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 2021
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:

b) 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.
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.
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.

Task 2:

Determine organizational Needs:

The company aims to achieve a net profit before tax of $1,000,000 but there are some risks to
achieve the goal. Such as poor sales due to economic downturn and increases in wage expenses.
To make it happen, first of all we need to make sure that the team member understand what the
budget means for everyone. We need to conduct a meeting and provide an overview of the
budget and explain how the budget translates to expense allocations for the team. Also, we need
to explain overall financial objective of the business.

Identify coaching and training needs for team member:

Some team members have no idea how the budget works and how to track the expenses. There
are seven people out of ten that needs coaching and training. We need to ask the other three to be
the mentors in the coaching and training process. There will be three sessions of the coaching
and training. First session will be presentation to explain how to review and track all the
expenses. The second session will be role play where all the members will be given certain
amount of budget and ask them to make some adjustment to achieve the net profit as the
company’s plan. The last session will be assessment by the Senior Accountant.

plan 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 CFO.
• 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 as a separate document. Where possible, the
notes should justify the basis on which the estimates were made.

Action Plan
Activity Monitoring Timelines Accountability
Working capital Reporting working At the end of every Senior Accountant
management capital ratios quarter
Cash Management Preparation of cash Monthly Senior Accountant
budget
Reduce variable Variable expense At the end of every Senior Accountant
costs budget and variance quarter
report

• Knowledge of principles and techniques involved in budgeting.

Basic accounting principles– The accounting principles are the fundamental policies and
 guidelines in relation to accounting framework which is applicable on the accounting
records of the company. There are generally face=vet fundamental accounting principles
which are required to be followed for the fair and relevant presentation of accounting and
financial information by an entity. The accounting principles include control, relevance,
compatibility, flexibility and cost benefit. These accounting principles ensure the quality
and fairness of reporting by the business. The control principle ensures that the business is
regularly monitored and controlled by the managers responsible for the management of
business. Relevance relates to the timely reporting of information, its usefulness, its
accuracy etc. compatibility relates to the accounting information which matches and
complies with the accounting and financial objectives of the organization. Flexibility
ensures the incorporation of business needs into the reporting mechanism. The cost-benefit
principle ensures that the benefits from reporting are higher than the cost incurred.
• Cash Flows- The cash flows are the transactions in cash for receipts and payments with
regards to business operations and transactions. The cash inflows and cash outflows are
presented in the cash flow statement or cash budget to estimate the cash deficit or cash
surplus.
• Ledgers and financial statements– The ledger statements are the specific accounts which
are prepared from the accounting entries and the account balance at the end of the period
are reported in the financial statements which include profit and loss statement and balance
sheet or statement of financial position.
• Profit and loss statements– The profit or loss statement is the financial statement which
presents the details of incomes and expenses which relate to the period of profit or loss
statement. The net profit or loss for the period is calculated in this statement.

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 20% less than budgeted

Strategies/activities to minimize the risk By when By whom

Produce quarterly variance reports to identify income/ Q2 PR
expenditure and profit shortfalls over 10%.
Implement sales training/coaching. Q2 PR
Introduce customer reward program to increase sales Q2 PR
Participation of employees in budgetary decision Q2 PR
making
Increase attention towards wastage, water and Q2 PR
electricity, paper and raw materials
 
 
 
Contingency plan template

Strategies/activities to minimise the risk By when By whom

  By the end Operations
of Q1 general
Effective marketing and advertising to increase manager/
the product demand Marketing
Manager
Customise the products in accordance with At the Production
customer needs and requirements to increase sales beginning Manager
volume through increased customer base of
production
processes
  By the end Production
of Q1 Manager/HR
Increase in productivity of workers  to reduce Manager
wage expenses and increase the profits

  At the Operations
beginning General
Effective management of working capital to of Q1 Manager/
manage funds within the business operations and Finance
pay short term obligations. manager
  By the end Senior
of 1 month Accountant/
Develop effective financial management plan on Finance
the basis of cash budget to make arrangements for Manager/
procurement of funds for business. CFO

Assessment 2:

Expenses (Quarter Expenses (Quarter Expenses (Quarter Expenses (Quarter 4)

1) 2) 3)
Expenses per period 100 100 100 100
Cumulative expenses 100 200 300 400

The numbers used in the illustration above are dummies.

 
Since the requirement is an income statement item, we cannot use a corkscrew for the
requirement as the expense is not a balance. Instead, we could set up a separate cell that would
calculate the cumulative values.
 
Formulas:
Cumulative expenses (Quarter 1) = Expenses (Quarter 1)
Cumulative expenses (Quarter 2) = sum (Expenses (Quarter 1), Expenses (Quarter 2))
Cumulative expenses (Quarter 3) = sum (Expenses (Quarter 1), Expenses (Quarter 2), Expenses
(Quarter 3))
Cumulative expenses (Quarter 4) = sum (Expenses (Quarter 1), Expenses (Quarter 2), Expenses
(Quarter 3), Expenses Quarter 4)

Bill skills need basic accounting. Bill needs to be informed of big red bicycle policies and
procedures for petty cash. Bill is familiar with Microsoft excel But does not know how to use the
formula function to solve the columns and rows.

