Assessment description

In response to scenario provided, you need to clarify budget plans with your manager and negotiate changes to the budget. You then need to identify and analyse risks to the budget and prepare a contingency plan to prevent or minimise the risk.

Procedure

• Read through the scenario provided and tasks A and B.
• Prepare to meet with your manager (assessor) to clarify budget and negotiate changes:
• identify areas of the budget that are not achievable, inaccurate or unclear
• prepare to negotiate necessary changes to the budget
• set up a time with your manager to meet.
• Meet with your manager (assessor) to clarify budget and negotiate changes.
• identify at least two issues for clarification
• negotiate at least two changes.
• Submit all documents required in the specifications below to your assessor. Ensure you keep a copy of all work submitted for your records.

Specifications

You must:

meet with your assessor to clarify budget and negotiate changes

provide a contingency plan.

Your assessor will be looking for:

numeracy skills to read and understand a budget and negotiate budget re-allocations

knowledge of basic accounting principles to identify and use account balances

knowledge organisational requirements related to financial management such as contained in organisational policies and procedures

knowledge of principles and techniques involved in budgeting.

Appendix 1 ? Big Red Bicycle Pty Ltd scenario

Big Red Bicycle 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	CEO
Tom Copeland	Managing Director
John Black	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
• increases in expenses such as wage 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.

Role

You are the manager of Sales Centre A, based in Adelaide. The centre 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.

Task A

The Sales General Manager, Sam Gellar has asked you to review the master budget and 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 at the budget for your cost centre closely, note any changes you think are necessary, develop an argument for the changes and negotiate those changes with her.

Information you are aware of includes:

• Sales in the first quarter (Q1), third quarter (Q3), and the fourth quarter (Q4) are generally 30% less than the second quarter (Q2).
• Sales in Q2 depend on completion of 90% of repair and maintenance.
• Sales for Q2 have been estimated to be $1,000,000.
• Commission negotiated with members of the sales team is now at 2.5%.

Task B

It has come to the attention of the managing director, Tom Copeland, that due to the current economic climate, sales volume may be 20% below target this financial year. Tom is worried that this may severely impact profit projections. The company can accept as much as a 10% variance in profit projections; however, more than this could severely affect the company?s ability to pay obligations and invest. Reliable data to determine whether the risk has eventuated should be available by mid Q2, when sales data for the company?s product are in.

As a special project, the managing director has asked you to perform a risk assessment and develop a contingency plan to manage the risk of sales falling 20%.

As per organisational policy you should use the contingency plan template provided.

Appendix 2 ? Budgeting and finance policy

Budget preparations

• 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 finance manager.
• 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 on 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.

Reporting requirements

Software applications to be used in reporting.

• environment ? Windows
• accounting Information System ? BRB will use MYOB AccountRight plus
• data analysis ? BRB will use Microsoft Excel 2007.

Actual results will be produced monthly by the MYOB accounting system. Actual variances to budget will be performed by Excel with a report prepared for senior management for significant variances.

Financial delegations

• Each manager is responsible for achieving the revenue budgets agreed to in 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.

Appendix 3 ? Budgets and templates

Master budget with profit projections

Big Red Bicycle Pty Ltd
Master Budget FY 2011/2012
	FY	Q1	Q2	Q3	Q4
REVENUE
Commissions (2% sales)	60,000	15,000	15,000	15,000	15,000
Direct wages fixed	200,000	50,000	50,000	50,000	50,000
Sales	3,000,000	750,000	750,000	750,000	750,000
Cost of Goods Sold	400,000	100,000	100,000	100,000	100,000
Gross Profit	2,340,000	585,000	585,000	585,000	585,000
EXPENSES
General & Administrative Expenses
Accounting fees	20,000	5,000	5,000	5,000	5,000
Legal fees	5,000	1,250	1,250	1,250	1,250
Bank charges	600	150	150	150	150
Office supplies	5,000	1,250	1,250	1,250	1,250
Postage & printing	400	100	100	100	100
Dues & subscriptions	500	125	125	125	125
Telephone	10,000	2,500	2,500	2,500	2,500
Repairs & maintenance	50,000	12,500	12,500	12,500	12,500
Payroll tax	25,000	6,250	6,250	6,250	6,250
Marketing Expenses
Advertising	200,000	50,000	50,000	50,000	50,000
Employment Expenses
Superannuation	45,000	11,250	11,250	11,250	11,250
Wages & salaries	500,000	125,000	125,000	125,000	125,000
Staff amenities	20,000	5,000	5,000	5,000	5,000
Occupancy Costs
Electricity	40,000	10,000	10,000	10,000	10,000
Insurance	100,000	25,000	25,000	25,000	25,000
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	350,375	350,375	350,375	350,375
NET PROFIT (BEFORE INTEREST & TAX)	938,500	234,625	234,625	234,625	234,625
Income Tax Expense (25%Net)	234,625	58,656	58,656	58,656	58,656
NET PROFIT AFTER TAX	703,875	175,969	175,969	175,969	175,969

