BSBFIM601 Manage Finances - Assignment Task 2

Assessment Task 2 - Monitor and review budget

Performance objective

This assessment task requires you to monitor the implementation of a budget and report on the variances, trends and performance of the established budget for a fictional business and provide recommendations for ongoing financial viability. The assessment task is due on the date specified by your assessor.

Assessment description

You will need to review the provided current case study information and compare it to the budget you established in Assessment Task 1. After evaluating these you will need to report on the following:

• significant issues
• variances from budget
• comparative performances
• recommendations for ongoing financial viability
• evaluation of financial management processes

Procedure

1. Read the case study provided on Moodle and attached to this assessment
2. Complete a cash flow analysis on the average length of time it takes Houzit to collect funds from its debtors to determine the trend based on the financial reports in Assessment Task
3. Examine the sales budget, profit budget, cash flow budget and debtor ageing summary to identify the following in a report. Ensure structure and format of reports are clear and conform to organisational and statutory requirements
   1. Risk / Issues:
      1. Identify, describe and prioritise significant issues that are evidenced in the provided case study information and describe reasons or causes of these issues. Include in this issues of financial probity that you have identified or considered when monitoring these budgets.
   2. Variances:
      1. Complete an actual-to-budget variance report, using the template provided on Moodle “template for Assessment 2”
      2. Identify variances by comparing actual results with the established budget, and provide reasons why these variances may have occurred.
   3. Performance:
      1. Compare financial performance of the organisation (according to financial information provided) to industry benchmarks for this organisation in line with the retail trade sector.
      2. Determine a trend of the average debtor days and the impact to the cash flow of Houzit using the template provided on Moodle “template for Assessment 2”

1. Recommendations:
   1. Outline your recommendations for ongoing financial viability for the organisation, based on your assessment of the issues, reasons for variances and organisational performance you have identified
2. Evaluation:
   1. Outline your plans for financial management process such as effectively managing contingencies and issues that have been identified in feedback and monitoring of the budgets.
3. Arrange a time with Jim Schnieder, CEO of Houzit Pty Ltd (your assessor), to present your variance report and seek approval of your recommendations in the report.

Submission

You must submit:

• a completed report detailing the issues, variances, performance, recommendations and evaluations identified from the financial information for Houzit Pty Ltd including:
  • a complete actual-to-budget variance report (template provided)
  • debtor aging ratio (template provided)

Your assessor will be looking for:

• Evidence that you reviewed the provided case study information to develop an evaluative report concerning the progress of the budget.

Case study: Houzit Pty Ltd

Soon after the end of the first quarter, Jim Schneider the CEO of Houzit, asked you to follow up with Celina Patel, Houzit’s accountant, to see how the actual results compared with the budget you had prepared three months ago. You explained that you had a meeting with Celina that afternoon to get the results and that you would report back as soon as you had done some analysis.

The key questions that the board was most interested to have answered from the budgets and the variance reports were:

• ‘To what extent do the reports support the view of the board that Houzit is financially viable?’
• ‘Will we be able to maintain our gross profit margins in the predicted downturn?’

Jim and you both agreed that it had been a tough quarter with the economy still in recession and the impact this was having on the retail sector. Banks are raising interest rates in line with the increased upward international pressure and Houzit has a significant part of their loan funds on a variable interest rate which changes directly with market conditions. Jim was pleased that the sales seem to be holding up reasonably well as first quarter results are generally impacted by factors relating to public and school holidays but he was concerned about the discounts that had to be given to generate these sales.

‘That’s going to hurt us at some point’ Jim said. ‘Just a pity we could not get into some national magazines this quarter to promote the store offers. I’m sure that would have helped us exceed the budgets you set. I guess we will just have to spend that advertising money in the next quarter’ Jim said. ‘I still think we are running our wages and salaries a bit high. The industry benchmark for wages and salaries is close to 11% of sales’

Jim went on to explain, ‘One of our contingency plans in a slowing economy is to reduce our exposure to debt by applying our profits to the repayment of the long term debt. This will help reduce the interest burden on the business and take some pressure off the diminishing profits. It would also be of interest to determine the impact that our debtors has on the cash flow of the business from 2010/11.’

You are a beneficiary of the company’s profit bonus scheme that is based on the profitability of the company’s financial reports which you are required to prepare. You also prepare the departmental reports that form the basis of the performance review of the managers. You are the manager of the finance/administration and prepare this department’s report as well.

You met that afternoon with Celina and she provided you with the following report on the actual results for the quarter ended 30 September 2011.