Assignment Task
Task
Task 1 – Operational budget – Sales revenue
The Black Helmet Motor Cycle Company wholesales Motor Cycles. They have two models available being the Roadster and the Trailer. They have offices in each state of Australia and a Management team including representatives from Sales, Marketing, Purchasing, Warehousing, Human Resources, IT, Administration and Finance Divisions.
In October 20×3 the Finance Group commenced their budget compilation activities relating to 20×4. The following information relating to Sales Revenue for 20×3 has been produced by the Hot Motor Cycles Research Agency.
Extract from the Report from the Hot Motor Cycles Research Agency
Forecast Information for 20×3
The forecast of Total Sales for the Australian Market in 20×3 is as follows:
On Road Bike (similar to the Roadster) – 20,000 cycles
Off Road Bike (similar to the Trailer) – 30,000 cycles
The Market Share of the Roadster & Trailer is expected to remain at 10% and 15% respectively.
The Average Wholesale Price of the Roadster & Trailer Bikes is $5,000 & $3,500 respectively.
Whilst 20×3 has not ended it is expected that sales for both products will be as follows – 20% of Black Helmet’s total sales achieved in the first Quarter ended 31 March 20×3, 30% in the next Quarter ended 30 June 20×3, 30% in the Quarter ended 31 September 20×3 followed by 20% for December 20×3.
Budget assumptions – 20×4
The Market Research Agency has provided the following information to assist in preparing the budget for 20×4-
Economic data and analysis suggests the Total Australian Market for 20×4 is expected to increase in volume for the On Road Bikes by 10% compared to 20×3. The Market for the Off Road Bike is expected to be stable.
Black Helmet’s share of the On Road segment is expecting to remain stable at 10% whilst a strong market share for the Off Road bike is expected due to product enhancements with a lift to 20% of the total expected market in volume.
The above volumes will be achieved with prices of $5,200 for the Roadster and $3,700 for the Trailer.
It is anticipated that Quarterly sales revenue for both products will fluctuate from the current year. For the first quarter of 20×4 sales volume is expected to be 15% of total sales for calendar year 2014. 20% of sales are expected to be derived in the second quarter ending 30 June 20×4. An improvement to the company’s products should see a market reaction where the September quarter should be 35% of total sales followed by 30% of the total for the last Quarter being period ending 31 December 20×4.
Required:
Part A
From the above information you are required to prepare a Sales Forecast for each Quarter of 20×3 and a Budget for each Quarter for the 20×4 year. This should show Sales Units and Total Revenue for each product.
Complete the Comparative Statement to be presented to Management showing Total Forecast Sales Revenue for 20×3, the Proposed Budget for 20×4 and the Variance in Units & Revenue in both dollar and percentage terms (The percentage should be set to 1 decimal point when formatting your cells)
Complete the Excel template supplied. The use of formulas by creating a data range to the right of the spreadsheet would be useful for this task.
Part B
As the Sales Manager you are required to prepare a brief report to senior management. This report should outline the assumptions made and expected outcomes relating to the 20X4 budget as compared to the same period in 20X3. They have specifically asked you to comment on the key factors you have considered in creating the Sales Revenue Budget and provide a brief explanation of each one. (Refer to factors in question and comparative summary – 1 or 2 paragraphs only
Who are the major internal and external stakeholders you have considered in preparing the budget? What interest do they have in the development of the budgets for the company?
“The Development of Budgets will often involve the collaboration of team members and negotiating with management and other stakeholders”. As Sales Manager what approach would you take to developing the budget with your team? What are the critical factors to consider when undertaking this process? Use your WORD (or similar) document
Task 2 – Operational Budgets
The General Manager of the Black Helmet Motor Cycle Company has presented the proposed Revenue Budget based on market conditions and the advertising budget guidelines provided.
The Finance team has held a meeting with the Managers from Sales, Purchasing and Warehousing to explain the need for a budgeted cost per Motor Cycle and the lead times for delivery. This will enable the Finance team to arrive at the Budget for Gross Profit, Purchases and Inventory. These KPIs are crucial for all responsible Managers and serve as a basis for establishing requirements in terms of planning for the acquisition of Human, Capital and Financial Resources.
Information Supplied:
The Total Desired Inventory on hand at the end of the budget year to cover abnormal demand should equal 1.8 average months of sales units for the Roadster and 1.5 months of average sales for the Trailer. Note: One month Average Sales is equal to the Total Annual Sales Budget divided by 12.
Part A – Operational Budget – Inventory and Cost of Goods Sold
The anticipated Inventory on hand at the start of the Budget year (20×4) has been provided by the Inventory manager. These numbers are outlined below. Likewise the purchasing manager has been negotiating with the supplier over the cost of the bikes for 20×4. The cost per unit for the two bikes have been included in the budget table.
You are required to prepare an Operational Budget which includes Budgeted Motor Cycle Purchases for the year, Cost of Goods Sold and Gross Profit from trading by completing the designated cells of the budget summary.
Use the Excel template supplied – Worksheet “Task 2 Part A”.
Part B – Expense Budget by Cost Centre
Required:
Based on the above forecast information for the current year – 20×3:
Complete the Departmental Expense budget for the Year ending 31 December 20×4.
Complete a Comparative Profit and Loss Statement for the Management of the Black Helmet Motor Cycle Company showing forecast for 20×3 vs Proposed Budget for 20×4. Use the Excel template supplied.
Part C – Risk Management
Required:
Once the Master Budget is complete it is prudent to understand the risk profile of the business. What Potential Market, Operational, and Financial Risks may exist to prevent the Black Helmet Motor Cycle Company in achieving the desired Financial Key Performance Indicators (KPIs).
