Manage budgets and forecasts Assignment

Assessment Task 1: Written Questions

Provide answers to all of the questions below:

1. Discuss the key purpose and objectives of budgeting.

2. Discuss the key purpose and objectives of forecasting.

3. Discuss why key performance indicators are used in budgeting and forecasting and provide three examples of financial key performance indicators.

4. Discuss why milestones are used in budgeting and forecasting.

5. Discuss ethical considerations for budgetary forecasting and projections taking into account the strength of budget assumptions and forecast reliabilities.

6. Describe at least two types of information and data that a company can use for budgeting and forecasting. Ensure that your answer also includes the source of the information and data.

7. Outline the information you may use to forecast sales, and the different information you would need to forecast production.

8. Explain fixed costs in a budgeting context and provide an example of a fixed cost.

9. Explain the characteristics of variable costs.

10. Compare and contrast two forecasting techniques, including the different circumstances in which these might be used.

11. Explain key features of a budgeting and forecasting policy and procedure.

12. Explain why communication is of key importance in the budgeting process.

13. Explain the principle of accrual accounting

14. Discuss the importance of budgetary control.

15. Explain the concept of double entry bookkeeping and provide at least one example.

16. Discuss the principles of statistical analysis and measures of variance.

17. Explain the importance of identifying trends when reviewing and documenting a budget.

18. Briefly explain the concept of corporate governance and the parties within an organisation who are responsible for corporate governance.

Assessment Task 2: Budget and forecast preparation project

Review the following information:

Green Cat Clothing is a wholesaler of vintage clothing, selling to retail stores across Australia. The business is managed by Beverley Simons, who currently operates the business as a sole trader. The business is registered for GST and prepares a BAS on a quarterly basis.

As Beverley's Finance Officer, you are required to prepare the budgets according to the business' budget objectives, as well as financial procedures, which state that budgets are to be prepared on a month-by-month basis for the upcoming quarter.

Beverley has also recently advised you that she wishes to expand the business by purchasing a factory and manufacturing and selling vintage fabrics. The budget for the following three months is therefore particularly important, as she would like to provide it to the local bank manager to assist in her application to secure a loan for the business expansion.

Beverley has therefore asked for you to prepare the budget, as well as a budget report that identifies key performance indicators that can be used to monitor financial performance, as well as the relevant milestones for each of the performance indicators. Beverley considers that this will also show the Bank Manager that the business is closely monitoring its performance.

Beverley provides you with her latest Balance Sheet (dated 30 March 2017) and has asked you to prepare month-by-month budgets to 30 June 2017.

She also provides you with the following additional Information:

Actual sales

Actual sales for the first quarter of 2017 (to March 31 2017)

• January $350,000
• February $346,000
• March $385,000

Due to high consumer demand for the company's products, Beverley has advised the following forecasted sales for the next quarter as follows:

• April $423,500
• May $466,000
• June $512,500

Terms of sale:

Most sales (80%) are on a credit basis with customers offered a 1% discount for payment of invoices within 10 working days of the invoice date.

Cash sales for the business amount to 20%.

The Accounts Receivable Balance at 30 March 2017 is $376,500, which includes $80,045 of debtors from February and the remainder from March.

Debtor payment information:

Based on experience, debtors usually pay as follows:

• 50% pay within the 10 working days and receive the cash discount.
• 20% pay within one month of the invoice (no discount applies).
• 27% pay in the second month after the invoice date.
• 3% are bad debts and are written off.

Purchase and inventory:

Purchases of vintage clothing for resale are all on credit and are paid in the month following the purchase. Beverley's supplier provided her with a 2% cash discount on 20% of the payments. GST applies to discount.

Stock mark up: 70%

Closing inventory: to represent 40% of the following months sales.

Operational expenses:

Beverly has the following costs:

Administration expenses: this amount to 10% of each month's purchase and are paid in the month in which the expenses are incurred.

Marketing expenses represent 8% of each month's sales and are also paid in the month in which they are incurred.

Beverley bought a warehouse for her business and pays mortgage interest each month. So as to maximize tax reduction, the loan for the warehouse is interest only. The interest rate for the mortgage is 4.5%. No GST is payable.

Rates are also payable on the property and amount to $18,000 per year. Rates are payable each quarter ($4,500 per quarter). No GST is payable.

There is an outstanding amount of GST payable to the ATO as per the Balance Sheet.