• Staff will not be reimbursed in the following circumstances:

• any late payment penalties, e.g. overdue interest on credit cards

• expenses that are usually recovered from a third party

• penalties and fines, e.g. parking, traffic

• those claims that should have been made using the purchase order system

• those expense claims made by staff as a tax deduction

• Those expenses that were not made for business purposes.

Answer a

• Travel expenses claims:

• insurance for trip cancellation will be reimbursed

• mileage allowance will be given for the use of a staff member’s vehicle when used
for work-related travel

• personal stopovers or indirect routes will not be reimbursed

• travel reimbursement is provided for the most direct and economical mode of travel
available; circumstances will be considered on a ‘case-by-case’ basis

Answer c

• Accommodation expenses:

• reimbursement will cover moderate accommodation expenses; circumstances will be

considered on a ‘case-by-case’ basis

• Items of a personal nature that are charged to a hotel account will not be reimbursed.
 Answer a

• Employee’s own meals:

• Employees on Big Red Bicycle business will be reimbursed for any reasonable and
appropriate meal expenses.

This is quite reasonable

Petty cash

Purpose of the policy

To detail procedures to be followed in relation to tracking petty cash expenditure.

Task 2:

Statement of Financial Performance

Big Red Bicycle Pty Ltd
Statement of Financial Performance
For the year ended 30 June 2019
REVENUE
Sales 2,900,000
Less direct wages and commissions 272,500
Opening stock 100,000
Purchases 300,000
Closing stock 20,000
Less cost of goods sold 380,000
Gross Profit 2,247,500
EXPENSES
General & Administrative Expenses
Travel 22,000
Legal fees 4,500
Bank charges 700
Office supplies 4,000
Postage & printing 500
Dues & subscriptions 600
Telephone 11,200
Repairs & maintenance 45,000
Payroll tax 0
Marketing Expenses
 Advertising 208,000
Employment Expenses
Superannuation 47,500
Wages & salaries 500,000
Staff amenities 23,000
Occupancy Costs
Electricity 38,000
Insurance 100000
Rates 100,000
Rent 200,000
Water 35,000
Waste removal 60,000
TOTAL EXPENSES 1,400,000
NET PROFIT (BEFORE INTEREST & TAX) 847,500
Income Tax Expense 254,250
NET PROFIT AFTER TAX 593,250

Ageing debtors budget

Big Red Bicycle Pty Ltd

AGED DEBTORS TOTAL Qtr 1 Qtr 2 Qtr 3 Qtr 4

BUDGET 2018/19

Sales 2,900,000 600,000 900,000 800,000 600,000

% Debtors Sales 50% 50% 50% 50%

Total Debtors 100% 300,000 450,000 400,000 300,000

Current 65% 195,000 292,500 260,000 195,000

30 Days 20% 60,000 90,000 80,000 60,000

60 Days 12% 36,000 54,000 48,000 36,000

90 Days 3% 9,000 13,500 12,000 9,000

Assessment 3:
  
Activity Monitoring Timelines Accountability
 Working capital Reporting working At the end of every Senior Accountant
management capital ratios quarter
Cash Management Preparation of cash Monthly Senior Accountant
budget
Reduce variable costs Variable expense At the end of every Senior Accountant
budget and variance quarter
report

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 minimize the risk By when By whom

Produce quarterly variance reports to identify income/ Q2 PR
expenditure and profit shortfalls over 10%.
Implement sales training/coaching. Q2 PR
Introduce customer reward program to increase sales Q2 PR
Participation of employees in budgetary decision making Q2 PR
Increase attention towards wastage, water and electricity, Q2 PR
paper and raw materials

 Calculation of number of units required

Price per bicycle = $500
Variable cost per unit = $250
Contribution per unit = Price per unit – Variable cost per unit
                                    = $500 - $250 = $250
Total fixed cost = $1,280,000
Target profit = $1,000,000
Total contribution required = Fixed cost + Profit
                                                = $1,280,000 + $1,000,000
                                                = $2,280,000
Number of units required to be produced = Total required contribution/Contribution per unit
                                                            =$2,280,000/$250 = 9120 units
Calculation of variable cost
Total contribution required = $2,280,000
Current plant capacity = 8,000 units
Contribution per unit required = $2,280,000/8000
                                                = $285
Price per unit = $500
Variable cost per unit = $500-$285
                                    = $215
Recommendation– On the basis of above calculations made it can be observed that in order to
achieve the target profit the company will have to reduce its variable cost to $215 or increase its
production capacity to 9120 units. The current plant capacity is only 8000 units therefore the
company shall reduce its variable cost. If the variable costs could not be reduced the business
will have to shift to India plant.
 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 minimize the risk By when By whom

Produce quarterly variance reports to identify income/ Q2 PR

expenditure and profit shortfalls over 10%.

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 Person/s

date

Monitor variance. Completion of variance PR

report: Q2.

