BSBFIM601 Manage Finances Assessment Task 2 Monitor and review budget
This assessment task requires you to monitor the implementation of a budget and report on the variances, trends and performance of the established budget for a fictional business and provide recommendations for ongoing financial viability.
You will need to review the provided current case study information and compare it to the budget you established in Assessment Task 1. After evaluating these you will need to report on the following:
- significant issues
- variances from budget
- comparative performances
- recommendations for ongoing financial viability
- evaluation of financial management processes.
- Read the case study.
- Develop a variance report based on the format and template provided by Houzit.
- Complete a cash flow analysis on the average length of time it takes Houzit to collect funds from its debtors to determine the trend based on the financial reports in Assessment Task 1.
- Examine the sales budget, profit budget, cash flow budget and debtor ageing summary to identify the following in a report:
- Identify, describe and prioritise significant issues that are evidenced in the provided case study information and describe reasons or causes of these issues. Include in this issues of financial probity that you have identified or considered when monitoring these budgets.
- Complete an actual-to-budget variance report, using the template provided in the case study.
- Identify variances by comparing actual results with the established budget, and provide reasons why these variances may have occurred.
- Compare financial performance of the organisation (according to financial information provided) to industry benchmarks for this organisation in line with the retail trade sector.
- Respond to the performance questions provided by the CEO, as provided by the board of Houzit,
- Determine a trend of the average debtor days and the impact to the cash flow of Houzit.
- Outline your recommendations for ongoing financial viability for the organisation, based on your assessment of the issues, reasons for variances and organisational performance you have identified (Steps 1–3).
- Include in this section your plans for a revised budget, effectively managing contingencies and issues that have been identified in feedback and monitoring of the budgets.
- Provide a summary review of the financial management processes in place for the organisation, in light of your assessment of the issues, reasons for variances and organisational performance you have identified. Include in this section any recommendations you have for modifying management processes.
- Prepare for and undertake the role-play presentation:
- Arrange a time with Jim Schnieder, CEO of Houzit Pty Ltd (your assessor), to present an oral explanation of your variance report. Ensure that your assessor has copies of or access to documents you will be referring to.
- Deliver the presentation of your variance report
- Summarise your findings (issues, variances, financial performance)
- Prioritise and present your recommendations.
- Ask for questions, either during or at the end of the presentation, to:
- demonstrate your oral communication skills
- use questioning and listening techniques
- demonstrate competent exchange of information
- use appropriate conventions and protocols
- ensure the manager/CEO is clear about budgets
- Seek approval (or discuss as required) of your recommendations in the report.
You must submit:
- a complete actual-to-budget variance report
- a completed report detailing the issues, variances, performance, recommendations and evaluations identified from the financial information for Houzit Pty Ltd.
Your assessor will be looking for:
- Evidence that you reviewed the provided case study information to develop an evaluative report concerning the progress of the budget.
Adjustment for distance-based learners
- No changes to the task are required.
Case study: Houzit Pty Ltd
Soon after the end of the first quarter, Jim Schneider the CEO of Houzit, asked you to follow up with Celina Patel, Houzit’s accountant, to see how the actual results compared with the budget you had prepared three months ago. You explained that you had a meeting with Celina that afternoon to get the results and that you would report back as soon as you had done some analysis.
The key questions that the board was most interested to have answered from the budgets and the variance reports were:
- ‘To what extent do the reports support the view of the board that Houzit is financially viable?’
- ‘Will we be able to maintain our gross profit margins in the predicted downturn?’
Jim and you both agreed that it had been a tough quarter with the economy still in recession and the impact this was having on the retail sector. Banks are raising interest rates in line with the increased upward international pressure and Houzit has a significant part of their loan funds on a variable interest rate which changes directly with market conditions. Jim was pleased that the sales seem to be holding up reasonably well as first quarter results are generally impacted by factors relating to public and school holidays but he was concerned about the discounts that had to be given to generate these sales.
‘That’s going to hurt us at some point’ Jim said. ‘Just a pity we could not get into some national magazines this quarter to promote the store offers. I’m sure that would have helped us exceed the budgets you set. I guess we will just have to spend that advertising money in the next quarter’ Jim said. ‘I still think we are running our wages and salaries a bit high. The industry benchmark for wages and salaries is close to 11% of sales’
Jim went on to explain, ‘One of our contingency plans in a slowing economy is to reduce our exposure to debt by applying our profits to the repayment of the long term debt. This will help reduce the interest burden on the business and take some pressure off the diminishing profits. It would also be of interest to determine the impact that our debtors has on the cash flow of the business from 2010/11.’
