Telecommunications

            14,100.00

14500.00

 

 

 

Payroll Expenses:

 

 

Rooms

         247,200.00

        259,560.00

Food

         182,400.00

        191,520.00

Beverage

            44,580.00

          46,809.00

Telecommunications

              4,500.00

            4,725.00

 

 

 

Operating expenses:

 

 

Resort Manager

         116,234.00

        118,558.68

General Staff

         310,080.00

        316,281.60

Administrative and General

         113,100.00

        115,362.00

Information Systems

            29,700.00

          30,294.00

Security

            48,600.00

          49,572.00

Transportation

            27,900.00

          29,016.00

Marketing

         129,360.00

        131,947.20

Depreciation

         197,475.00

        201,424.50

Property Maintenance

            99,750.00

        101,745.00

Insurance

35,000.00

35,700.00

Interest expense

            15,000.00

          20,000.00

Utility Costs (Water, Electricity)

            99,250.00

        101,235.00

 

 

 

TOTAL EXPENSES

      1,930,049.00

    1,985,249.98

 

Assumptions:

  • Cost of goods sold realized no significant change.
  • Transport expenses increased by 4%.
  • Payroll expense realized in increase of 5%
  • The interest expense increases slightly in comparison to last year performance.
  • All other expenses increased by 2%.

Budgeted Profit and loss:

Budgeted Profit & Loss for All GUEST AND WELCOME RESORTS for the year ended 2018

Profit & Loss

July ($)

Aug ($)

Sep ($)

Oct ($)

Nov ($)

Dec ($)

Jan ($)

Feb ($)

March ($)

April ($)

May  ($)

June ($)

Total ($)

Sales

199780

199725

185225

200000

205000

199850

199225

198550

202552

199825

198250

209193

2397175

Less: Cost of sales

19290

19200

19280

18000

17500

21000

20500

19850

20255

19250

19000

18375

231500

Gross Profit

180490

180525

165945

182000

187500

178850

178725

178700

182297

180575

179250

190818

2165675

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Payroll Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Rooms

21630

21650

20500

21500

20250

21843

22580

20000

20700

20560

21500

26847

259560

Food

15960

16000

15850

15750

16050

16120

16000

15800

15700

15850

15980

16460

191520

Beverage

3900

3800

4000

3800

3900

3915

3825

3700

4052

4056

3900

3961

46809

Telecommunications

393

400

392

450

350

390

380

370

393

350

400

457

4725

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Resort Manager

9879

9800

9700

9600

9500

9825

9875

9990

9985

9945

9758

10701

118558

General Staff

26356

26350

26550

25660

25487

26881

26451

25882

27252

27522

26365

25525

316281

Administrative and General

9613

9600

9700

9600

9566

9635

9590

9622

9635

9600

9563

9638

115362

Information Systems

2524

2500

2495

2485

2515

2563

2500

2521

2496

2563

2500

2632

30294

Security

4131

4100

4000

4165

4185

4195

4050

4200

4300

4023

4065

4158

49572

Transportation

2418

2400

2395

2375

2395

2420

2450

2485

2400

2410

2495

2373

29016

Marketing

10995

10998

11000

10850

10750

11250

11050

11420

10998

10997

10885

10754

131947

Depreciation

16785

16785

16785

16785

16785

16785

16785

16785

16785

16785

16785

16789

201424

Property Maintenance

8478

8475

8475

8500

8352

8569

8425

8596

8200

8400

8500

8775

101745

Insurance

2975

2975

2975

2975

2975

2975

2975

2975

2975

2975

2975

2975

35700

Interest expense

1666

1666

1666

1666

1666

1666

1666

1666

1666

1666

1666

1974

20000

Utility Costs (Water, Electricity)

8436

8437

8489

8462

8362

8225

8465

8355

8465

8456

8356

8727

101235

Total Expenses

146139

145936

144972

144623

143088

147257

147067

144367

146002

146158

145693

152746

1753748

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Profit

34351

34589

20973

37377

44412

31593

31658

34333

36295

34417

33557

38072

411927

Budgeted balance sheet:

Budgeted balance sheet for All GUEST AND WELCOME RESORTS for the year ended 2018

Particulars

Budget estimate 2018 ($)

Assets

 

Financial assets

 

Cash and cash equivalents

250000

Trade and other receivables

315622

Total financial assets

565622

Non-Financial Assets

 

Plant and equipment

5125000

Intangibles

3621830

Total non-financial assets

8746830

Total assets

9312452

 

 

Liabilities

 

Provisions

120000

Employees

50000

Other

150000

Total provisions

320000

Payables

 

Supplies

825000

Total payables

825000

Total liabilities

1145000

Net assets

8167452

 

 

Equity:

 

Net profit

411927

Shareholders’ equity

2500000

 

 

Long-term liabilities:

 

Debt

5255525

 

 

Total Equity

8167452

Profit and loss forecast for next two quarters:

Profit & Loss

July ($)

Aug ($)

Sep ($)

Oct ($)

