The budget which is prepared is based on a quarter and the budget shows both actual and budgeted results of ACA Travel Agency. The main source of revenue of the business is through international package, domestic packages, international air travel and domestic air travel. The budgeted estimate which is made by the business in case of revenues of the business is shown to be $ 2,508,000 and the actual result which is achieved by the business is shown to be $ 2,236,000.
Therefore, this creates a variance of $ 10.84% which is unfavourable in nature and the management needs to check the operational structure of the business and identify the reasons for such variances (Gorgotskaya and Selyutina 2013). However, on the other hand the business has been able to meet with the budget in terms of the costs and the same has resulted in significant increase in the profitability of the business in comparison to Budgeted estimates and the overall increase is shown to be 72%. The actual results which is achieved by the business in terms of profitability of the business is shown to be favourable when compared to budgeted estimates of the business.
Evaluation of the Performance of the Business
The analysis of the income statement which is prepared by the business shows that the main source of revenue of the business is from transport services for both passengers and goods which is provided for both international and domestic travel (Needles, Powers and Crosson 2013). The budget shows that the management of the company has effectively controlled the costs of the business.
In case a variance has taken place between the actual results and budgeted results due to excess of departmental salaries over the budget, the manager can apply the following steps to rectify the variance
In case the where the variance occurs due to lower income earned by the business than the figure which was portrayed in the Budget, the manager can take the following steps:
There has been an increase in the international travel of the business which is shown in the budget which is presented above as there is a trend of seasonal travel to South East Asia which increases the number of passenger to the route and thereby also increase the revenue of the business.
The company has an established a system which advises the passengers to take counter terrorism measures and also can report any suspicious activity to the officials in such a case through a helpline website. The company would also incorporate through checking at airport to prevent such an issue.
The market sales of the business is shown to have increased in the budget above which is due to the reason of increase in sales of the business which is due to higher demand for the business. The competition level in the market has also increased which is a result for the increase in sales and further growth of the business.
The domestic bookings has increased which is shown in the budget above. The company in order to further provide more incentives to the customers also offers hotel bookings along with travel services which are provided at discounted rate and therefore has a positive impact on the revenue which is generated by the business.
The business also provided packages travel services which can be done through consolidators website. This is also an important activity which earns revenue for the business and the same is also shown in the revised budget for the period.
|
ACATravel Agency |
||||
|
Cash budget for the three months ending 31/12/2018 |
||||
|
October |
November |
December |
TOTAL Quarter |
|
|
Cash receipts |
||||
|
Cash sales |
35,000 |
35,000 |
35,000 |
105,000 |
|
Debtors |
35,000 |
35,000 |
35,000 |
105,000 |
|
Scrap |
3,000 |
3,000 |
||
|
Total cash receipts |
70,000 |
70,000 |
73,000 |
213,000 |
|
Cash payments |
||||
|
Purchases |
17,500 |
17,500 |
17,500 |
52,500 |
|
Labour cost |
20,000 |
20,000 |
20,000 |
60,000 |
|
Superannuation |
3,000 |
3,000 |
3,000 |
9,000 |
|
Rent |
3,000 |
3,000 |
3,000 |
9,000 |
|
Energy bills |
2,000 |
2,000 |
2,000 |
6,000 |
|
Miscellaneous |
2,500 |
2,500 |
2,500 |
7,500 |
|
Transport and couriers |
1,000 |
1,000 |
1,000 |
3,000 |
|
Rates |
5,000 |
– |
– |
5,000 |
|
New equipment |
65,000 |
65,000 |
||
|
Total cash payments |
54,000 |
49,000 |
114,000 |
217,000 |
|
Surplus / Deficit |
16,000 |
21,000 |
– 41,000 |
– 4,000 |
|
Cash balance at start |
50,000 |
66,000 |
87,000 |
50,000 |
|
Cash balance at end |
66,000 |
87,000 |
46,000 |
46,000 |
The above table shows cash budget which is prepared on monthly basis for ACA Travel Agency for the month of October, November and December. The cash budget shows that the business is able to generate positive cash flows in the month of October and November, however, there is a deficit which is shown in month of December of $ 41,000 which is due to the increase in the cash payments of the business.
