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Part A Task 1 NOTE: PLEASE IGNORE GST FOR THE PURPOSE OF THIS QUESTION You are the accountant for a local truck washing business, Clean

Part A

Task 1

NOTE: PLEASE IGNORE GST FOR THE PURPOSE OF THIS QUESTION

You are the accountant for a local truck washing business, Clean Fleet Truck Washing. Each January you meet with the owners, Mack and Phil to discuss the business objectives and annual budget. During your recent meeting, the following business objectives were established and are required to be included in the sales forecast:

Increase sales by 10%; Mack and Phil do not want to increase the price as the market is far too competitive. Instead, they want to increase the market share (i.e., increase the number of washes).
It is expected that the quarterly seasonal sales pattern will continue as per the previous financial year.

Additional business milestones, KPI's and operational procedures were also discussed and are outlined below:

Sales

Average selling price is set at $85 per wash.
All sales are on credit.
Accounts receivable at the end of the year is to be equal to 5% of total sales.

Purchases and other direct costs

Purchases target for cleaning materials and other consumables is set at 25% of total sales.
All purchases are on credit.
Accounts payable at the end of the year is to be equal to 5% of total purchases.
Clean Fleet Truck Washing also pay contractors to wash the trucks. The contractors invoice Clean Fleet for the number of trucks washed and the end of every month and are paid immediately. Thecurrent agreed rate is $30 per truck washed. The contractors have not been deemed "workers", so are not paid superannuation as per legislative parameters.

Operating Expenses and other payments

Monthly variableexpenses, paid in cash, are estimated at:

Marketing expenses - 10% of sales
Administration expenses - 8% of sales
Financial Expenses - 2% of sales.

Monthly fixedexpenses, also paid in cash are budgeted as follows:

Marketing expenses - $350 per month
Administration expenses (excluding depreciation) $200 per month
Financial expenses $10 per month.

Other future cash payments.

Clean Fleet plan to purchase new washing equipment at the beginning of January. Quotes received indicate the equipment will cost $8,000.
The business will need to fund the new equipment purchase with a bank loan. Discussions with Mack and Phil revealed that the highest interest rate they are willing to pay is 8% p.a. They would also like to repay the loan in 6 years and avoid bank fees on the loan.
Mack and Phil plan to draw $1,500 per month each from the business.

Non-cash expenses.

Depreciation is to be calculated on the Wash truck and equipment, and the office equipment. Refer to the policy and procedures for the depreciation method and rates.
Interest on the on the new bank loan will be payable monthly from December.

Additional information

A Trial Balance as at 30 June of the previous financial year has been provided in Appendix A.
Quarterly actuals for sales and direct costs for the previous financial year have been provided in Appendix B. You are to use this historical data to perform quantitative analysis and identify and apply any obvious trends that will affect the sales forecast and other budgets. This will require a close look at how unit costs have changed each quarter.
An online copy of the policy and procedures for Clean Fleet Truck Washing is in the following folder in the online storage system: CFTW Policy & Procedures. (Note: the online storage system for the purpose of this task is within Connect).
Industry standard practice indicates the use of online tools, such as moneysmart.gov.au to verify the calculation of loan repayments.

REQUIRED

Use the above information to prepare budget reports (outlined below) as a means of clarifying and reporting the business objectives for the next financial year.

Using the approved templates, you are required to prepare the following budgets by quarter:

Sales budget
Purchases and other direct costs budget
Marketing budget
Administration budget
Financial expenses budget
Budgeted income statement

And the following budgets for the year:

Cash budget
Budgeted balance sheet

As per industry standard practice, you are required to support your calculations and figures with verifiable evidence and source documents. As such, you are required to collate the following documentation and include with the submission of the above budgets:

Detailed working papers for the trend analysis on historical data you performed.
Detailed working papers showing the depreciation calculations (you should consider developing or using an appropriate depreciation schedule template).
Detailed working papers showing how you calculated interest expense.
Source document verifying the loan repayment calculation from MoneySmart (this can be a screen shot pasted into a document or spreadsheet).

Review the feasibility of your forecasts by comparing your projections with the Key Statistics published by the industry body National Cleaning Association of Australia (Appendix D). Comment on how your forecast compares with at least 2 of the statistics published.

(SPACE IS PROVIDED FOR YOUR RESPONSE BELOW)

................................................................................................................................................................

Task 2

Mack and Phil are great at washing trucks, and have a sound customer base, but they lack expertise in financial management. They emailed you the following questions. Please provide your response.

How did you ensure that the budgets you developed incorporated the business objectives we set?
We noticed the budget for payments to contractors looks a bit higher than we discussed. Can you please explain why?
The increase in the cash rate has been all over the news! Given we are looking at taking out a business loan to purchase some much-needed equipment, how will that affect our business? How can we protect ourselves?
We would like to set realistic wash targets for the contractors. What advice can you give us to help us do this effectively?

