Assessment Task 1: Financial Management approaches

Task A

Meeting with manager

Dear Sam Gellar

As asked by you I reviewed the master budget of the company for the year ending 30 June 2012 and
cost centre budgets prepared by senior accountant in accordance with the budget reparation policies
of the company. During the review I identified some areas which are unclear, inaccurate and not
achievable. I want to discuss the following issues:

Issues for clarification

1. The budget preparation policies of the company require the cost allocation equally to all cost
centres but they also allow exception after negotiations with authorities and approval of CEO. In the
cost centre budget the expenses have been allocated equally but the sales at cost centre A are
generally more than the total sales of other two sales centres. According to the
fundamental accounting principle of prudence the cost allocation shall be made on a fair basis
(Lienert, 2013).
2. It is estimated that the sales of Q2 are likely to be$1,000,000 whereas the sales of remaining three
quarters are generally 30% less than the sales in Q2. As per the ATO legislation and accounting
principles, the accounting shall be done on the accrual basis and therefore the projected sales for
each quarter shall be allocated accordingly. The sales in the master budget have been allocated
equally to all the four quarters.
3. The commission on sales is negotiated with the sales team members to be 2/5 =5 of sales but the
commission in the master budget are included @2% of sales. ]
4. The format of presentation of elements of gross profit is not proper.

Changes required to be negotiated

In accordance with the above mentioned issues and for the compliance of accounting policies and
legislative requirements he following changes are required to made in the master budget and cost
centre budget prepared by the senior accountant:

1. The expenses to the cost centre A, B and C shall be apportioned in the ratio of 2:1:1 rather than
allocating equally.
2. The projected sales of Q2 shall be $1,000,000 and the remaining sales of 2,000,000 shall be
allocated equally to Q1, Q3 and Q4.
3. The commission on sales shall be provided @2.5%.
4. The presentation of items shall be properly made for calculation of gross profit. Revenues shall be
presented at beginning from which cost of goods sold commission and direct expenses shall be
deducted to arrive at the gross profit.
If you agree with the above changes required to be made in the budgets the proposal could be made
to the CEO for approval.

Task B
Contingency Plan

Company name: Big Red Bicycle Pty Ltd

Person developing the plan:

Name:Tom Copeland                     Position: Managing Director

Risk identified:

 Sales volume is likely to be 20% less than the target for the financial year
 10% variation in projected profit for the year
 Adverse effect on liquidity resulting in difficulty to pay obligations and invest in the
business operations

Strategies/activities to minimise the risk By when By whom

  By the end Operations

of Q1 general
Effective marketing and advertising to increase the product manager/
demand Marketing
Manager

Customise the products in accordance with customer needs At the Production

and requirements to increase sales volume through beginning Manager
increased customer base of
production
processes

  By the end Production

of Q1 Manager/HR
Increase in productivity of workers  to reduce wage expenses Manager
and increase the profits

  At the Operations
beginning General
Effective management of working capital to manage funds of Q1 Manager/
within the business operations and pay short term Finance
obligations. manager

  By the end Senior

of 1 month Accountant/
Develop effective financial management plan on the basis of Finance
cash budget to make arrangements for procurement of funds Manager/
for business. CFO