The cash payments have increased because of the purchase of the new equipment which is to be purchased by the business and the same is shown to be $ 65,000. The budget shows that there is a deficit of $ 4,000 as shown in the table above (Klychova, Faskhutdinova and Sadrieva 2014). Therefore, from the above budget, it can be said that the business would be able to pay for new equipment effectively and also maintain a positive cash balance as shown in the closing cash balance shown above.
The deficit in the budget can be rectified by the business by incorporating effective control over the expenses of the business which have resulted in cash outflows of the business. The management can cut off certain expenses which are unproductive in nature and therefore reduce the total cash payments which the business needs to pay and improve the deficit which is shown in the budget. The business can slightly reduce the costs of labour in the business which can also reduce the cash out flows of the business which can deal with the deficits of the business.
Revised Budget
The cash budget which is shown above is revised considering certain changes in the sales and purchase which is achieved by the business. The revised cash budget of the business shows that there has been increase in the cash payments for the business and therefore the same has resulted in the increase in cash outflows of the business. The cash inflows of the business is shown to be $ 212,000 during the quarter and the total cash payments of the business is shown to be $ 227,500 for the quarter. The result for the same shows that there is a deficit of $ 44500 and there is also negative cash balance in the business. The cash balance which is shown at the end of the quarter is shown to be $ 11,500. The balance is shown to be negative and therefore the business needs to improve the situation.
The revised cash flow needs to be confirmed by the operational managers and finance manager of the business and the same also needs to be approved by the top level management of the business.
The net 30 days refers to the period of 30 days which is allowed by AAI training to the business for paying the account receivable balance of the business. This basically represent the credit period which is allowed to ACA Travel Agency. The credit period policy which is allowed for the business is appropriate as this allows the business to effectively (Warren, Reeve and Duchac 2013). The due date for the payment if the invoice has been issued on 10/7/201X would be on 9/8/201X. The payment method which is applied is appropriate as this would allow the business not only to maintain its liquidity but also manage the debtors of the business more efficiently.
The methods which can be applied by the business for the purpose of financing the training of a business are shown given below:
Breakeven Point
The breakeven point of the business refers to a situation where is the business makes no profit or loss and the business only able to cover the costs of the business. The BEP of a business represent the minimum services which the business must provide to stay (Kotas 2014). The calculation of BEP requires consideration of the fixed costs of the business and the sales of the business.
|
Fixed Costs |
Variable Costs |
||
|
Full time staff |
$1,000 per week |
Casual Staff |
160 |
|
Rent |
$1,000 per week |
Coffee |
20 |
|
Insurance |
$300 per week |
Cake |
20 |
|
Utilities |
$200 per week |
Entry fee |
10 |
|
Total |
$2500 |
Total |
210 |
On-Costs of Labour
The on-costs of the labour which are related to the business are listed below:
The academic tours of the business can further improve the business by increasing the number of customers per slot by 5 people and include another guide for effective maintenance of the service (Bogsnes 2016). The business can include proper café provisions within the tour and also provide additional services.
Reference
Bogsnes, B., 2016. Implementing beyond budgeting: Unlocking the performance potential. John Wiley & Sons.
Gorgotskaya, E.A. and Selyutina, L.G., 2013. Budgeting as the innovative finance management method of a building company in the conditions of business scale growth. Of beaming and organization of effective functioning of innovation sphere of economy enterprise, industry, the complex: proceedings of the International ?onference, 28-30 April, 2013, p.92.
Klychova, G.S., Faskhutdinova, ?.S. and Sadrieva, E.R., 2014. Budget efficiency for cost control purposes in management accounting system. Mediterranean journal of social sciences, 5(24), p.79.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Needles, B.E., Powers, M. and Crosson, S.V., 2013. Principles of accounting. Cengage Learning.
Warren, C., Reeve, J.M. and Duchac, J., 2013. Financial & managerial accounting. Cengage Learning.
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