Nov ($)

Dec ($)

Quarter ending September 2018

Quarter ending December 2018

Sales

199780

199725

185225

200000

205000

199850

584730

604850

Less: Cost of sales

19290

19200

19280

18000

17500

21000

57770

56500

Gross Profit

180490

180525

165945

182000

187500

178850

526960

548350

Expenses:

 

 

 

 

 

 

 

 

Payroll Expenses:

 

 

 

 

 

 

 

 

Rooms

21630

21650

20500

21500

20250

21843

63780

63593

Food

15960

16000

15850

15750

16050

16120

47810

47920

Beverage

3900

3800

4000

3800

3900

3915

11700

11615

Telecommunications

393

400

392

450

350

390

1185

1190

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Resort Manager

9879

9800

9700

9600

9500

9825

29379

28925

General Staff

26356

26350

26550

25660

25487

26881

79256

78028

Administrative and General

9613

9600

9700

9600

9566

9635

28913

28801

Information Systems

2524

2500

2495

2485

2515

2563

7519

7563

Security

4131

4100

4000

4165

4185

4195

12231

12545

Transportation

2418

2400

2395

2375

2395

2420

7213

7190

Marketing

10995

10998

11000

10850

10750

11250

32993

32850

Depreciation

16785

16785

16785

16785

16785

16785

50355

50355

Property Maintenance

8478

8475

8475

8500

8352

8569

25428

25421

Insurance

2975

2975

2975

2975

2975

2975

8925

8925

Interest expense

1666

1666

1666

1666

1666

1666

4998

4998

Utility Costs (Water, Electricity)

8436

8437

8489

8462

8362

8225

25362

25049

Total Expenses

146139

145936

144972

144623

143088

147257

437047

434968

 

 

 

 

 

 

 

 

 

Net Profit

34351

34589

20973

37377

44412

31593

89913

113382

Perceived Financial Risks and Mitigation Strategies:

Risk assessment and contingency – The assessment of risk refers to the identification of various risks that are associated with a business enterprise and the actions that must be implemented at the time of risk. The planning strategy will include the set of actions that must be executed at the time of risk and the cost associated with the occurrence of that risk (Sponem & Lambert, 2016).

Strategies and steps to mitigate the risk – The various mitigation strategies will be followed in order to minimise the risk so that the business can achieve sustainable growth and development. Following are the steps to be involved in risk mitigation strategies:

1. Forecasting the risk – The step will involve identification of various threats including human, operational, physical, environmental threats and measuring the risk associated with each of these threats.

2. Risk option evaluation – The evaluation of the risk will include choosing the appropriate strategy whether to avoid, mitigate, and reduce or retention of the risk (Gelman, et. al., 2014).

3. Creation of contingency plans – The contingency plan to reduce or mitigate the risk will include certain planned steps or actions to be taken at the time of occurrence of risks. The proper implementation of the same will ensure that a business operation doesn’t get affected by these risks.
4. Plan evaluation and monitoring – The same will include continuous monitoring of the plans and risk mitigation strategies so that they can be practically implemented at the time of risk (Sponem & Lambert, 2016).

References:

1. Baxter, W. T. (2014). Accounting theory. Routledge.Vol. 3

2. Bonin, H. (2013). Generational accounting: theory and application. Springer Science & Business Media.

3. Gelman, A., Carlin, J. B., Stern, H. S., Dunson, D. B., Vehtari, A., & Rubin, D. B. (2014). Bayesian data analysis (Vol. 2). Boca Raton, FL: CRC press.

4. Hancock, P., Marriott, N., & Duff, A. (2017). Research–teaching yin–yang? An empirical study of accounting and finance academics in Australia and New Zealand. Accounting & Finance.

5. Luh, W. M., & Guo, J. H. (2016). Allocating sample sizes to reduce budget for fixed-effect 2× 2 heterogeneous analysis of variance. The Journal of Experimental Education84(1), pp. 197-211.

6. Maksimovska-Veljanovski, A., & Stojkov, A. (2014). Performance-Based Budgeting In South-Eastern Europe: A Legal And Economic Perspective. Central European Journal of Public Policy8(1), pp. 50-77

7. McLendon, M. K., & Hearn, J. C. (2013). The resurgent interest in performance-based funding for higher education. Academe99(6), pp. 25.

9. Näsi, S., Saccon, C., Wüstemann, S., & Walton, P. (2014). European accounting theory: evolution and evaluation. The Routledge Companion to Accounting, Reporting and Regulation, pp. 54-71.

10. Rutherford, B. A. (2016). Articulating accounting principles: Classical accounting theory as the pursuit of “explanation by embodiment”. Journal of Applied Accounting Research17(2), pp. 118-135.

11. Sponem, S., & Lambert, C. (2016). Exploring differences in budget characteristics, roles and satisfaction: A configurational approach. Management Budget Accounting Research30, pp. 47-61.

12. Stotsky, J. G. (2016). Gender Budgeting: Fiscal Context and Current Outcomes.