Sales cost centre expense budget

	Sales Centre A	Sales Centre B	Sales Centre C
Commissions	$20,000	$20,000	$20,000
Wages	$100,000	$100,000	$100,000
Telephone	$3,000	$3,000	$3,000
Office supplies	$1,000	$1,000	$1,000

Contingency plan template

Contingency Plan Company name: Big Red Bicycle Pty Ltd Person developing the plan: Name Position
Risk identified:
Strategies/activities to minimise the risk	By when	By whom

BSBFIM501 Manage budgets and financial plans Assessment Task 1 - Plan financial management approaches The assessment task is due on the date specified by your assessor. Any variations to this arrangement must be approved in writing by your assessor. See specifications below for details. Diploma of Business 1 of 13 Page BSBFIM501 Manage budgets and financial plans Assessment Task 1 - Plan financial management approaches Performance objective The student will demonstrate the ability to plan financial management approaches. Diploma of Business 2 of 13 Page BSBFIM501 Manage budgets and financial plans Assessment Task 1 - Plan financial management approaches Assessment description In response to scenario provided, you need to clarify budget plans with your manager and negotiate changes to the budget. You then need to identify and analyse risks to the budget and prepare a contingency plan to prevent or minimise the risk. Diploma of Business 3 of 13 Page BSBFIM501 Manage budgets and financial plans Assessment Task 1 - Plan financial management approaches Procedure 1. Read through the scenario provided and tasks A and B. 2. Prepare to meet with your manager (assessor) to clarify budget and negotiate changes: i. identify areas of the budget that are not achievable, inaccurate or unclear ii. prepare to negotiate necessary changes to the budget iii. set up a time with your manager to meet. 3. Meet with your manager (assessor) to clarify budget and negotiate changes. i. identify at least two issues for clarification ii. negotiate at least two changes. 4. Submit all documents required in the specifications below to your assessor. Ensure you keep a copy of all work submitted for your records. Diploma of Business 4 of 13 Page BSBFIM501 Manage budgets and financial plans Assessment Task 1 - Plan financial management approaches Specifications You must: 1. meet with your assessor to clarify budget and negotiate changes 2. provide a contingency plan. Your assessor will be looking for: numeracy skills to read and understand a budget and negotiate budget reallocations knowledge of basic accounting principles to identify and use account balances knowledge organisational requirements related to financial management such as contained in organisational policies and procedures knowledge of principles and techniques involved in budgeting. Diploma of Business 5 of 13 Page BSBFIM501 Manage budgets and financial plans Assessment Task 1 - Plan financial management approaches Diploma of Business 6 of 13 Page BSBFIM501 Manage budgets and financial plans Assessment Task 1 - Plan financial management approaches Appendix 1 - Big Red Bicycle Pty Ltd scenario Big Red Bicycle 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 CEO Tom Copeland Managing Director John Black 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 increases in expenses such as wage 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. Role You are the manager of Sales Centre A, based in Adelaide. The centre 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. Diploma of Business 7 of 13 Page BSBFIM501 Manage budgets and financial plans Assessment Task 1 - Plan financial management approaches Task A The Sales General Manager, Sam Gellar has asked you to review the master budget and 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 at the budget for your cost centre closely, note any changes you think are necessary, develop an argument for the changes and negotiate those changes with her. Information you are aware of includes: Sales in the first quarter (Q1), third quarter (Q3), and the fourth quarter (Q4) are generally 30% less than the second quarter (Q2). Sales in Q2 depend on completion of 90% of repair and maintenance. Sales for Q2 have been estimated to be $1,000,000. Commission negotiated with members of the sales team is now at 2.5%. Task B It has come to the attention of the managing director, Tom Copeland, that due to the current economic climate, sales volume may be 20% below target this financial year. Tom is worried that this may severely impact profit projections. The company can accept as much as a 10% variance in profit projections; however, more than this could severely affect the company's ability to pay obligations and invest. Reliable data to determine whether the risk has eventuated should be available by mid Q2, when sales data for the company's product are in. As a special project, the managing director has asked you to perform a risk assessment and develop a contingency plan to manage the risk of sales falling 20%. As per organisational policy you should use the contingency plan template provided. Diploma of Business 8 of 13 Page BSBFIM501 Manage budgets and financial plans Assessment Task 1 - Plan financial management approaches Appendix 2 - Budgeting and finance policy Budget preparations 1. The business plan will set the key parameters for all financial budgeting. 