(SPACE IS PROVIDED FOR YOUR RESPONSE BELOW)

................................................................................................................................................................

Task 3

As per the Clean Fleet Truck Washing Policy and Procedures, a performance report is required to be prepared each quarter. The Office Manager has provided you with the quarterly income statement for the September quarter (Appendix C).

REQUIRED

Using the approved template, prepare the quarterly performance report, comparing the actuals and the budget for the September quarter. The report must indicate the absolute variance, the percentage variance against budget and if the variance is favourable ("F") or unfavourable ("U").
Refer to the policies and procedures and prepare a written report for presentation to the business owners, Mack and Phil. Your report should include reasonable explanations for variances, particularly those variances outside the acceptable limit. In your report, indicate if business KPI's and milestones have been met. Your report should also include recommendations for adjustments.
You are to present this report to Mack and Phil in their office two weeks after the closing date of the quarter. Be prepared for any queries they may ask!

................................................................................................................................................................

Appendix A

Clean Fleet Truck Washing
Trial Balance as at 30 June		DR	CR
Bank		60,000.00
Accounts receivable	11,000.00
Wash truck & equipment	48,000.00
Accumulated Dep'n - Wash truck & equip		4,800.00
Office equipment		28,000.00
Accumulated Dep'n - office equipment		1,400.00
Accounts payable			3,500.00
Owner's Equity			137,300.00
Totals		147,000.00	147,000.00

Appendix B

Prior year actuals

Sales - Actuals
	Q1	Q2	Q3	Q4	Year
Sales units	610	805	777	583	2,775
Sales $	$51,850	$68,425	$66,045	$49,555	$235,875

Direct costs - Actuals
	Q1	Q2	Q3	Q4	Year
Purchases - consumables	$12,185	$17,106	$16,511	$12,141	$57,943
Payments to contractors	$17,690	$23,345	$23,310	$17,490	$80,420
Total	$29,875	$40,451	$39,821	$29,631	$139,778

Appendix C

Clean Fleet Truck Washing
Income Statement for the quarter from July to September
	Actual $
Sales units	685
Sales $	58,225.00
Less: Direct costs
Purchases	14,360.00
Payments to contractors	21,235.00
Gross profit	22,630.00
Less: Operating expenses
Marketing expenses	9,560.00
Administration expenses	6,100.00
Financial expenses	1,168.00
Total Expenses	16,828.00
Net profit	5,802.00

Appendix D

National Cleaning Association of Australia

Key Statistics

Current Industry trends for the last financial year ended 30 June

Gross sales increase by 12%
Gross profit rate average 40%
Payments to employees and contractors increase 3.5%
Average industry debt ratio 15%

Image TAFE Queensland

Part B

Task 1

NOTE: PLEASE IGNORE GST FOR THE PURPOSE OF THIS QUESTION

You are the accountant for A & J Enterprises, a gourmet fudge manufacturer. The owners of the business, Amelia and Julia, are an absolute whiz in the kitchen, however they are clueless when it comes to developing financial plans. To help them you have offered your assistance to develop the operating budgets and budgeted financial statements for the next financial year.

Discussions with Amelia and Julia revealed the following business goals:

Annual sales increase by 5% from the prior financial year (2021/2022).
At least 60% of the total sales units must be achieved by the end of December. This milestone considers the additional fudge sales over the Christmas period. It was agreed that this milestone was realistic as the sales are traditionally much higher in December.
To achieve the above milestone, the variable marketing costs at 31 December must also be at least 60% of the total variable marketing costs.
Production staff will have a KPI equal to 2kg of fudge produced per hour.
The annual budgets must be broken down into months for the financial year as per accounting principles and practices and distributed for review and approval by the business owners no later than one month prior to the beginning of the financial year or within the agreed timeframe.

Additional business milestones, and operational procedures were also discussed and are outlined below:

Sales

A monthly sales forecast in units is to be prepared for fourteen months for the period July 2022 to August 2023 and based on the seasonal trends indicated in the most recently available historical data (2021/2022 financial year). Note: July and August 2023 will be 5% higher than July and August 2022 as per the above business objectives.
Amelia and Julia advise that the selling price per unit is adjusted over the course of the year based on seasonal demand. An analysis of historical sales data is required to determine the relevant selling price per period (i.e. month)
All sales are on credit.
Accounts receivable history indicates the following: 75% of customers pay in the same month of the sale and 25% of customers pay the following month after the sale.

Production and raw material cost

Amelia and Julia require that the ending inventory of finished goods (in units) for each month to be 20% of the expected sales for the next month.
Each unit produced requires 200g of raw material. The cost of raw materials is $1.50 per 100g.

Purchases

The closing inventory of production material is required to be 25% of the next month production material requirements.
All purchases are on credit
Accounts payable for purchases are paid as follows:

60% is paid in the month of purchase,
the remaining 40% is paid the following month.

Direct labour (cash)

Analysis of the payroll revealed that the average hourly rate for fudge factory staff is $35 per hour. This rate takes into account superannuation and other entitlements as per the industry award for factory staff.