What are the implications of the risk occurring and outline a potential Contingency Plan to address these risks?
Complete the Risk Management schedule on the Excel template supplied.
Task 3 – Budget – Service BusinessThe DS Financial Services Group is a large company specialising in the provision of financial advice including Investments, Superannuation and Financial Planning.
Management is currently working on their budget plan for the next 12 months being the period ending 30 June 20×4. The Sales Analysts in each core area are required to formulate their Budgeted Fee Income for the period. In the past they have adopted a method based on trend analysis and the projected economic and competitive environment. Total Fee Revenue projections were based on a percentage increase or decrease on the previous year. Likewise the Expense Budget has been created based on historical factors. The company allocates the budget amongst the many departments and cost centres that exist.
This year the company has decided to adopt a ‘Zero Based’ approach by establishing the total charge out per productive hour per department which will enable the company to cover their expenses and the desired profit for shareholders.
The DS Financial Services Group has provided the following data:
Chargeable time
52 weeks x 5 days (Mon–Friday)
10 public holidays
20 working days annual leave
6 hours a day are considered productive and chargeable.
There are 20 productive staff
Desired Profit before tax $400,000
Expenses have been reviewed and it has been determined that whilst some expenses are discretionary in nature, for the purposes of budgeting, management are treating all expenses as committed expenses.
Part A
Calculate the Total Productive Hours Available to be charged out to Clients
Establish the average charge per hour to customers assuming the Directors would like to cover all Budgeted Expenses and generate a profit before tax of $400,000.
Complete a brief Profit and Loss Statement for the Business based on the information supplied. Submit on your WORD (or similar) document in a presentable format. Refer topic on Profit and Loss Statements if required.
Assuming all the expenses are either fixed, desired or committed calculate the productive hours to achieve a breakeven position (Zero Profit).
Part B
From Part A consider the variance between the Current Charge out Rate of $140 per hour and the proposed budget rate. What factors or opportunities need to be considered when reviewing the budget?
Use your WORD (or similar) document.
Task 4 – Monitoring Performance – Sales Variance
The General Manager of the JH Shoe Company, Tina Brown has received a number of reports from the accountant relating to their financial performance for the first eight months of the 20×4 Financial Year.
The First Report outlines the Sales Units and Revenue for the 3 products sold by the company. This report shows the Actual Year to Date Performance versus Budget and the Full Year Budget.
Tina is concerned with the trend in Sales Revenue overall. She has therefore met with you as the Sales Manager to discuss the performance to date.
From the discussions held and the information provided she has asked for an explanation of a number of items relating to the performance. The following is a Revenue Comparative Report for the eight month period ended February 20×4.
After your discussions with the General Manager you have decided to hold a meeting with your team to discuss the results for the eight month period. You released an agenda for the meeting outlining in clear and concise terms the requirements to be discussed. This includes specific details for each product such as Volume, Price per unit and/or the mixture of sales between products which have differing prices. These factors have had an impact on the year to date result and need to be discussed. Whilst you have knowledge of departmental activities and results for each month, you would like each manager to report on the key activities driving sales and how controllable and successful they were. You have also had concerns about the timing of the static budget and question whether it is accurate based on the assumptions made 9 months prior. There are 4 key points or requirements that you would like to cover at the meeting:
From the ‘Revenue Comparative Statement’ you will prepare a written report for your team summarising the results. This will include deviations in the variables outlined in the report which have contributed to the unfavorable year to date variance of $980,000.
Determine the key points or questions to raise in order to gain an understanding of the current performance vs budget and future action?
Having received an understanding of the variances and relevant points, explain to the group the concept of forecasting and why forecasting for the full 12 month period is important? What impact may competitor behaviour, economic data, advertising expenditure and seasonal factors have in developing the forecast for the remaining 4 months.
How will you communicate, support, monitor and motivate staff towards achieving your countermeasure actions or achieving a revised KPI. Use your WORD (or similar) document
Task 5 – Monitoring Performance – Financial Analysis
The Budget for the JH Shoe Company Pty Ltd was formulated based on trends, desired profit targets and optimal levels of Assets and Liabilities to achieve short and long term goals.
The following are the Comparative Financial Statements showing the Actual Performance versus Budget for the eight month period ended 28 February 20×4.
The above Profit and Loss has been prepared by consolidating all transactions from the respective accounts in various Revenue and Cost Centres. The final balances are compared with the predetermined (static) budget at all levels. Total Gross Profit is a function of 3 variables as follows: Total volume multiplied by the margin per unit being the selling price less the cost from the supplier. All three are important in measuring the profit contribution from selling these products.
The Comparative Balance Sheet shows the company’s financial position as at February 20×4 versus budget along with the 12 month budget.
The Directors have asked you for a report on the Year to Date Performance and the forecast for the remainder of the year. They would like to understand if the variances are due to timing of actual expenditure, errors in the budget assumptions and/or performance related factors.
You have asked your managers to refer to Departmental and Cost Centre reports, gather information and report on the relevant Financial & Non-Financial KPIs they are responsible for. Once Gaps are determined, the major drivers of performance including sales performance and resource allocation can be reviewed.
Based on the above Financial Statements, you are required to complete the table below which will be used as the basis for your report to management. It includes:
The Year to date actual vs budget and variance for each KPI.
Possible Explanation of the possible causes of each Variance.
Potential Contingency or Countermeasure actions for the remaining period.
Ensure you consider the possible implications for other departments or stakeholders.
Use the excel template provided.
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