Refer To Principles and Techniques of Managing Budget Items

Assessment Task 1
Plan Financial Management Approaches

A. Identify at least two issues for clarification
 Poor sales due to economic downturn

 Increase in expenses such as wage expenses
B. Negotiate at least two changes
 Increase advertising budget by 10% to help stimulating sales volume

 Reduce repair and maintenance cost in Q1
C. Include discussion of basic accounting principles
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Accounting is the analysis & interpretation of book keeping records. It includes
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not only the maintenance of accounting records but also the preparation of
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financial & economic information, which involves the measurement of
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transactions & other events relating to entry.
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There are various terminologies used in the Accounting that are being
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explained as under: -
1) Assets: An asset may be defined as anything of use in the future

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operations of the enterprise & belonging to the enterprise. E.g., land, building,
machinery, cash etc.

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2) Equity: In broader sense, the term equity refers to total claims against the
enterprise. It is further divided into two categories.
 Owner Claim - Capital

The excess of assets over liabilities of the enterprise. It is the
difference between the total assets & the total liabilities of the
enterprise.
 Outsider’s Claim – Liability
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Amount owed by the enterprise to the outsiders i.e. to all others except
the owner.
3) Revenue: It is a monetary value of the products or services sold to the
customers during the period. It results from sales, services & sources like
interest, dividend & commission.
4) Expense/Cost: Expenditure incurred by the enterprise to earn revenue is
termed as expense or cost. The difference between expense & asset is that
the benefit of the former is consumed by the business in the present whereas
in the latter case benefit will be available for future activities of the business.
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5) Drawings: Money or value of goods belonging to business used by the
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proprietor for his personal use.
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6) Owner: The person who invests his money or money’s worth & bears the
risk of the business.

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7) Debtors: A person from whom amounts are due for goods sold or services
rendered or in respect of a contractual obligation.

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8) Creditors: It is an amount owed by the enterprise on account of goods

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purchased or services rendered or in respect of contractual obligations.

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D. Refer to relevant legislation and ATO requirements

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Managing your tax affairs and obligations as an employer is an integral part of
your business. Your business's tax obligations and entitlements will vary
according to the type of work you do, the number of staff you employ and the
kind of benefits you offer.
 Australian business number (ABN)
Consider getting an ABN for your business. An ABN helps to manage
your tax and business obligations, and is used as a reference by the
Australian Taxation Office (ATO) for your business. You will also use
your ABN when dealing with other businesses and government
departments.
 Goods and services tax (GST)
GST is a broad-based tax of 10% imposed on most goods, services
and other items sold in Australia. Depending on your turnover or
service, you may need to register for GST.

 Business activity statement (BAS)
You must lodge activity statements with the ATO to report and pay your
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tax. You may do this online through the ATO Business Portal. The
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portal also allows you to manage your business's tax online.
 Pay as you go (PAYG)
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PAYG is a system that allows you to pay an expected tax liability in
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installments. The ATO will notify you of your PAYG obligations.
 Fringe benefits tax (FBT)
If you (or a person on your behalf) provide certain benefits to your
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employees or to people associated with your employees, you may be

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liable for FBT. If so, you must register for FBT with the ATO, and lodge
a return each year.

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 Payroll tax
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 Superannuation
As an employer, you can either pay a set minimum level of
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superannuation for each of your eligible employees, or pay a charge to

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the ATO.
E. Refer to principles and techniques of managing budget items
A budget is a comprehensive, formal plan that estimates the probable expenditures
and income for an organization over a specific period. Budget describes the overall
process of preparing and using a budget. Budgets are valuable tools for planning
and control of finances.
A sales budget is a primary responsibility of preparing the sales forecast and
starting point in constructing the sales budget. The sales budget is a financial plan
allocated to achieve the forecasted sales the purpose of sales budget is to plan for
and control the expenditure of resources necessary to achieve the desired sales
objectives. Sales forecast and sales budget are intimately related as much as
inadequate. The sales budget must be increased accordingly. It aim at attending
maximum profits by directing the emphasis on most profitable segments, customers
and products.
Purpose of the sales budget .
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 A planning tool is a goal and objectives of the sales department, sales
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manager must outlines tasks to be performed and compute the cost required
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for the performance. Sale budget help in profit planning and provide for action
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towards and backwards of the organization
 To be effective needs support from other elements of the marketing mix. The
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process of developing realistic sale budget upon backward and forward of

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selling with marketing and brings necessary integration within the various
selling and marketing functions.

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 A tool on control. The sale budget becomes the mark against which actual
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results are compared.

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The technique methods of managing budget

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A variety of methods ranging from the sales manager’s gut feeling to
application of management science model are used for determining the sales
budgets.
Incremental budgeting is the traditional budget method is prepared by taking
the current period’s budget or actual performance as a base with incremental
amounts will include adjustments for things. This method can do quick and easily to
understand. However incremental budgeting indisputably gives rise to inefficiency,
inertia and budgetary slack.
Zero based budgeting can be achieve an optimal allocation of resources to
the parts of the business by forcing manager to justify every activity in their
department. It would seem inappropriate to use it for the entire budgeting process in
a commercial organization. It makes no sense to use a long-winded process for
costs.
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F. Take and keep notes of agreed changes
Master budget with profit projections

