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BSBFIM601 Manage Finances

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BSBFIM601 Manage Finances

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Course Code: BSBFIM601
University: Victoria University

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Country: Australia

Question:

This assessment requires you to determine the requirements to undertake budgeting, financial forecasting and reporting requirements for an organisation. You will also need to review the case study provided and prepare a budget (in electronic spreadsheet format) and budget notes for distribution and implementation in the organisation.
1.Read and analyse the case study information (including business plan summary and previous financial data) in Appendices 1–3 at the back of the Assessment Task, and complete the following tasks.
a.Develop a sales budget, profit budget, cash flow budget and debtor ageing summary using electronic spreadsheets (as separate worksheets) making sure each budget is divided into quarterly periods and that you use previous financial data to determine allocations for resources.
i.Ensure each budget you prepare complies with the organisational policies and procedures as provided.
Please find the attached separate worksheet in the email.
b.Develop budget notes that include:
i.identification of reasons for previous profits and losses
-Profits earlier year are $851,188 in 2010 and $1,019,499 in 2011.
-Reasons are that there is an expanding client base and the business is based on unrivalled after deals benefit.
-Effectiveness of existing money related administration approaches
-Inadequate analysis of revenue/expense to produce an informed estimate
-Lack of computer software to produce timely and detailed reports.
-Dependence on subjective information as opposed to adjusting it with quantitative information and analysis.

Answer:

Development of variance report of Houzit Pit Ltd:

Cash flow analysis depicts the total amount of GST that has been collected and total amount that has been paid. Total amount of GST collected has increased from $ 339425 to $ 509137 as against amount of GST paid that witnessed significant increase from $ 47652 in 1st quarter to $ 100456 in 2nd quarter.
Examination of different budgets:
Issues:
Over the year, there has been increase in sales margin which is due to increasingly discount offered by company that has contributed to generation of additional profits. Cash flow of company is adversely impacted by the time that has been allowed for payment of debtors (Aris Machmud et al. 2016). In addition to this, financial viability of business is impacted by increasing interest rate charged by bank.
Sales budget:
It can be seen from table that there is considerable increase in amount of total sales from 1st quarter to 4th quarter. This increase in total amount of sales is attributable to increase in sales of kitchenware, bedroom decorative, gifts, lighting fixtures and decorative items. Therefore, sales budget is generating favorable outcome at the end of 4th quarter.
Profit budget:
The table above depicts that there is significant increase in amount of net profit in the reported quarters. Total expense has initially decreased in 2nd quarter and thereafter it started increasing in 3rd and 4th quarter. Amount of gross profit reported increased from 1st quarter at $ 1459527 to $ 2189289 in 4th quarter. Percentage of gross profit reported remained constant at 43%.
Aged debtor’s budget:
Total amount of debtors has increased from $ 678850 in 1st quarter to $ 1018274 in 4th quarter. For 90 days of debtor’s receivable, the amount of debtors is considerably lower compared to 3o days and 60 days.
Variances:
From the above table, it is depicted that compared to budgeted sales, the actual amount of sales made is more for 1st quarter. This is because of increasing sales due to increased demand of products. However, there was decline in sales generated compared to budgeted figures in the subsequent quarters due to discounts offered during school and public holidays for generating increased amount of sales. In addition to this, the cost of goods sold is expected to become costlier due to increase in cost of material resulting from recession. The recession factor contributing to unfavorable economic conditions has contributed towards rising operating costs (Khan and Jain 2017). Hozit also enhanced their operating activities due to increased global pressure that has ultimate impact on increasing overall operational costs.  With regards to the budget preparation, the financial probity is that all the associated financial transactions relating to debtors have been legally met and financially recognized.  
Debtors ageing ratio:

 

2009/10

2010/11

2011/12

Trade Debtors

$8,50,000

$9,75,000

$33,94,247

Sales

$1,45,50,100

$1,57,14,108

$1,69,71,237

Debtor Days

21.3

22.6

73.0

Performances:
Comparison of financial performances:
The actual gross profits reported by company are comparatively lower as against the budgeted value, although the amount of budgeted sales is less compared to actual sales.  The reason attributable to lower actual gross profits reported by Houzit Pty Ltd is increased amounts of discount offered to sync with the scenario prevailing in market. In addition to this, compared to benchmark of industry that sets the wages and salaries at 11% of sales, wages and salaries offered to employees are significantly higher. Nevertheless, the payment made to debtors was made on time owing to increased sales and profits generated by company. Advertising has helped organization in reducing demand for making customers aware of ongoing scenario in the market (Gitman et al. 2015). Hence, it can be inferred that Houzit was able to enhance level of profits by maintaining it through brand image and quality of service in spite of rising inflation.  
Responding to questions by CEO:
In spite of economic fluctuations and global pressure, company was successful in maintaining level of profit margin. Rising inflation in economy can be tackled by company by increasing sales using offering discounts as a tool. Nonetheless, the company is considered as financially viable in accordance with current scenario that would lead to long term strategic plans that is answerable on part of CEO. Maintenance of adequate level of gross profit margin would assist company in offsetting the amount of estimated fall in profit levels.
Recommendations:
Houzit Pty Limited is required to take into account the present as well as past for the computation and analysis of operational expense. Furthermore, budgets should be reviewed by company on regular basis and meeting the short term objectives for making necessary adjustments. Moreover, it is required by company to review its production and sales budget in event of introduction of any new product. Measures should be taken by company to reduce the reasons associated with any unfavorable variances. This would help in attainment of favorable financial position by removing any adverse circumstances. Moreover, efforts should be taken by organization for dealing with any adverse budgetary impacts by generating adequate level of profits.
Summary review of process of financial management:
Operating cost of business should be properly analyzed by management for efficient operations of management. There should be reduction in credit period and for reduction of errors, an automated system should be employed for generating invoices. Improvement in the financial management process can be brought by employment of accounting software’s that would help in reduction of errors (Chenhall and Moers 2015).
References
Aris Machmud, S.E., Ak, M.S. and Siti Rustiana Hamidah MSi, A., 2016, January. Enhancing Managerial Performance through Target Costing and Budget Participation. In International Conference on Accounting and Finance (AT). Proceedings (p. 18). Global Science and Technology Forum.
Booth, P., 2018. Management control in a voluntary organization: accounting and accountants in organizational context. Routledge.
Chenhall, R.H. and Moers, F., 2015. The role of innovation in the evolution of management accounting and its integration into management control. Accounting, Organizations and Society, 47, pp.1-13.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.
Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management Accounting Research, 31, pp.10-30.
Khan, M.Y. and Jain, P.K., 2017. Management Accounting: 7/e. McGraw-Hill Education.
Lavia López, O. and Hiebl, M.R., 2014. Management accounting in small and medium-sized enterprises: current knowledge and avenues for further research. Journal of Management Accounting Research, 27(1), pp.81-119.
Otley, D., 2015. in Management Control. Critical Perspectives in Management Control, p.27.
Sponem, S. and Lambert, C., 2016. Exploring differences in budget characteristics, roles and satisfaction: A configurational approach. Management Accounting Research, 30, pp.47-61.

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