BSBFIM501 Manage budgets and financial plans

Assessment Task 1 Case Study

Task A

From the master budget and cost centre budgets, the information about interest is not given as the profit after tax is calculated without the any information about interest given. In addition, the information related to sales commission is not clear as budget is showing 2% of commission on sales, but firm will provide 2.5% commission.

Along with this, there is no clarity on the costs of goods sold. The sales in the 1, 3 and 4 quarters should be 30% less than quarter 2 but there is equal distribution of sales in each quarter. it is also ot given that costs  of goods sold is equal in each quarter.

Based on the given information, it is required to make changes in the budget. Sales mentioned in the budget are 750,000 in each quarter but in reality, the sales should be 700,000 in each quarter excepting 2 quarter with 1,000,000.

Apart from this, total sales will also change from 3,000,000 to 3,100,000. Along with this, it is also necessary to make change in commission as 2% commission on sales is given that should be 2.5% on sales. Total commission for the year will be 77,500 rather than 60,000.

Changes in sales and commission will also change gross profit that will also make change in net profit for the firm. The possible changes in budget can be presented in the newly prepared budget as below:

Task B

Contingency Plan

 Assessment Task 2 Role play

Task A

There is need to access the required budget information related to previous sales trends, marketing budgets, costs of goods sold, sales per day/week/month/year and records of seasonal sales, compensation and bonus structure.

All this information will be helpful for the sales team to set better sales strategies and get motivated to perform well to handle the issues related to declining sales in future. In addition, annual or quarterly gross revenues, revenues by territory, sales by distribution channel and product and cost of sales and price setting decisions are also required to be known by the sales team.

Moreover, sales team also needs to know promotional budgets to contribute in sales growth of the company. Apart from this, information related to all the reimbursements, travel expenses, accommodation expenses and meals will also be required for the sales team members.

Organizations need are as below in relation to handling issues of poor sales due to economic downturn and increases in expenses such as wage expenses:

• To appoint skilled and talented sales team members
• To set appropriate financial policies to decide employee benefits
• To provide training to enhance skills and knowledge of sales team members
• To decide performance based wage expenses

In order to improve sales and enhance the productivity of the sales team members, it is required for the firm to provide coaching or training. With the help of this, firm can improve the skills and knowledge of the team members and increase the sales. for this, company needs to focus on performance appraisal technique and survey technique to know the weak areas of the team members and identify the training needs.

In order to plan coaching or training session, the following plan can be followed by the firm: 

• Identify the training needs
• Develop training objectives
• Align sales training methods with business objectives
• Prepare the training materials, schedules and other needed tools
• Provide training
• Evaluation and control

The below training session plan can be followed by the company to train its sales team:

Training will be provided once a week for one hour during the working time.

Task B

The below spreadsheet is developed to keep track of actual expenditure by account:

Assessment Task 3 Report (Monitor and Control Finances)

Task A

A budget variation report

From the above table, It can be determined that there are some elements of the budget are not achievable. It can be evaluated that budget projections for sales, cost of goods sold and gross profit are not achievable as there is a decline in their values in actual than expected values.

The budget for some of general and administrative expenses like travel, bank charges, postage and printing, dues and subscriptions and telephone are not achievable. In addition, marketing expenses like advertising and employment expenses such as staff amenities, and occupancy costs like water and waste removal are not achievable.

Task B

Contingency plan for Task B

Contingency Implementation Plan for Task B

Assessment Task 4 – Activities

Activity 1:

1)

4. The average debtor days 4.268 Days
5. The average creditor days 0.94 days
6. The average stock turnover 20 times
7. Show calculations and results on your response document for this assessment task.

Average debtor days: (Trade debtors÷ sales) × 365

Trade debtor: 36250

Sales: 3,100,000

= (3, 62, 50 ÷ 3,100,000) × 365

= 4.268 days

Average creditor days: (trade creditors ÷ annual sales) * 365

Trade creditor: 8000

= (8000÷3,100,000) ×365

= 0.94 days

Cost of goods sold:  400,000

Average inventory: opening stock + closing stock /2

Opening stock = 100,00

Closing stock = 300,00

= 1,00,00 + 3,00,00 / 2

= 2,00,00

Average stock turnover: Cost of goods sold / average inventory

= 400,000÷2,00,00

= 20 times

2) Recommendation

• From the calculation, it is obvious that the firm pays the suppliers instantly. The company needs to hold the cash and pay the creditors after sufficient period to maintain the cash flow.
• Company needs to improve its stock turnover as it needs to focus on sales force by encouraging them to perform well. For this, firm should adopt motivational tools including financial and non-financial rewards and provide training to increases sales and maintain the sufficient cash flow.

3) Source of information

• Statement of financial performance
• Ageing debtors budget
• Scenario information

Activity 2:

1. a) Profit can be calculated as below formula:

Profit = Sales –costs

Profit = (Selling price × unit) – (Fixed Cost + Variable Cost ×Unit)

1,000,000 = (500x) – (1,280,000+250x)

2280000 =250x

x = 2280000÷250

x = 9120 units

If Big Red bicycle produces 9120 units, it can get the target profit of $1000000.

1. b)

Profit = (Selling price × Unit) – (Fixed Cost + Variable Cost×Unit)

1000000 = (500 × 8000) – (1280000 + 8000X)

100000 = (4000000) – (1280000 + 8000X)

3000000 = (1280000 + 8000X)

X = 1720000 / 8000

= $215 per unit

There is need for Big Red bicycle to maintain variable cost of $215 per unit to get target profit with 8000 units.

2. Based on the responses, it can be recommended that BRB needs to focus on making cost volume profit analysis to determine the changes in profits and costs on changes in production units. Company should change its production units to achieve the target profit with current plant capacity and produce within the cost determined.

4. Scenario information
5. Ratios
6. Ledger accounts

Activity 3:

1) For keeping the GST records, Big Red Bicycle Company requires at least four years so that company can satisfy its Australian Taxation Office (ATO) requirements.

2) Preparing GST budget

Activity 4:

References

Bogsnes, B. (2016) Implementing beyond budgeting: unlocking the performance potential. USA: John Wiley & Sons.

Dash, J.W. (2016) Quantitative finance and risk management: a physicist’s approach. UK: World Scientific Publishing Co Inc.

Diebold, F. X., & Yılmaz, K. (2014) On the network topology of variance decompositions: Measuring the connectedness of financial firms. Journal of Econometrics, 182(1), pp. 119-134.

DRURY, C. M. (2013) Management and cost accounting. USA: Springer.

Horngren, C.T., (2009) Cost accounting: A managerial emphasis, 13/e. Pearson Education India.

Wilson, T.C. (2015) Value and Capital Management: A Handbook for the Finance and Risk Functions of Financial Institutions. USA:  John Wiley & Sons.

Zimmerman, J. L., & Yahya-Zadeh, M. (2011) Accounting for decision making and control. Issues in Accounting Education, 26(1), pp.258-259.