Big Red Bicycle Pty Ltd
Master Budget FY 2011/2012
FY Q1 Q2 Q3 Q4
REVENUE
Commissions (2.5% sales) 77,500 17,500 25,000 17,500 17,500
Direct wages fixed 200,000 50,000 50,000 50,000 50,000
Sales 3,100,000 700,000 1,000,000 700,000 700,000
Cost of Goods Sold 400,000 100,000 100,000 100,000 100,000
Gross profit 2,422,500 532,500 825,000 532,500 532,500
EXPENSES
General & Administrative Expenses
Accounting fees 20,000 5,000 5,000 5,000 5,000
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Legal fees 5,000 1,250 1,250 1,250 1,250
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Bank charges 600 150 150 150 150
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Office supplies 5,000 1,250 1,250 1,250 1,250
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Postage & printing rs e 400 100 100 100 100
Dues & subscriptions 500 125 125 125 125
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Telephone 10,000 2,500 2,500 2,500 2,500
Repair & maintenance 50,000 45,000 2,000 2,000 1,000
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Payroll tax 25,000 6,250 6,250 6,250 6,250

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Marketing Expenses
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Advertising 200,000 50,000 50,000 50,000 50,000

Employment Expenses
Superannuation 45,000 11,250 11,250 11,250 11,250
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Wages & salaries 500,000 125,000 125,000 125,000 125,000

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Staff amenities 20,000 5,000 5,000 5,000 5,000

Occupancy Costs
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Electricity 40,000 10,000 10,000 10,000 10,000

Insurance 100,000 25,000 25,000 25,000 25,000
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Rates 100,000 25,000 25,000 25,000 25,000

Rent 200,000 50,000 50,000 50,000 50,000
Water 30,000 7,500 7,500 7,500 7,500
Waste removal 50,000 12,500 12,500 12,500 12,500
TOTAL EXPENSES 1,401,500 382,875 339,875 339,875 338,875
NET PROFIT (BEFORE INTEREST &
1,021,000 149,625 485,125 192,625 193,625
TAX)
Income Tax Expense (25% Net) 255,250 37,406.25 121,281.25 48,156.25 48,406.25
NET PROFIT AFTER TAX 765,750 112,216.75 363,843.75 144,468.75 145,218.75
Sales cost center expense budget
Sales Centre A Sales Centre B Sales Centre C
Commissions $30,000 $15,000 $15,000
Wages $150,000 $75,000 $75,000
Telephone $4,500 $2,250 $2,250
Office supplies $1,500 $750 $750
Contingency Plan Template
Contingency plan
Company name: Big Red Bicycle Pty Ltd
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Person Developing the plan:
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Name: Amporn Promma Position: Manager of Sales Center A
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Risk identified: Manage the risk of Sales falling 20%
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Strategies/activities to minimize the risk By when By whom
Price discounts - consider price discounts and Monthly Sales

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promotions to increase your customer base Manager

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Increase productivity of your staff - try new sales

incentives and commission structures, recognise and
reward staff contributions with staff performance
Quarterly Manager
reviews, and teach them sales skills and how to upsell
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products so customers make multiple purchases at

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one time
Decrease indirect costs - try to minimise waste and

errors in your business by training staff, or reduce Monthly Staff
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marketing costs by using low-cost marketing Manager

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techniques
Decrease direct costs - make sure you have the right

Monthly Staff
suppliers for your business and negotiate for better
Manager
prices or discounts for buying in bulk
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Assessment Task 1

Plan Financial Management Approaches

 Poor sales due to economic downturn

B. Negotiate at least two changes

 Increase advertising budget by 10% to help stimulating sales volume

C. Include discussion of basic accounting principles

1) Assets: An asset may be defined as anything of use in the future

machinery, cash etc.

enterprise. It is further divided into two categories.

 Owner Claim - Capital

3) Revenue: It is a monetary value of the products or services sold to the

interest, dividend & commission.

4) Expense/Cost: Expenditure incurred by the enterprise to earn revenue is

risk of the business.

rendered or in respect of a contractual obligation.

8) Creditors: It is an amount owed by the enterprise on account of goods

purchased or services rendered or in respect of contractual obligations.

D. Refer to relevant legislation and ATO requirements

Managing your tax affairs and obligations as an employer is an integral part of

kind of benefits you offer.

 Australian business number (ABN)

your tax and business obligations, and is used as a reference by the

your ABN when dealing with other businesses and government

and other items sold in Australia. Depending on your turnover or

service, you may need to register for GST.

employees or to people associated with your employees, you may be

a return each year.

superannuation for each of your eligible employees, or pay a charge to

E. Refer to principles and techniques of managing budget items

A budget is a comprehensive, formal plan that estimates the probable expenditures

and control of finances.

inadequate. The sales budget must be increased accordingly. It aim at attending

maximum profits by directing the emphasis on most profitable segments, customers

Purpose of the sales budget .

process of developing realistic sale budget upon backward and forward of

selling and marketing functions.

results are compared.

The technique methods of managing budget

A variety of methods ranging from the sales manager’s gut feeling to

Incremental budgeting is the traditional budget method is prepared by taking

the current period’s budget or actual performance as a base with incremental

inertia and budgetary slack.

Zero based budgeting can be achieve an optimal allocation of resources to

a commercial organization. It makes no sense to use a long-winded process for

Master budget with profit projections

Payroll tax 25,000 6,250 6,250 6,250 6,250

Advertising 200,000 50,000 50,000 50,000 50,000

Wages & salaries 500,000 125,000 125,000 125,000 125,000

Staff amenities 20,000 5,000 5,000 5,000 5,000

Electricity 40,000 10,000 10,000 10,000 10,000

Rates 100,000 25,000 25,000 25,000 25,000

Commissions $30,000 $15,000 $15,000

Wages $150,000 $75,000 $75,000

Telephone $4,500 $2,250 $2,250

Office supplies $1,500 $750 $750

Contingency Plan Template

Company name: Big Red Bicycle Pty Ltd

Price discounts - consider price discounts and Monthly Sales

promotions to increase your customer base Manager

Increase productivity of your staff - try new sales

products so customers make multiple purchases at

Decrease indirect costs - try to minimise waste and

marketing costs by using low-cost marketing Manager