2. Variations to the business plan must be approved by the CEO and senior management strategic committee. 3. 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. 4. 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 finance manager. 5. A CAPEX budget will be developed from the approved business plan. 6. A detailed sales budget must be completed before completing the profit budget for the year. 7. A cash-flow budget covering the first three months will be prepared after the profit budget is completed. 8. A master budget including profit projections will be completed from which cost centre allocations will be made. 9. Budget notes that contain all the assumptions used in the budgets should accompany the master budget or be made available on a separate document. Where possible, the notes should justify the basis on which the estimates were made. 10. Overheads (non-direct expenses) will be apportioned across the cost centres equally. Exceptions need to be negotiated with relevant authorities. 11. All expenses and income will be spread equally throughout the year unless otherwise required by business needs or business environment. 12. The financial cycle for budgeting purposes will be yearly ending 30 June. Reporting requirements Software applications to be used in reporting. environment - Windows accounting Information System - BRB will use MYOB AccountRight plus data analysis - BRB will use Microsoft Excel 2007. Diploma of Business 9 of 13 Page BSBFIM501 Manage budgets and financial plans Assessment Task 1 - Plan financial management approaches Actual results will be produced monthly by the MYOB accounting system. Actual variances to budget will be performed by Excel with a report prepared for senior management for significant variances. Financial delegations Each manager is responsible for achieving the revenue budgets agreed to in 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. Diploma of Business 10 of 13 Page BSBFIM501 Manage budgets and financial plans Assessment Task 1 - Plan financial management approaches Appendix 3 - Budgets and templates Master budget with profit projections Big Red Bicycle Pty Ltd Master Budget FY 2011/2012 FY Q1 Q2 Q3 Q4 REVENUE Commissions (2% sales) 60,000 15,000 15,000 15,000 15,000 Direct wages fixed 200,000 50,000 50,000 50,000 50,000 Sales 3,000,00 750,000 0 750,00 750,000 750,000 0 Cost of Goods Sold 400,000 100,000 100,00 100,000 100,000 0 2,340,00 585,000 0 585,00 585,000 585,000 0 Gross Profit EXPENSES General & Administrative Expenses Accounting fees 20,000 5,000 5,000 5,000 5,000 5,000 1,250 1,250 1,250 1,250 600 150 150 150 150 5,000 1,250 1,250 1,250 1,250 Postage & printing 400 100 100 100 100 Dues & subscriptions 500 125 125 125 125 Telephone 10,000 2,500 2,500 2,500 2,500 Repairs & maintenance 50,000 12,500 12,500 12,500 12,500 Payroll tax 25,000 6,250 6,250 6,250 6,250 200,000 50,000 50,000 50,000 50,000 45,000 11,250 11,250 11,250 11,250 Legal fees Bank charges Office supplies Marketing Expenses Advertising Employment Expenses Superannuation Wages & salaries Diploma of Business 11 of 13 500,000 125,000 125,00 125,000 125,000 Page BSBFIM501 Manage budgets and financial plans Assessment Task 1 - Plan financial management approaches 0 Staff amenities 20,000 5,000 5,000 5,000 5,000 Electricity 40,000 10,000 10,000 10,000 10,000 Insurance 100,000 25,000 25,000 25,000 25,000 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 Occupancy Costs TOTAL EXPENSES 1,401,50 350,375 0 350,37 350,375 350,375 5 NET PROFIT (BEFORE INTEREST & TAX) 938,500 234,625 234,62 234,625 234,625 5 Income Tax Expense (25%Net) 234,625 58,656 58,656 NET PROFIT AFTER TAX 703,875 175,969 175,96 175,969 175,969 9 58,656 58,656 Sales cost centre expense budget Sales Centre A Sales Centre B Sales Centre C $20,000 $20,000 $20,000 $100,000 $100,000 $100,000 Telephone $3,000 $3,000 $3,000 Office supplies $1,000 $1,000 $1,000 Commissions Wages Diploma of Business 12 of 13 Page BSBFIM501 Manage budgets and financial plans Assessment Task 1 - Plan financial management approaches Contingency plan template Contingency Plan Company name: Big Red Bicycle Pty Ltd Person developing the plan: Name Position Risk identified: Strategies/activities to minimise the risk Diploma of Business 13 of 13 By when By whom Page