Factory overheads (cash)

In previous years the variable factory overheads were budgeted at $1.50 per unit produced, however, to allow for an increase in overhead costs it was agreed this rate per unit should be increased by 10%.

The fixed factory overheads per annum are as follows:

Factory Depreciation $3,000
Factory Rent $7,200

Operating Expenses

Monthly variable expenses, paid in cash, are estimated at:

Marketing expenses - 3.50% of sales
Administration expenses - 2.50% of sales
Financial expenses - 1.50% of sales

Monthly fixed expenses, also paid in cash are budgeted as follows:

Marketing expenses - $150 per month
Administration expenses - $120 per month

Additional information

A & J Enterprises are paid interest on a term deposit twice per year at the end of November and May. Each interest receipt is $1,500. The interest is deposited into the main operating account.
Amelia and Julia each draw $2,500 from the business every month.
A Trial Balance as at 30 June of the prior year is provided in Appendix A
Monthly actuals for the previous financial year relevant to your analysis can be obtained from the following folder in the online storage system: A&J_Enterprises_FinancialData (Note: the online storage system for the purpose of this task is within Connect). You are to use the data within this folder to complete relevant tasks and for analysis.

Required

Use above business milestones, KPIs and operational procedures to prepare the budgets outlined below as a means of clarifying and reporting the business objectives to the business owners for the next financial year. Calculations must be rounded to the nearest dollar as per industry standards.

Sales forecast
Production budget
Raw materials cost budget
Purchases budget
Direct labour cost budget
Factory overheads budget
Cost of production budget
Cost of goods sold budget
Other income budget
Marketing expenses budget
Administration expenses budget
Financial expenses budget
Budgeted income statement
Accounts receivable collections schedule
Accounts payable payment's schedule
Cash budget
Budgeted balance sheet

You are to prepare each budget using the approved templates (supplied).

Other Instructions

As per industry standard practice, you are required to support your calculations and figures with verifiable evidence and source documents. As such, you are required to collate the following documentation and include with the submission of the above budgets:

Detailed working paper for the trend analysis on historical data you performed and included in your budgets.
Detailed working paper showing how you calculated the direct labour hours per unit.

Note: your working papers must clearly indicate the assumptions you applied and include a reconciliation against parameters (i.e. business objectives etc) provided to verify relevance and accuracy.

As part of your sales forecast process, you have asked Amelia and Julia who their main competitors are. They have provided you with a list with their competitor websites (Appendix B). Review the feasibility of your sales forecasts by researching the selling price for fudge for each of the competitors provided by Amelia and Julia. Is the selling price outlined in the budget milestones realistic when compared to the market? Verify your response by providing evidence of your research, including the calculations you have performed to compare the unit price of fudge.

Task 2

As part of your presentation of the budgets to Julia and Amelia, please prepare answers to the following questions to help them with their understanding of the budgetary process.

Can you please explain the key purpose of budgets and forecasts and the relevance of milestones and key performance indicators?
Can you verify that the milestones and KPI's relating to sales, marketing and production been incorporated into the budgets? Please explain.
Now that we have budgets in place, what is the next step? How do we keep track of how we are performing?
We were recently told about "Flexible budgets" at a recent networking event. Can you explain what that is and if it is something we should be incorporating into our budget process?

................................................................................................................................................................

Task 3

As per your discussion with Amelia and Julia, you are to prepare a detailed performance report using flexible budgeting techniques for the month of July.

The income statement for July has been prepared is located in the following online storage folder: A&J_Enterprises_FinancialData (Note: the online storage system for the purpose of this task is within Connect).

Required

Using the approved template, prepare the monthly detailed performance report for the month of July. The report must indicate the capacity variance and the flexible budget variance in absolute terms, and if the variance is favourable ("F") or unfavourable ("U").
Prepare a written report for distribution to the business owners, Amelia and Julia. Your report should include reasonable explanations for variances. You will need to analyse the actuals to reveal any deviations from the budget. In your report, indicate if relevant business KPI's and milestones have been met. Your report should also include recommendations for adjustments.

................................................................................................................................................................

Appendix A

A & J Enterprises
Trial Balance 30 June 2022	Dr	Cr

Common Bank	33,500
Accounts receivable	4,641
Inventory - materials	1,585
Inventory - Finished goods	3,613
Term deposit	60,000
Delivery vehicle	30,000
Accumulated Dep'n - Delivery vehicle		12,000
Accounts payable		2,127
Owners' Equity		119,212
	133,339	133,339

Appendix B

Australian Artisan Fudge websites

https://outbackfudge.com/

https://www.houseoffudge.com.au/collections/fudge

https://randomharvestgourmet.com.au/collections/handmade-fudge?filter.p.product_type=Fudge

https://fudgebyrich.com.au/online-store/#fudge

https://www.smoochies.com.au/pages/buildyourfudgebox

https://farmfudge.com.au/products

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