Analysis of report to identify issues. Management report: Q2. PR

Email to warn employees of risk to Monitoring of variance PR

jobs. report results: Q4.

Email to announce rise of Monitoring of variance PR

commission from 2% to 2.5%. report results: Q3.

Email to inform employees that Monitoring of variance PR

overtime will no longer be report results: Q3.
approved.
 Email to inform employees of Monitoring of variance PR
mandatory sales skills training: report results: Q3.
set program.

Reporting requirements
Software applications to be used in reporting:

• Environment – MS Windows.

• Accounting information system – MYOB Account Right.

• Data analysis – Microsoft Excel 2019.

Assessment 4:

Complete the following.

• Review the Statement of Financial Performance in Appendix 2 to calculate:

• The average debtor days 46 days _________

• The average creditor days 29 to 30 days ___

• The average stock turnover 4 times _______

• Show calculations and results on your response document for this

assessment task.

The average debtor says = trade debtors/ acc sales* 365

362500/295000*365= 46 days

The average creditor says= 80,000/100000*365 = 30 days

The average stock turnover= (100000+10000000-300000)

/(100000=300000)/2)

= 4 times
 • Consider the existing BRB ageing debtor’s budget in Appendix 2. On your
response document, make two written recommendations for improvement to
existing financial management processes to improve cash flow. To support
your recommendations, refer to data sources, organisational needs, and
analytical techniques, for example:

• Statement of Financial Performance- it can be improved by trying to

collect the funds from our debtor in 30 days.

• ledger accounts- try to negotiate

• scenario information- more time to manage the cash flow

• ageing debtors budget- debtors can’t pay their debts after 60 days

• Ratios.

• On your response document, list three sources of information of use to

complete this activity.

• Statement of financial performance

• Ageing debtor budget

• Ledger accounts

Bicycle price per unit $500 (excl. GST)

Current variable costs per $250

unit

Fixed costs $1,280,000

Complete the following.

• On your response document, work out:

• how many units at current variable cost would need to be produced to

achieve profit target (show calculations)

=P-VC

=500-250

=250

FC+P/CM= 1280000+100000/250

=9120 units

• What the variable costs per unit would need to be to achieve profit
target at current manufacturing capacity (show calculations).

NEW CM=285

P-CM= 500-285

=215

• On your response document, make one written recommendation based on

your analysis. To support your recommendation ensure you refer to the
organisational needs or situation, and any analytical techniques used. You may
also suggest possible actions for BRB to take depending on possible future
scenarios.

My recommendation would be to negotiate with the Indian plant to manufacture

for us at cheaper rate than Indonesian plant. And this way price can b reduced to
215$ per unit.

• On your response document, list three sources of information of possible use

to complete this activity.

• Pricing information

• Cost information

• Budget plan

GST CASH JULY AUGUST SEPTEMBER

BUDGET
CALCULATIONS

Cash receipts 20000 24000 16000

 Cash payments 3600 4040 3550

GST liability 16640 19960 12450

Task D
Choose one of the recommendations from Task A or B and develop an action plan to implement
and monitor the recommendation. Ensure you include appropriate activities, monitoring,
timelines and accountabilities.

Activities Timelines Accountabilities

Sales team needs to Monthly Sales dept.

negotiate with customers

Debtor collection Weekly Accounting dept.

department needs to be on
track

Review overdue debts and Quarterly General manager

take further actions

Reflecting on the tasks you have undertaken and on your knowledge of financial management
and planning principles:

• describe basic accounting principles-

There are a number of principles, but some of the most notable include the revenue
recognition principle, matching principle, materiality principle, and consistency principle. ...
Completeness is ensured by the materiality principle, as all material transactions should be
accounted for in the financial statements.

• describe cash flows

Cash Flow (CF) is the increase or decrease in the amount of money a business, institution, or
individual has. In finance, the term is used to describe the amount of cash (currency) that is
generated or consumed in a given time period.

• describe ledgers and financial statements

A ledger is a book containing accounts in which the classified and summarized information from
the journals is posted as debits and credits. ... The ledger contains the information that is required
to prepare financial statements. It includes accounts for assets, liabilities, owners' equity,
revenues and expenses.

• Describe profit and loss statements.

The profit and loss (P&L) statement is a financial statement that summarizes the revenues, costs,
and expenses incurred during a specified period, usually a fiscal quarter or year. ... These records
provide information about a company's ability or inability to generate profit by
increasing revenue, reducing costs, or both.

Ageing debtors budget

Big Red Bicycle Pty Ltd

AGED DEBTORS TOTAL Qtr 1 Qtr 2 Qtr 3 Qtr 4

BUDGET 2020/2021

Sales 2,900,000 600,000 900,000 800,000 600,000

% Debtors Sales 50% 50% 50% 50%

Total Debtors 100% 300,000 450,000 400,000 300,000

Current 65% 195,000 292,500 260,000 195,000

30 Days 20% 60,000 90,000 80,000 60,000

60 Days 12% 36,000 54,000 48,000 36,000

90 Days 3% 9,000 13,500 12,000 9,000