Budgets

Manage Budgets and Financial Plans

Assessment 1: Plan Financial Management Approaches

Prepare to meet with your manager (assessor) to clarify budget and negotiate changes:

  1. Identify areas of the budget those are not achievable, inaccurate or unclear

It is identified from the given information that the area of budget, which is not achievable, inaccurate or unclear, is associated with sales. The reasons behind the sales area is that it require additional information for completing the work. Moreover, it is also identified that the sales commission is also not clear because the budget outlines that there is 2% sales commission. In addition, cost of goods sold is also not clear. It is due to lack of information about the subject matter in order to change it with the change in sales.

  1. Prepare to negotiate necessary changes to the budget

As per the given information the sales mentioned for the different quarter is inaccurate. It is because sales is given as 7, 50,000 per quarter but in real terms it is 7, 00,000 as specified for the first, third and fourth quarter. In second quarter the sales is 10, 00,000. Thus, it is calculated that the total sales is 31, 00,000 rather than 30, 00,000.

In addition, the sales on commission are actually 2.5% but it is mentioned as 2% on sales, which is also unclear. It is because the commission on sales will be recorded as 77,500. Thus, the changes in the cost of good are also needed due to change in sales and sales commission.

The values associated with income tax, net profit and gross profit also changes due to some changes in the sales and sales commission.

Big Red Bicycle Pty Ltd
Master Budget FY 2011/2012
 FYQ1Q2Q3Q4
REVENUE
Commissions (2.5% sales)77,50017,50025,00017,50017,500
Direct wages fixed2,00,00050,00050,00050,00050,000
Sales31,00,0007,00,00010,00,0007,00,0007,00,000
Cost of Goods Sold413332933331333339333393333
Gross Profit24,09,1685,39,1677,91,6675,39,1675,39,167
EXPENSES
General & Administrative Expenses
Accounting fees20,0005,0005,0005,0005,000
Legal fees5,0001,2501,2501,2501,250
Bank charges600150150150150
Office supplies5,0001,2501,2501,2501,250
Postage & printing400100100100100
Dues & subscriptions500125125125125
Telephone10,0002,5002,5002,5002,500
Repairs & maintenance50,00012,50012,50012,50012,500
Payroll tax25,0006,2506,2506,2506,250
Marketing Expenses
 Advertising2,00,00050,00050,00050,00050,000
Employment Expenses
Superannuation45,00011,25011,25011,25011,250
Wages & salaries5,00,0001,25,0001,25,0001,25,0001,25,000
Staff amenities20,0005,0005,0005,0005,000
Occupancy Costs
Electricity40,00010,00010,00010,00010,000
Insurance1,00,00025,00025,00025,00025,000
Rates1,00,00025,00025,00025,00025,000
Rent2,00,00050,00050,00050,00050,000
Water30,0007,5007,5007,5007,500
Waste removal50,00012,50012,50012,50012,500
TOTAL EXPENSES14,01,5003,50,3753,50,3753,50,3753,50,375
NET PROFIT (BEFORE INTEREST & TAX)10,07,6681,88,7924,41,2921,88,7921,88,792
Income Tax Expense (25%Net)2,51,91747,1981,10,32347,19847,198
NET PROFIT AFTER TAX7,55,7511,41,5943,30,9691,41,5941,41,594

Note: It is assumed that the value of cost of goods sold changes due to some change in the sales amount. It is also assumed that the cost of goods sold is 13.33% of the sales.

  1. Set up a time with your manager to meet.

The time that will be set up with the manager of Big Red Bicycle will be in the next week. It is because the financial period of Big Red Bicycle ends up in 30 June. The meeting is set up with the superior and the manger to discuss on the specific topics such as business risks, methods to overcome the risks, changes in the plans etc (Ogiela, 2015).

Meet with your manager (assessor) to clarify budget and negotiate changes.

  1. Identify at least two issues for clarification

The issues, which have been identified for clarification, are linked with sales. It is noticed that the sales for the current financial year will be proved wrong at the end of the financial year. The existing sales of the company might influence with the economic parameters such as downturn (Bromiley et al., 2015). In addition, other issue is connected with cost of wages during the existing financial year and requires the attention of the concerned managing director.