Now complete the following activities:

1. Prepare budgets

The first part of this assessment requires you to review the case study information provided and prepare the following budgets using an Excel Workbook entitled Green Cat Budget.

• Sales budget
• Purchases budget
• Cost of goods sold budget
• Expenses budget
• Schedule of payments
• Schedule of collection from debtors
• Cash budget
• GST Payable ledger account

You are also required to prepare:

• A budgeted Profit and Loss for the quarter
• Budgeted Balance Sheet for the quarter

Prepare a Worksheet for each budget and income statement/balance sheet.

Assume that Beverley has asked you to attend the meeting with the Bank Manager to discuss the potential loan for the business expansion and that you are required to prepare for this meeting.

Beverley has asked you to lead the meeting, and explain each of the budgets you have developed. You will also have to explain the key assumptions on which the budget is based and the proposed key performance indicators to make sure that the budget keeps on track.

Beverley has also asked that you identify key financial risks for the organisation and strategies to address these to give the Bank Manager confidence in your forecasts.

Beverley has advised you that the Bank Manager will challenge the sales forecasts as he considers these to be too optimistic.

2. Write a budget meeting preparation report

Use the Budget Report Template to guide your writing of the report.

Consider how you will handle this to ensure that the meeting is conducted so as to ensure understanding, goodwill and ongoing cooperation. Make suggestions in your report as to how to handle this.

Based on the above information, you are required to prepare a short report to provide to Beverley prior to the meeting with the Bank Manager and that includes:

• An outline of key assumptions and parameters for the budgets prepared
• The prepared budgets
• An explanation of recommended key performance indicators and milestones including a clear rationale for such
• Key financial risks for the organisation (at least three) and recommended strategies to address these.
• Strategies to gain understanding, goodwill and ongoing cooperation.

3. Send an email to Beverly (your assessor).

The text of the email should be in grammatically correct English, written in an appropriate (polite, business-like) style.

It should summarise the contents of the attachment.

Attach your Fat Cat Budget and Budget Report to the email.

Your assessor will also advise you of the place, date and time of the meeting.

4. Participate in the meeting

The next part of the assessment activity requires you to participate in the meeting with the Bank Manager (role played by your assessor).

Carefully explain each of the budgets you have prepared and key assumptions, as well as the key performance indicators to ensure the budget is on track.

At the meeting you will be required to demonstrate effective communication skills including:

• Speaking clearly and concisely
• Using active listening and questioning to confirm and clarify information.
• Using the strategies that you have identified to promote understanding, cooperation and goodwill.

The Bank Manager (your assessor) will ask you a number of questions and give you some feedback on the budgets. You will need to take this into account in the final part of the assessment task so make notes if you need to.

5. Write a short report on the vintage clothing industry.

The report should be about half a page long.

It should sales identify trends in the vintage clothing industry, and give a more realistic estimate for the growth in Green Cat Clothing's sales.

6. Revise the Green Cat budget

Using the figure that you arrived at in the previous activity, recalculate the budget.

Name this Workbook Revised Green Cat Budget.

7. Send an email to the Bank Manager (your assessor).

The text of the email should be in grammatically correct English, written in an appropriate (polite, business-like) style.

The email text should include your short report on the vintage clothing industry.

It should also give your revised growth figure, and your rationale for the adjustment based on the research you have conducted.

The email text should also summarise the contents of the attachment.

Attach your Revised Green Cat Budget to the email.

Assessment Task 3: Budget variance project

Carefully read the following:

Renata Resonance Ltd specialises in audio equipment. The company commenced operations on 1st July 2016.

Actual and budgeted figures for the financial year ending 2017 are as follows:

Complete the following activities:

1. Assume that Renata has hired you to review the company's finances and to create a performance report for the company that includes final calculations of:

• Sales
• Cost of sales
• Gross profit
• Promotional expenses
• Administration expenses
• General expenses
• Total expenses

Renata would also like you to:

• show the variances in dollars and as a percentage
• indicate whether the variance is favourable or unfavourable
• make recommendations based on your analysis for addressing any unfavourable variances

Use the Performance Report Template to guide your writing of the report.

The report should include

• completed calculations
• summary of variances
• recommendations regarding how to address variances

A table is included in the report to assist you in presenting the financial information.

2. Send an email to your assessor

The text of the email should summarise the contents of the attachment.

Attach your report to the email.

Attachment:- Assignment File.rar