Answer the following questions in the spaces provided.
A. Explain what is meant by the term ‘Budget’ (100 words).
B. Identify four stages of strategic planning cycle and briefly explain how each stage of strategic planning cycle affects the budgeting operations of a company (150 words).
C. Assume you are employed by a white goods distributor and have been asked to prepare a list of controllable (those things that the business can directly influence) and uncontrollable (those things that the business can’t directly influence) factors that might affect the sales of refrigerators in the coming year. Supply a list for the next management meeting. You must supply at least 3 controllable and 3 uncontrollable factors.
D. Explain the principles of double-entry bookkeeping and how they affect the budgeting process. (100 words). As an example, sales budgets will impact cash as well as income.
E. What is a variance? Describe favourable and unfavourable variances. What action would you take if there was a very large variance? (100 words)
F. Statistical analysis is a way of looking at the correlation (relationships or trends) between two or more variables. How could statistical analysis be used in budget reporting? (50 words)
G. Name and describe three forecasting techniques (100 words)
H. How often should the budget be monitored? When must budget reports be prepared? When must financial statements be prepared?
Reference the organisation’s policies and procedures.
I. In order for a budget to be accurately completed, it is important to be able to understand the terms cash, revenue and expenses. Define these three terms.
Management of Staples Pty Ltd has provided you with the following account balances as of 1 April:
Accounts Balances on 1 April $ $
Cash at Bank 6,000
Accounts Receivable (net) 12,000
Prepaid Rent 1,000
Furniture & Equipment 27,000
Accumulated Depreciation – Furniture & Equipment 4,600
Plant & Machinery 54,000
Accumulated Depreciation – Plant & Machinery 22,400
Accounts Payable 7,000
Accrued Wages 1,200
Bank Loan 48,000
Share Capital 30,000
Retained Earnings 8,600
Totals $121,800 $121,800
Budgeted Sales revenue:
o April $25,000
o May $27,000
o June $20,000
o July $23,500
• Cash Sales account for 50% of sales. Credit sales (Accounts Receivable) are collected 40% in the month of sale and 60% in the following month.
• Purchases are expected to be made at the rate of 55% of expected sales for each month and are purchased on credit. The company requires the monthly ending inventory balance to be $20,000 plus 25% of the next month’s purchases.
• Creditors (Accounts Payable) are paid 20% in the month of purchase and 80% in the next month.
• Dividends are paid by the business at the rate of $4,000 per quarter. Paid on the last day of the quarter.
• Rent on premises is $3,000 per quarter, paid on the last day of the first month of each quarter.
• Wages are normally paid as incurred and this will occur in the quarter ended 30 June. In the quarter ended 31 March, pay day fell on 25th March so 6 days wages of $1200 were outstanding at 31 March and are yet to be paid (Accrued Wages). Wages are normally incurred at the rate of $5,000 per month.
• The following are paid as incurred: electricity $400 per month, interest on loan $180 per month and cleaning contractor $200 per month. The loan principal is paid at the rate of $2,000 per quarter.
• Depreciation is charged at 10% per annum on the cost of the furniture and equipment and 15% per annum on the cost of the plant and machinery.
• New machinery will be purchased for cash on 30th June for $10,000
A. In an Excel spreadsheet (template provided) you are required to:
Create the following for the months of April, May and June 2016:
a. A Budgeted Income Statement
b. A Cash Budget
Note: In preparing the above budgets, you will be required to prepare purchases, expense, cash payments and cash receipts schedules.
B. Suggest to the management of Staples Pty Ltd 2 (two) ways the business is sensitive to changes from the time budget is created to the time that cash, revenue and expenses occur and identify 4 (four) KPIs.
Prepare a Budgeted Profit and Loss Statement (in the template provided below or in the excel spreadsheet) for Marmax Consulting Services for the month of December 2016. Assume the fees budget estimated by management for two situations is as follows:
Situation 1: The fees budget estimate is achieved at 100 per cent
Situation 2: The fees budget estimate is achieved at 80 per cent
Expenses are as follows:
o Advertising is a fixed amount of $4,500 per annum plus 1.25 per cent of fees
o Office wages $2,000 per month
o Office supplies 10 cents per consultancy hour
o Staff salaries $8,500 per month
o Staff commission 4 per cent of budgeted fees
o Vehicle expenses $15,300 per annum plus 2.5 per cent of fees
o Interest expense 15.5% per annum of a loan of $20,000
o Legal fees $1,000 per month
o Rates $12,900 per annum
o Income tax 33 cents in the dollar
o The fees budget shows a budgeted level of 1000 consultancy hours at $100 per hour.
o Fixed costs include: Office wages; Staff salaries; Legal fees; Rates
MARMAX CONSULTANCY SERVICES
Budgeted Profit & Loss statement
for the month of December 2016
Situation 1 Situation 2
Consultancy fees received
Profit before tax
Net Profit after Tax
The Jersey Dairy Company is a producer of top quality dairy products. The manager has provided the following information in relation to two of its products, tubs of flavoured yoghurt and cottage cheese, for the year 2015- 2016. The budget selling prices for the products were $8 per tub of yoghurt and $5.50 per tub of cottage cheese.
