BSBFIM501 Manage budgets and financial plans Assessment 3

Learner Instructions 3

(Monitor and control finances)

Performance objective

The candidate will demonstrate the ability to monitor and control finances.

Assessment description

In response to the scenario provided, you will create a simple spreadsheet budget to capture monitoring information. Using information provided to you by your assessor, you will then use the budget spreadsheet to produce a report on expenditure in accordance with organisational policies and procedures. You will also modify a contingency plan.

Procedure

Read through the scenario provided in Appendix 1 to this assessment task and tasks A and B.
Design and develop a spreadsheet to capture budgeted and actual figures to produce a variance report.
Access actual budget figures from relevant managers and accounting systems (assessor).
Monitor and record actual figures.
Consider feedback from team members.
Produce a variance report as per organisational requirements.
Consider the scenario information and contingency plan provided and analyse the variance report.
Modify the contingency and implementation plans provided in the scenario to improve effectiveness.
Submit all documents required in the specifications below to your assessor. Ensure you keep a copy of all work submitted for your records.

Specifications

You must provide:

a budget variance report
a modified contingency plan and modified implementation plan your notes on procedures.

Your assessor will be looking for:

numeracy skills to read and understand a budget and to produce a variance report
technology skills to use software associated with financial recordkeeping
knowledge of basic accounting principles to identify and use account balances
knowledge of organisational requirements related to financial management
knowledge of organisational requirements for records and reports
knowledge of principles and techniques involved in budgeting, profit and loss statements, electronic spreadsheets.

Appendix 1 – Scenario

Big Red Bicycle Pty Ltd is a bicycle manufacturer based in Bendigo, Victoria. The company produces bicycles which it sells to retailers in the domestic Australian market.

The senior management structure of the company appears below.

Person	Position
Michelle Yeo	Chief Executive Officer (CEO)
Tom Copeland	Managing Director
John Black	Chief Financial Officer (CFO)
Stuart LaRoux	Operations General Manager
Pat Roberts	Senior Accountant
Sam Gellar	Sales General Manager
Charles Pierce	Production Manager
Holly Burke	HR Manager

According to company strategic plans, the company aims to achieve a net profit before tax of $1,000,000. The chief risks to this goal are:

poor sales due to economic downturn
increases in expenses such as wage expenses.

In addition to Australian operations, the company is considering manufacturing overseas to take advantage of reduced costs. The company is also considering diversifying its product range to reduce exposure to poor sales of one product.

Role

You are the Senior Accountant at Big Red Bicycle. A major component of your role is setting budgets and monitoring budgetary performance for the organisation.

Task A

The Managing Director, Tom Copeland, has asked you to implement a process to monitor expenditure and income. He has asked you to prepare a spreadsheet to capture and compare actual income and expenditure to budgeted figures. Your spreadsheet must contain columns for each of the four quarters of the financial year.

You are required to gather data from the relevant managers (your assessor) to complete a budget variance report.

The report should conform to organisational requirements in policies and procedures and contain:

columns to show actual account values
absolute variance
percentage variance.

Task B

It has come to the attention of the Managing Director, Tom Copeland, that due to the current economic climate, sales volume may be 20% below target this financial year. Tom is worried that this may severely impact profit projections. The company can accept as much as a 10% variance in profit projections; however, more than this could severely affect the company’s ability to pay obligations and invest. Reliable data to determine whether the risk has eventuated should be available by midway through the second quarter (Q2), when sales data for the company’s product are in.

Consider the contingency plan and the implementation plan for the contingency below. You have already implemented a portion of the contingency plan, namely the monitoring of budget performance in the variance report you have prepared. You should now analyse the report to determine the effectiveness of the contingency plan and its implementation.

You have received the following feedback from team members:

Full-time workers and sales people are resentful of time wasting and distracting contract employees.
Overtime not used but employees resentful of suggestion it might not be approved if needed.
Training suited the needs of many sales team members but was not relevant to about half the team members.
Sales team members were happy with the incentives program and tried hard to make sales in the third quarter (Q3); however, they were also resentful at the threatening tone of emails and soon lost enthusiasm.
Effect of one-day training wearing off.
Fifty percent of direct wages costs are attributable to short-term contract employees whose contracts have expired and who are no longer needed.
Employees concerned about lack of attention paid to wastage: water; electricity:

paper; raw materials.

Employees feel left out of budgetary decision-making in general.

The Managing Director would like you to submit a revised contingency plan and contingency implementation plan to bring income and expenses under more effective control.

Contingency plan for Task B

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 minimise the risk	By when	By whom
Produce quarterly variance reports to identify income/ expenditure and profit shortfalls over 10%.	Q2	PR
Implement sales training/coaching.	Q2	PR
Implement incentives program.	Q2	PR
Reduce overtime.	Q2	PR

Contingency implementation plan for Task B

Risk identified: Profit for FY more than 10% less than budgeted
Activity	Monitoring activity and date	Person/s
Monitor variance.	Completion of variance report: Q2.	PR
Analysis of report to identify issues.	Management report: Q2.	PR
Email to warn employees of risk to jobs.	Monitoring of variance report results: Q4.	PR
Email to announce rise of commission from 2% to 2.5%.	Monitoring of variance report results: Q3.	PR
Email to inform employees that overtime will no longer be approved.	Monitoring of variance report results: Q3.	PR
Email to inform employees of mandatory sales skills training: set program.	Monitoring of variance report results: Q3.	PR
Mandatory training conducted.	Monitoring of variance report results: Q3.	PR

Appendix 2 – Budgeting and finance policy

Budget preparations

The business plan will set the key parameters for all financial budgeting.
Variations to the business plan must be approved by the CEO and senior management strategic committee.
Prior period results are to be analysed to identify the profit level of cost centres, identify correlations between financial statistics and to set key performance indicators and benchmarks for future budgets.
The budget planning committee will meet prior to budgets being developed and agree on budget parameters. The committee will consist of all department managers plus the CEO and Chief Financial Officer.
A CAPEX budget will be developed from the approved business plan.
A detailed sales budget must be completed before completing the profit budget for the year.
A cash-flow budget covering the first three months will be prepared after the profit budget is completed.
A master budget including profit projections will be completed from which cost centre allocations will be made.
Budget notes that contain all the assumptions used in the budgets should accompany the master budget or be made available on a separate document. Where possible, the notes should justify the basis on which the estimates were made.
Overheads (non-direct expenses) will be apportioned across the cost centres equally. Exceptions need to be negotiated with relevant authorities.
All expenses and income will be spread equally throughout the year unless otherwise required by business needs or business environment.
The financial cycle for budgeting purposes will be yearly ending 30 June.

Reporting requirements

Software applications to be used in reporting:

Environment – MS Windows.
Accounting information system – MYOB AccountRight.
Data analysis – Microsoft Excel 2007.

Actual results will be produced monthly by the MYOB accounting system. Actual variances to budget will be produced using Excel with a report prepared for senior management for significant variances.

Financial delegations

Each manager is responsible for achieving the revenue budgets agreed to in the budget committee.
Each manager is responsible to approve, by signing the necessary paperwork, all expenditures that fall within their area of responsibility.
Expenditures must be within the budget guidelines for the individual departments.

Format for budgets and reports All budgets must include the:

name of the person who prepared it
cost centre (if applicable)
name of the budget/report, i.e. sales, expenses, CAPEX, cash flow, budget variance report
period of the budget.

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