Appendix 1 -Scenario

Big Red Bicycle Pty Ltd is a bicycle manufacturer based in Bendigo, Victoria. The company produces bicycles which it sells to retailers in the domestic Australian market.

The senior management structure of the company appears below.

Person

Position

Michelle Yeo

Chief Executive Officer (CEO)

Tom Copeland

Managing Director

John Black

Chief Financial Officer (CFO)

Stuart LaRoux

Operations General Manager

Pat Roberts

Senior Accountant

Sam Gellar

Sales General Manager

Charles Pierce

Production Manager

Holly Burke

HR Manager

According to company strategic plans, the company aims to achieve a net profit before tax of $1,000,000. The chief risks to this goal are:

?poor sales due to economic downturn - sale income

?increases in expenses such as wage expenses - expenses

In addition to Australian operations, the company is considering manufacturing overseas

to take advantage of reduced costs. The company is also considering diversifying its product range to reduce exposure to poor sales of one product.

Task 1

You are the manager of Sales Centre A, based in Adelaide. The centre A has achieved great success over the last year and consistently outsells other sales centres. In fact, due to the large number of accounts managed by your sales team and larger staff, your centre is expected to sell as much volume as the other two sales centres put together. Naturally, you expect cost allocations to reflect the both the needs and importance to the business of Cost Centre A.

The Sales General Manager, Sam Gellar, has asked you to review the cost centre budgets prepared by the Senior Accountant. She would like you to meet with her to discuss the whether the budget projections are achievable, accurate, understandable and fair.

She would like you to look closely at the budget for your cost centre, note any changes you think are necessary, develop an argument for the changes and negotiate those changes with her.

Appendix 2 - Budgeting and finance policy

Budget preparations - policies and procedures you should follow

?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.

?Overheads (non-direct expenses) will be apportioned across the cost centres equally. Exceptions need to be negotiated with relevant authorities.

?All expenses and income will be spread equally throughout the year unless otherwise required by business needs or business environment.

?The financial cycle for budgeting purposes will be yearly ending 30 June.

Financial delegations

?Each manager is responsible for achieving the revenue budgets agreed to by the budget committee.

?Each manager is responsible to approve, by signing the necessary paperwork, all expenditures that fall within their area of responsibility.

?Expenditures must be within the budget guidelines for the individual departments.

Format for budgets and reports

All budgets must include the following details:

?name of the person who prepared it

?cost centre (if applicable)

?name of the budget/report, i.e. sales, expenses, CAPEX, cash flow, budget variation report

?period of the budget.

Sales cost centre expense budget - negotiate

Resources Sales Centre A allocation - Sales Centre B Sales Centre C expenses You Commissions $20,000 $20,000 $20,000 Telephone $3,000 $3,000 $3,000 Office supplies $1,000 $1,000 $1,000 $100,000 $100,000 $100,000