Task 1 Prepare a budget

Below is an extract from the strategic plan for Plan2go:

Plan2go Pty Ltd - Strategic plan 20X1 - 20X3

Grow shareholder value by 20% over 3 years.

This will be achieved by

• Increased revenue due to growth in sales of existing products and services and the development of new products and services that are complementary to our existing range of products and services. TARGET: REVENUE GROWTH OF 20% OVER 3 YEARS
• Control of per-unit costs. Control of costs will be achieved by:
• Identification and implementation of efficiencies within Plan2go, in particular savings, are to be made in logistics, energy use and administration costs.
• Identification and adoption of more competitive supply chain solutions. In particular the more effective use of competitive tenders for the supply of goods and services and the better use of outsourcing.

TARGET: REDUCTION OF PER UNIT COSTS BY 15% OVER 3YEARS.

Plan2go has observed the following relationships over the past 10 years:

• Economic conditions have an impact on sales revenue:
• When the economy is weak sales revenue tends to decrease by 2%, from average economic conditions.
• When the economy is experiencing average economic conditions sales revenue has increased by 4.5%.
• When the economy is strong sales revenue tends to increase by 9% from average economic conditions.
• The following costs have a direct relationship to sales volumes. This relationship is not expected to change with any change in economic conditions.

Expense Item	Relationship
Sales commission	1.2% of sales revenue
Delivery costs	1% of sales revenue
Packaging costs	1% of sales revenue
Energy Costs	2.5% of sales revenue
Bad debts	0.5% of sales revenue
Cost of sales	30% of sales revenue

• Other expenses are expected to change with changes in economic conditions.

Expenses	Weak economic conditions	Average economic conditions	Strong economic conditions
Accounting Fees	Increase by 1%	Increase by 3%	Increase by 5%
Sales salaries	Increase by 0.5%	Increase by 3%	Increase by 6%
Advertising & marketing	Decrease by 2%	Remain the same	Increase by 3%
Bank fees	Remain the same	Remain the same	Remain the same
Rent of premises	Remain the same	Remain the same	Remain the same
Administration Wages	Increase by 0.5%	Increase by 3%	Increase by 6%
Depreciation Office Equip.	Remain the same	Remain the same	Remain the same
Other administration.	Decrease by 2%	Increase by 1%	Increase by 4%
Insurance	Remain the same	Remain the same	Remain the same

Interest	Decrease by 2%	Increase by 3%	Increase by 9%
Leases	Increase by 2%	Increase by 4%	Increase by 7%
Other financial expenses	Decrease by 2%	Increase by 3%	Increase by 8%

REQUIRED

complete the worksheet 'Budget Plan2go'

The Chief Financial Officer is unsure of the direction of the economy for 20X2. You have been asked to prepare 3 budgeted income statements for 20X2, based on:

• Average economic conditions
• Poor economic conditions
• Strong economic conditions

1. complete budget in the excel file to create your 3 budgets, based on the above information. The template contains the actual revenue and expense data for 20X1. 20X1 was a year of average economic conditions.

	%	ACTUALS 20X1	%	WEAK ECONOMIC CONDITIONS 20X2	%	AVERAGE ECONOMIC CONDITIONS 20X2	%	STRONG ECONOMIC CONDITIONS 20X2
		$		$		$		$
Sales		$ 4,780,500
Less Cost of Goods Sold:		$ 1,434,150
Gross Profit		$ 3,346,350
Less Expenses
Packaging materials		$ 47,805
Sales commissions		$ 57,366
Delivery costs		$ 14,342

Accounting Fees		$ 1,500
Sales salaries		$ 325,600
Advertising & marketing		$ 176,500
Bank fees		$ 1,260
Rent of premises		$ 56,000
Administration Wages		$ 275,000
Depreciation Office Equip.		$ 13,900
Other administration.		$ 6,230
Energy		$ 119,513
Insurance		$ 13,600

Interest		$ 23,050
Leases		$ 85,120
Bad debts		$ 23,903
Other financial expenses		$ 4,390
Total Expenses		$ 1,245,078
Net Profit		$ 2,101,273

2. complete Budget Plan2go Unit Cost Table". Complete the table using the data you calculated from question 1 above.

Variable	Actual 20X1	Forecast Weak Economic Conditions	Forecast Average Economic Conditions	Strong Economic Conditions
Sales
Cost of Goods Sold
Gross Profit
Total Expenses
Net Profit
Sales in units	637,400	624,500	666,000	694,800
Per unit costs (exps only)

3. Review the statements from Plan2go's strategic plan 20X1 -20X3. Analyse the data in the tables completed in the worksheet for part 2 above and answer the following questions:

a. Assuming the economy experiences average economic conditions, is Plan2go on track to meet its strategic objectives for sales revenue? Provide some reasons for your opinion. Your response should be between 20 and 30 words

b. Assuming the economy experiences weak economic conditions, is Plan2go on track to meet its strategic objectives for control of cost? Provide some reasons for your opinion. Your response should be between 20 and 30 words