  1. Negotiate at least two changes.

The changes are highly required in the company in order to increase the sales in the competitive business environment. The company can set its sales target monthly for attaining quick objectives. It will also support in increasing the efficiency level of the company in the ever changing business environment. In addition, the company should also train its employees for achieving higher sales targets (Osterloh & Heinemann, 2013). The training methods supports in enhancing the learning capabilities of the workforce, which also facilitates in increasing the profitability of the company.

Contingency plan

Contingency Plan

Company Name: Big Red Bicycle Pty Ltd

Person developing the plan:

Name : Tom Copeland                    Position:  Managing Director

Risk identified:

There is an increase in the cost of the company due to increase in expenses such as wages

There is a decrease in the sales with the downturn in the economy

Sales can decline as per the set target (below 20%)

Profit can be earned less than 10%

 Strategies/activities to minimize the riskBy whenBy whom
Introducing training and development section for the employees to increase the sales of the companyQuarter 1Human Resource Manager (Holly Burke)
Implementing new technology for reducing the cost of the companyQuarter 1Operational General Manager (Stuart LaRoux)
Introducing new methods for motivating the employeesQuarter 2Human Resource Manager (Holly Burke)
Involving the employees in the decision making processQuarter 2Managing Director (Tom Copeland)
Regularly reviewing the pricing strategy  for attracting more customersQuarter 2Sales General Manager (Sam Gellar)
Planning for the lucrative incentives programs for the employeesQuarter 3Managing Director (Tom Copeland)
Planning for new actions for reducing the wastage in the production processQuarter 3Production Manager (Charles Pierce)
Developing plans for the performance appraisal of the workforceQuarter 4Human Resource Manager (Holly Burke)

 

 Assignment 2: Implement Financial Management Approaches

Part 1: Preparation to meet with your team member to communicate budget

  1. Access required budget information from assessor

In organization, the sales team members play a significant role in order to increase the sales according to defined budget. The required information and knowledge related to budget is provided to team member in order to make them also aware about the daily sale of goods and services. In addition, team members also need to have an effective knowledge about cost of goods sold so that they can make right decision while negotiating the prices. In this budget information, team members are provided with necessary information like profit margin, per month sales target, salary & incentive and annual actual sale.

  1. Determine organizational needs

The organizational need is to analyze the performance of the employees according to their skill and knowledge in an effective way. The organization need is determined for organization and employees benefit as it help in identifying the need of improvement in different areas. Thus, Big Red Bicycle can also improve its performance by providing the training to employees so that they can focus on achieving their sales target successfully.

  1. Identify coaching/training needs of team member

In organization, the need of training or coaching is very useful as it helps in enhancing the employee’s skill and knowledge. Training is an investment which is done for increasing the productivity, enhance revenue and also to increase morale among employees so that better result can be achieved (Haff, et al., 2015).

  1. PLAN coaching/ training session:

For planning the training session properly, HR manager require to follow some steps efficiently. This will help in conducting a training session effectively as well as also help in achieving the training objective successfully (Collier, 2015). The steps which are necessary to be followed are:

Step 1: Establish the learning objective

Step 2: Define the training topics and its related aspects

Step 3: Manage and organize material

Step 4: Determine plan presentation techniques

Step 5: Evaluation

Step 6: Set training timing

Training Session Plan

 

Company Name: Big Red Bicycle  Year 2011-2012
Training topic Department Name
Making aware regarding organisation policiesSales and accounts department
How to interact with customerSales department
How to deal with the supplierPurchase department
How customer queries are handledSales department
Determine the training needAll departments

  1. Set up a time with your team member to have coaching/training session

For training session, the management set the time for training i.e., 3 days in a week and in that only one hour will be provided for training in the working day.

 Part 2: Meet with your team member (assessor) to coach them in role

  1. Explain budget and relevance to team member’s accountabilities

In order to illustrate budget, sales manager is required to communicate the organizational budget to its team members. This help in achieving the sales target as well as develop accountability in the team member towards organization. In concern to it, Big Red Bicycle has estimated that in this year company will able to generate the annual profit i.e., 1000000. In addition to it, it is also necessary to disclose the significant expenses which are related to organization and employees in order to maintain the business efficiency.

