Managing Budgets and Financial Plans - Assignment Example

The paper "Managing Budgets and Financial Plans" is a good example of a finance and accounting assignment. In response to the scenario provided, you will use the information provided to capture monitoring information in accordance with organisational policies and procedures. Complete the Cash Variance Report for Simply Stunning for the year ended 30 June 2014. State whether the variance is favourable or unfavourable. Justify your answer.

Variance Report for the year ended 30 June 2014

 

Budget

Actual

Variance

F/U

Current assets

$

$

$

 

Cash at bank

12000

11200

800

F

Accounts receivable

6500

6350

150

F

Inventory

2600

3400

800

U

Prepaid expenses

1000

950

50

F

 

22100

21900

200

F

Non-current assets

       

Land

30000

30000

0

F

Building and equipment

90000

90000

0

F

Accumulated depreciation

-30000

-30000

0

F

 

90000

90000

0

F

Total assets

112100

111900

200

F

less liabilities

       

Current liabilities

       

Accounts payable

5900

6850

950

U

Accrued expenses

1100

1150

50

U

 

7000

8000

1000

U

Non-current liabilities

       

Loan - due 2005

57500

57500

0

F

 

64500

65500

1000

U

Net assets

47600

46400

1200

F

Owner's equity

       

Capital

30000

30000

0

F

Accumulated profits or losses

17600

16800

800

F

 

47600

46800

800

F

• • • • • • • Types of Variances can occur. What could be the reasons why actual and planned results differed in the following instances.

ACTIVITY

POSSIBLE REASONS FOR VARIANCE

Your petrol budget for the month was $130 but you spent $160.

Unfavourable negative result.

Worse economy. During the period, the prices may have risen due to an increase in the international markets.

You plan to spend $200 per month entertaining clients but you end up spending $180 per month.

Favourable positive result.

Better management of materials.

Your budget for new plant and equipment in your restaurant for $140,000. Your overall cost for the P&E is $183,000.

Unfavourable negative result

Purchase of high-quality goods.

A Haulage contractor plans 20 return payloads /trips per month from Sydney to Canberra with an average cost of $280. His average cost at the end of the month for each return trip is $380.

Unfavourable negative result

A rise in the market labour rates.

• • • • • • • Explain the benefit of preparing a Cash Variance Report.
• Price
  • Occasionally a favorable or the unfavorable income variance occurs if the real selling price is greater or less than the planned selling price, in that order. A medium company might be competent to raise prices if there is a strong adequate demand or if everyone is increasing prices to cover advanced input expenses. Nonetheless, an aggressive price reduction could result in an unfavorable income variance. Plans to counteract an unfavorable discrepancy include growing the advertising budget and promoting customer service.
• Volume

During calculations, the favorable or the unfavorable income variance also transpires if the concrete sales volume is bigger or less than budgeted sales volume, in that order. Management requires anticipating demand properly because it influences profitability. companies that do not have adequate products in reserve could lose income and may risk losing consumers to its competitors, as overestimating consumer demand may result in higher stock costs and operating expenses and loss.

• Profit

A corporation`s income variance may influence its profit and cash inflow and outflow. If at all the favorable revenue discrepancy coincides with advanced expenses, it could signify a loss. On the other hand, if an unfavorable income variance matches with the lower operating expense, it could thus signify a profit.

• Budget

The budget preparation procedure is determined by revenue, cost and other variances. For instance, if the income variance this financial period was due to violent price discounting, the management might regulate the product mix or search for ways to decrease input expenses to attain profit targets.

Assessment Part 4. Review and evaluate financial management processes

• For the coming year, monitoring mechanisms to be used to ensure better controlled and more efficient financial management process. The owner expects a price increase for his products. Calculate the new budget for the coming year.

Item

Current Year

Actual

% inc

Next year Budget

Sales

10,000,000

15%

11,500,000

Advertising Exp’s

300,000

5%

315,000

Salaries

800,000

6%

848,000

Marketing Exp’s

250,000

5%

262,500

Transport

80,000

9%

87,200

Travel costs

30,000

8%

32,400

Selling costs

280,000

9%

305,200

• You own a small services business. It is the middle of Month 2 of your financial year, and your accountant has just given you the results for Month 1 and the latest revenue forecast for Month 2, most of the actual amount is same as Month 1 but if repairs & maintenance cost decrease 3%, wages increased 5%, telephone increased 2%, what is the variance for month 1 and month 2.

 

Month 1

Month 1

 

Month 2

Month 2

 

 

Budget

Actual

Variance

Budget

Actual

Variance

Revenue

$50000

$45000

5000(f)

$50000

$37500

12500(f)

Purchases

$22000

$22000

0(f)

$22000

 22000

0(f)

Advertising

$500

$2000

1500(u)

$500

 2000

1500(u)

Cleaning costs

$500

$500

0(f)

$500

 500

0(f)

Office Supplies

$2000

$1750

250(f)

$2000

 1750

250(f)

Repairs & Maintenance

$1000

$3000

2000(u)

$1000

 970

30(f)

Telephone and postage

$1500

$1000

500(f)

$1500

1530

30(u)

Wages & on-costs

$10000

$10000

0(f)

$10000

 10500

500(u)

 

 

 

 

 

 

 

Profit (or Loss)

$12500

$4750

7750(f)

$12500

 1750

14250(f)

• What reasons do you feel might exist for the favourable or unfavourable variances?

The reasons for a favourable variance would be due to a healthier environment, more advertising, less competition, lower selling prices and up-to-date products.

The reasons for unfavourable variances would be due to a worse economy, less advertising, more competition, high selling prices and dated products.

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