• Expected sales were 90,000 tubs of yoghurt and 47,800 tubs of cottage cheese.
• Budgeted cost of goods sold in each case was 40% of the selling price.
• Actual sales were:
• Yoghurt 53,000 tubs at $8 and 34,500 tubs at $7.20
• Cottage cheese 49,200 tubs at $5.50
• Cost of goods sold were:
• Yoghurt $235,340
• Cottage Cheese $113652
Budget and actual period cost were:
Sales salaries 144,000 141,204
Advertising 72,000 60,516
Depreciation 28,000 28,000
Office Expenses 180,000 185,000
a. Prepare an income statement for the year 2015 – 2016 (in the excel template provided).
b. Prepare a performance report for the income statement for the year, showing gross profit, net profit and all variances from the budget in dollars and percentages (in the excel template provided).
c. Write a brief report (250 to 300 words) to present to the Jersey Dairy Company management on the performance of the actual budget below. In your report, comment on any increase or decrease in sales, cost of goods sold, expenses and net profit. You can make reasonable assumptions while noting the reason for change in these for e.g. the increase in sale of yogurt can be a result of high demand due to popularity of flavoured yogurts and high advertising.
d. You are required to present this report verbally to the Jersey Dairy Company management, clarifying the variances and seeking direction from the business as to how to address these variances.
Provide a recommendation to the management on improving any outcomes of the unfavourable variances noted in your calculations in part b. Report to the Management of Jersey Dairy Company
This presentation and conversation is to be observed by your Assessor. This can be achieved in one of three ways:
• Completed in class
• Completed using technology – online rooms, phone or web conferencing
• Audio or video recording
Peter Jacobs, the owner of Jersey Dairy Company, needs to increase his profits in 2016 by 30% to maintain viability.
Following your discussions with Peter you have agreed to the following:
• Peter believes that the expenses for the year would increase as follows, Insurance 7.5% and Wages by 4.3%.
• Advertising expense to increase by at least 8%.
• Fuel and oil would increase by 5%
• Income tax expense is expected to be $50,000 (the same as 2015)
• The budget would not include Discounts Allowed, Sale of any Non-Current Assets, Discounts Received or Bad Debts. It is expected that all other Revenues and Expenses would remain the same.
• Service Fees will increase
• Peter has estimated the seasonal services fee breakdown in the next four quarters to be as follows:
Seasonal Variation Quarter 1 Quarter 2 Quarter 3 Quarter 4
100% of annual Service Fees 20% 15% 35% 30%
Using the Actuals Budget provided on next page, determine the year’s budget objective and provide service fees for the year 2016 and the service fees milestones for each quarter in the template provided below or in the excel spreadsheet.
Budget of Jersey Dairy Company
for period January-December 2015
Actuals % Change Budgeted
Service Fees 750,000
Interest Revenue 2,800
Total Revenue 752,800
Advertising 10,350 8.00%
Insurance 18,250 7.50%
Fuel & Oil 10,000 5.00%
Equipment Repairs 60,493
Wages 205,000 4.30%
Interest on Mortgage 9,250
Interest on Overdraft 11,250
Total Expenses 326,593
Profit before Tax 426,207
Income Tax 50,000
Profit after tax 376,207 30.00%
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year
100% of annual Service Fees 20% 15% 35% 30% 100%
Dollar value ($)
EXTRACT – POLICIES & PROCEDURES
Procedure for Financial Administration and Budgeting
Staples Pty Ltd has implemented this policy to ensure that financial administration is completed in accordance with legal, ethical and accounting requirements.
Processing of financial transactions
All Employees must ensure financial transactions are recorded accurately and timely.
Employees should perform their duties with honesty and integrity.
Financial statements should be prepared in accordance with the Australian Accounting Standards AASB101.
Financial statements must be prepared 45 days after the end of the financial year.
All transactions should be prepared on an accruals basis and are based on historical costs.
Staples Pty Ltd. is registered for GST and therefore must account for GST in all applicable transactions and on Financial Statements.
The budget process will include consultation and communication with managers from all departments.
Forecasting techniques will include internal/controllable factors and external /uncontrollable factors.
Budgets will be monitored weekly to identify all Key Performance Indicators.
Budget control will compare accurate results with budgeted figures.
All Budget reports must be prepared 12 months before the start of the next financial year.
Errors and Omissions
All errors and omissions detected in financial reports must be referred to the company accountant or immediate supervisor before any corrections are attempted.
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