The figures reveal that there has been optimum variance in the case of the employment expenses like the financial component of superannuation, wages and salaries and other employer expenses. The degree of variance that has been obtained has been majorly in the case of expenses and the cost of the services that are required for the purpose of business.
The specific areas that are needed to be investigated are the expenditures that have been incurred by business and the cost of the services that are required for the continuation of the business services.
The area of sales that has been generating optimum revenue in a constant rate are the food sales and the catering fees.
The area of sales that requires due attention is the sales in regards to beverage sales.
The expenses that need close analysis for good and bad results are essentially the expenses that reveal a higher degree of variance. The expenses that reflect a good result are the expenses related to water that has been incurred by the firm. However, the budget variance reveals that most of the expenses reflect the results that are not good. These expenses particularly are the expenses related to superannuation, wages and salaries, other employer expenses and marketing expenses (Armitage, Webb and Glynn 2016).
The reason for the obtained results may be as follows;
The concerned person to discuss will be the sales and production department of the chosen café business.
The financial information that has been reflected in the financial statements of the company indicates that the business has been following a rising trend. The total revenue of the firm that has been incurred by the café for the financial year of 2016-17. However, the gross profit has revealed an unfavorable variance of $19,005.19. This means that the management of the café has not been performing as planned or estimated. However, the particulars of the financial statement imply that the growth of the firm has been sustainable. This can be evidently derived from the fact that the total sales of the firm has been increasing since the financial year of 2013-14. The gross profit incurred by the café business has been $441,225 for the financial year of 2013-14. The gross profit for the financial year of 2014-15 has been $497,300. The gross profit for the financial year of 2015-16 has been $590,000. The gross profit for the financial year of 2016-17 has been $688,370. Thus, this indicates that the business conducted by the café is quite sustainable. Furthermore, the inflow of cash in all probabilities, continuous implying that there is no major concern in regards to the financial performance by the firm.
|
Cash Flow Analysis – GST |
|
|
Particulars |
2016/17 |
|
GST Collected |
|
|
Food sales |
$ 68,080.40 |
|
Beverage sales |
$ 38,756.70 |
|
Catering fees |
$ 37,140.80 |
|
Total GST Collected |
$ 143,977.90 |
|
GST Paid |
|
|
Cost of Goods Sold |
$ (75,140.90) |
|
Marketing |
$ (6,201.60) |
|
Training |
$ (1,800.00) |
|
Insurance |
$ (1,020.00) |
|
Eletricity |
$ (613.40) |
|
Gas |
$ (616.40) |
|
Water |
$ (468.50) |
|
Interest Expenses |
$ (2,654.90) |
|
Total GST Paid |
$ (88,515.70) |
|
GST Payable |
$ 55,462.20 |
|
Particulars |
Year 13-14 |
Year 14-15 |
Year 15-16 |
Actual |
|
Total Sales |
$ 983,248 |
$ 1,063,200 |
$ 1,200,000 |
$ 1,439,779 |
|
Gross Profit |
$ 441,225 |
$ 497,300 |
$ 590,000 |
$ 688,370 |
|
Employment expenses |
$ 117,207 |
$ 123,660 |
$ 590,000 |
$ 160,996 |
|
Rent |
$ 120,000 |
$ 120,000 |
$ 120,000 |
$ 120,000 |
|
Total Expenses |
$ 328,015 |
$ 345,383 |
$ 396,100 |
$ 442,256 |
|
Net Profit |
$ 90,485 |
$ 122,642 |
$ 155,500 |
$ 201,565 |
|
Gross Profit as a % of Sales |
44.87% |
46.77% |
49.17% |
47.81% |
|
Labor Cost as a % of Sales |
11.92% |
11.63% |
49.17% |
11.18% |
|
Rent as a % of Total Expenses |
36.58% |
34.74% |
30.30% |
27.13% |
|
Total Expenses as a % of Sales |
33.36% |
32.49% |
33.01% |
30.72% |
|
Net Profit as a % of Sales |
9.20% |
11.54% |
12.96% |
14.00% |
|
BUDGET VARIANCE: |
|||||
|
Statement of Financial Performance |
|||||
|
Income |
Revised Budget |
Actual |
Variance ($) |
Variance (%) |
F or U |
|
Food sales |
$ 660,974.66 |
$ 680,804.00 |
$ 19,829.34 |
3% |
F |
|
Beverage sales |
$ 395,476.48 |
$ 387,567.00 |
$ (7,909.48) |
-2% |
U |
|
Catering fees |
