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 variable expenses, paid in cash , are estimated at Marketing expenses 10 of sales Administration expenses 8 of sales Financial Expenses 2 of sales Monthly fixed expenses, 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

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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

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