  1. Use appropriate coaching techniques or models such as grow

The coaching technique or model which is best suitable for Big Red Bicycle is Growing coaching model. This model is valid and effective model as it help in providing the training to the employees (DRURY, 2013). In other words, it helps management in achieving the organizational training objective successfully as it help in changing the exiting position to new desired position in coming future. Under this growing coaching model, there are following steps which are to be followed for developing an effective structure coaching program:

  1. Setting goal
  2. Examine the real situation
  3. Determine the option
  4. Developing will
  5. Use appropriate motivational theory

The most appropriate motivational theory is Herzberg’s Two-Factor motivation theory which can be used by employees of Big Red Bicycle. With the help of this theory, management must eliminate the issues that develop dissatisfaction in the employees and also try to provide the facilities which are related to hygiene factor of employees. At the same time, management of Big Red Bicycle is also required to focus on the individual needs and requirement.

Assessment 3: Monitor and Control Finances

Design and Develop a Spreadsheet

The variance report supports the management to establish the difference in between the budgeted and actual result. The difference between the budgeted and actual result is known as variance (Diebold & Yılmaz, 2014).

  Budget variation report 
SalesFYQ1Q2Q3Q4
Budget31000007000001000000700000700000
actual 2480000560000800000560000560000
variance 620000140000200000140000140000
Variance (%)2020202020
 
Profit7,55,7511,41,5943,30,9691,41,5941,41,594
actual 680175.9127434.6297872.1127434.6127434.6
variance 75,57514,15933,09714,15914,159
Variance (%)1010101010

Monitor and Record Actual Figures

The monitoring and recording of actual figures associated with the financial transaction is done after implementing the budget. The monitoring and recording of the activities is done for evaluating the financial performance of the company in real terms (Bekaert & Hoerova, 2014). Big Red Bicycle Pty Ltd. for monitoring and recording the activities can develop effective training programs, which also helps in controlling the relevant actions.

Modification of Contingency Plan and its Implementation

For Task A

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 riskBy whenBy whom
The effective strategy should be developed for declining the difference between budgeted and actual result. The variance report should be communicated to the workforce.Quarter 2Managing Director
Various steps should be taken for controlling the variance. The effective plans should be developed for controlling the entire process.Quarter 2Managing Director
Employees should be motivated and inspired to work hard. This helps in achieving quick organizational goals.Quarter 2Human Resource
The essential equipments, which are necessary for carrying out different activities, should be provided on time.Quarter 1Production Manager

 

 

 

For Task B

Risk identified: Profit for FY more than 10% less than budgeted
ActivityMonitoring activity and datePerson/s
Variance should be frequently monitored and controlledCompletion of report: Quarter 2.Managing Director
The variance report should be evaluate effectivelyManagement report: Quarter 2.Managing Director
Supportive environment should be created for increasing the results of trainingMonitoring of variation report results: Quarter 4.Managing Director
Proper communication through email should be done to aware about the rise of commission from 2% to 2.5%Monitoring of variation report results: Quarter 3Sales Manager
Sales team should be motivated and effective communication must be build up with them for increasing the profit marginMonitoring of variation report results: Quarter 3.Sales Manager
Effective training equipments should be used for enhancing the training hoursMonitoring of variation report results: Quarter 3.Human Resource Manager
The training section should assist in improving the skills of the employees by enhancing there learning’s in the required fieldMonitoring of variation report results: Quarter 3.Human Resource Manager

 Assessment 4: Review and Evaluate Financial Management Processes

Activity 1

Answer 1:

  1. Average debtor days

Accounts Payable = 362500

Annual sales = 3100000

Average debtor days = Accounts Payable / annual sales*365

= 362500/3100000*365

= 42.67 days

  1. Average creditor days

Account Receivables = 80000

Annual sales = 3100000

Average creditor days = Account Receivables / Annual sales*365

= 80000/3100000*365

= 9.42 days

  1. Average stock turnover

Cost of goods sold = 413332

Opening stock = 100000

Closing stock = 300000

Average inventory = opening stock + closing stock / 2

= 100000+300000/2

= 200000

Average stock turnover = Cost of goods sold / Average Inventory

= 413332/200000

= 2.067 times

Answer 2:

Recommendations for improving the existing financial management processes to cash flow:

  • Big Red Bicycle (BRB) need to provide training to its sales staff member so that member’s skill and knowledge are enhanced and also lead to increase in the cash flow position of the organisation (Twomey, et al., 2015). In concern to it, company is required to follow terms and conditions related to credit and also stick to them.
  • From provided information, it can be recommended that BRB should develop effective strategy and focus on reducing the warehousing cost of manufacturing units. At the same time, company must take follow up action by declining the debt ratio level and this will result into increase in the cash flow.

Answer 3:

The three sources of information that is used for completing the activity are:

  1. Scenario information
  2. Statement of financial performance
  3. Ledger accounts

Activity 2

Answer 1:

(a)  Number of units at current variable cost

Profit = 1000000

Selling price = 500

Unit = X

Fixed cost = 1280000

Variable cost = 250

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

1000000 = (500X) – (1280000 + 250X)

1000000+1280000=500X-250X

2280000=250X

X= 2280000/250

X= 9120 Units

Big Red Bicycle would need to produce 9120 units for achieving target profit.

(b) Variable Cost per unit

Profit = (Selling price * Unit) – (Fixed Cost + Variable Cost*Unit) (Baldi, et al., 2014)

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

1000000 = (4000000) – (1280000+8000X)

1280000 + 8000X = 3000000

8000 X = 3000000-1280000

X = 1720000/8000

X = $ 215 per unit

Therefore, Big Red Bicycle needs to keep its variable cost per unit $215 in order to achieve profit target at current manufacturing capacity which 8000 units.

Answer 2:

A recommendation to Big Red Bicycle is two different options which will help in achieving the target profit on the basis of analysis.

Ist option:  Increase the Indonesia plant capacity by 9120 units from 8000 units.

IInd option: Reduce the variable cost from $ 250 to $ 215 per unit.

These recommended options are best suitable for future scenario and for increasing the current capacity of plants.

Answer 3:

The three sources of information used for completing this activity are:

  1. Scenario information
  2. Ledger accounts
  3. Financial statements

Activity 3

Answer 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.

Answer 2:

Preparing GST budget

Particular Amount
Selling price  500
GST (10%)50
Selling price inclusive GST 550
Sales 4400000
Variable cost 2000000
Fixed cost 1280000
Gross profit 1120000
GST (400000)
Profit 720000

Note: In Australia, GST liability which is charged is 10%.

References

Baldi, M. M., Crainic, T. G., Perboli, G. and Tadei, R. (2014) Branch-and-price and beam search algorithms for the variable cost and size bin packing problem with optional items. Annals of Operations Research, 222(1), pp. 125-141.

Bekaert, G., & Hoerova, M. (2014) The VIX, the variance premium and stock market volatility. Journal of Econometrics, 183(2), pp. 181-192.

Bromiley, P., McShane, M., Nair, A., & Rustambekov, E. (2015) Enterprise risk management: Review, critique, and research directions. Long range planning, 48(4), pp. 265-276.

Collier, P. J. (2015) Developing Effective Student Peer Mentoring Programs: A Practitioner’s Guide to Program Design, Delivery, Evaluation, and Training. Stylus Publishing, LLC.

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.

Haff, G. G. and Triplett, N. T. (2015) Essentials of Strength Training and Conditioning 4th Edition. Human kinetics.

Ogiela, L. (2015) Advanced techniques for knowledge management and access to strategic information. International Journal of Information Management, 35(2), pp. 154-159.

Osterloh, S., & Heinemann, F. (2013) The political economy of corporate tax harmonization—Why do European politicians (dis) like minimum tax rates?. European Journal of Political Economy, 29, pp. 18-37.

Twomey, D. M., Doyle, T. L., Lloyd, D. G., Elliot, B. C. and Finch, C. F. (2015) Challenges when implementing an evidence-based exercise injury prevention training program in community-level sport. Journal of Applied Case Studies in Sport and Exercise Science, 1(1).

 

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