$ 364,125.72 |
$ 371,408.00 |
$ 7,282.28 |
2% |
F |
|
Total Income |
$ 1,420,576.86 |
$ 1,439,779.00 |
$ 19,202.14 |
1% |
F |
|
Cost of Sales |
$ – |
||||
|
Food purchases |
$ 458,418.45 |
$ 481,339.00 |
$ 22,920.55 |
5% |
U |
|
Beverage purchases |
$ 254,783.23 |
$ 270,070.00 |
$ 15,286.78 |
6% |
U |
|
Total cost of sales |
$ 713,201.68 |
$ 751,409.00 |
$ 38,207.32 |
5% |
U |
|
Gross Profit |
$ 707,375.19 |
$ 688,370.00 |
$ (19,005.19) |
-3% |
U |
|
Expenses |
$ – |
||||
|
Marketing |
$ 60,800.00 |
$ 62,016.00 |
$ 1,216.00 |
2% |
U |
|
Depreciation expense |
$ 69,840.00 |
$ 69,840.00 |
$ – |
0% |
F |
|
Insurance |
$ 10,200.00 |
$ 10,200.00 |
$ – |
0% |
F |
|
Other Expenses |
$ 850.00 |
$ 876.00 |
$ 26.00 |
3% |
U |
|
Employment expenses |
$ – |
$ – |
|||
|
Superannuation |
$ 13,190.37 |
$ 13,404.90 |
$ 214.53 |
2% |
U |
|
Wages and salaries |
$ 138,846.00 |
$ 141,104.20 |
$ 2,258.20 |
2% |
U |
|
Other employer expenses |
$ 6,423.00 |
$ 6,487.00 |
$ 64.00 |
1% |
U |
|
Total employment expenses |
$ 158,459.37 |
$ 160,996.10 |
$ 2,536.73 |
2% |
U |
|
Rent |
$ 120,000.00 |
$ 120,000.00 |
$ – |
0% |
F |
|
Telephone |
$ 1,345.00 |
$ 1,345.00 |
$ – |
0% |
F |
|
Services |
$ – |
$ – |
|||
|
Electricity |
$ 6,013.92 |
$ 6,134.00 |
$ 120.08 |
2% |
U |
|
Gas |
$ 6,043.40 |
$ 6,164.00 |
$ 120.60 |
2% |
U |
|
Water |
$ 4,722.80 |
$ 4,685.00 |
$ (37.79) |
-1% |
F |
|
Total Expenses |
$ 438,274.49 |
$ 442,256.10 |
$ 3,981.61 |
1% |
U |
|
Operating Profit |
$ 269,100.70 |
$ 246,113.90 |
$ (22,986.80) |
-9% |
U |
|
Other Expenses |
$ – |
||||
|
Interest Expense |
$ 26,549.00 |
$ 26,549.00 |
$ – |
0% |
F |
|
Training |
$ 18,000.00 |
$ 18,000.00 |
$ – |
0% |
F |
|
Total other expenses |
$ 44,549.00 |
$ 44,549.00 |
$ – |
0% |
F |
|
Net Profit /(Loss) |
$ 224,551.70 |
$ 201,564.90 |
$ (22,986.80) |
-10% |
U |
The primary causes for variance to key performance indicators of total sales, gross profit % and net profit value can be summarized as follows:
The audit trails refer to the establishment or the implementation of a particular system that traces the transactions back to their generation point in relation to the items that have been incurred in a particular accounting cycle.
The particular issue that has been presented in the question is that the development of the particular audit trails that can be implemented for maintaining the internal controls. The audit trails can be listed down as follows:
The departments that are needed to be considered for the successful implementation of the budget are the sales department and the human resource department. The successful implementation of the budget will require curbing down the wages and salaries of the employees and implementing strategies that will effectively reduce the cost of sales and business related operations.
The accounting software that can be successfully adopted in the business is MYOB (Sponem and Lambert 2016). The essential features of MYOB are as follows:
References and Bibliography
Armitage, H.M., Webb, A. and Glynn, J., 2016. The use of management accounting techniques by small and medium?sized enterprises: a field study of Canadian and Australian practice. Accounting Perspectives, 15(1), pp.31-69.
ElKelish, W.W. and Rickards, R.C., 2018. Organisational culture’s impact on management accounting and control practices in the United Arab Emirates. International Journal of Accounting, Auditing and Performance Evaluation, 14(1), pp.24-46.
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.
Lueg, R. and Malmmose, M., 2014. Customer accounting with budgets and activity-based costing: a case study in electronic commerce.
Lueg, R., 2015. Product customization: A case study on choosing the right costing system.
McLellan, J.D., 2014. Management Accounting Theory and Practice: Measuring the Gap in United States Businesses. Journal of Accounting, Business & Management, 21(1).
Pavlatos, O. and Kostakis, H., 2015. Management accounting practices before and during economic crisis: Evidence from Greece. Advances in accounting, 31(1), pp.150-164.
Sponem, S. and Lambert, C., 2016. Exploring differences in budget characteristics, roles and satisfaction: A configurational approach. Management Accounting Research, 30, pp.47-61.
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