You are a beneficiary of the company’s profit bonus scheme that is based on the profitability of the company’s financial reports which you are required to prepare. You also prepare the departmental reports that form the basis of the performance review of the managers. You are the manager of the finance/administration and prepare this department’s report as well.
You met that afternoon with Celina and she provided you with the following report on the actual results for the quarter ended 30 September 2011.
Houzit Pty Ltd Actual Results Qtr 1 Revenue Sales 3,371,200 – Cost Of Goods Sold 1,955,296 Gross Profit 1,415,904 Gross Profit % 42% Expenses – Accounting Fees 2,500 – Interest Expense 28,150 – Bank Charges 380 – Depreciation 42,500 – Insurance 3,348 – Store Supplies 790 – Advertising 150,000 – Cleaning 3,325 – Repairs & Maintenance 16,150 – Rent 660,127 – Telephone 3,100 – Electricity Expense 5,245 – Luxury Car Tax 12,000 – Fringe Benefits Tax 7,000 – Superannuation 37,404 – Wages & Salaries 410,500 – Payroll Tax 19,741 – Workers’ Compensation 8,312 Total Expenses 1,410,572 Net Profit (before tax) 5,333 Income Tax 1,600 Net Profit 3,733 GST cash flow – Actual Cash flow analysis – GST Qtr 1 GST Collected 337,120 Less GST Paid 279,988 GST Payable 57,132 Aged debtors – Actual AGED DEBTORS BUDGET Qtr 1 Sales 3,371,200 % Debtors Sales 22% Total Debtors 741,664 Current 585,915 30 days 111,250 60 days 37,083 90 days 7,417 Total Debtors 741,664
Budget variance report template
According to the organisational policy and procedures, the following format is to be used when preparing a budget variance report.
Houzit Pty Ltd Variance to Budget xxx Quarter ended mmm-yyyy Actual Results Budget-Qx Actual-Qx $
% Variance F or U Sales x,xxx x,xxx x,xxx x% F or U – Cost Of Goods Sold x,xxx x,xxx x,xxx x% F or U Gross Profit Calculation Calculation Calculation x% F or U Gross Profit % % % % x% F or U Expenses – Accounting Fees x,xxx x,xxx x,xxx x% F or U – Interest Expense x,xxx x,xxx x,xxx x% F or U – Bank Charges x,xxx x,xxx x,xxx x% F or U – Depreciation x,xxx x,xxx x,xxx x% F or U – Insurance x,xxx x,xxx x,xxx x% F or U – Store Supplies x,xxx x,xxx x,xxx x% F or U – Advertising x,xxx x,xxx x,xxx x% F or U – Cleaning x,xxx x,xxx x,xxx x% F or U – Repairs & Maintenance x,xxx x,xxx x,xxx x% F or U – Rent x,xxx x,xxx x,xxx x% F or U – Telephone x,xxx x,xxx x,xxx x% F or U – Electricity Expense x,xxx x,xxx x,xxx x% F or U – Luxury Car Tax x,xxx x,xxx x,xxx x% F or U – Fringe Benefits Tax x,xxx x,xxx x,xxx x% F or U – Superannuation x,xxx x,xxx x,xxx x% F or U – Wages & Salaries x,xxx x,xxx x,xxx x% F or U – Payroll Tax x,xxx x,xxx x,xxx x% F or U – Workers’ Compensation x,xxx x,xxx x,xxx x% F or U Total Expenses Calculation Calculation x,xxx x% F or U Net Profit (Before Tax) Calculation Calculation x,xxx x% F or U Income Tax Calculation Calculation x,xxx x% F or U Net Profit Calculation Calculation x,xxx x% F or U
Note: F = Favourable, U = Unfavourable
Debtor ageing ratio template
2009/10 2010/11 2011/12 Trade Debtors Sales Debtor Days
Anticipate that the trade debtors for the 2011/12 financial period maintain the same growth as that which took place between 2009/10 to 2010/11.
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