This report contains a theoretical discussion on the aspects of monitoring, budgeting, taxation and planning, along with the preparation and analysis of the budgets for the company Proactive Management Consultants Pty Ltd. The findings of the report depicts that it is very important for the organization to properly monitor its financial plans and procedures and accurately prepare its budgets, in order to improve its financial performance.
Part A
Question 1.
Reviewing the evaluation of financial monitoring plans brings advantage to the staff performance reviews which help in recognising and value the team members, identifying the need of training and clarifying their roles. An evaluation basically examines the outcome of a project with an objective of providing a framework for future projects through Monitoring and Evaluating Development Programs. It can also be described as an evaluation of cooperative programs that resolute that the cooperatives do improve the lives of many people but does not have a major impact on the overall employment. The concept of evaluation is mainly used for selecting and designing the future projects appropriately. With help of evaluation studies, one can assess level to which a project can develop impacts and distribution of benefits between different groups. The study also laid emphasis on the evaluation of cost-effectiveness of the project, when compared to other options.
It is very important to timely review and monitors the financial plans and procedures in order to comply with the changing requirements. A periodical review of financial plans and policies is necessary to keep them in align with company’s aim and objectives and to determine the weaknesses of planning and implementation. As the financial planning is done on the basis of assumptions, it becomes important for the management to review the plans on regular basis and to ensure that the assumptions made must proves to be true. If the assumptions prove to be wrong, then the planning needs to be modified as per the changes required. Thus, reviewing financial procedures, plans and policies regularly, is essential for achieving organization’s predetermined goals and objectives (Harris and Mongiello, 2012).
It is very important to keep workplace safety for the employees of the firm. In order to keep that, organization need to formulate some suitable policies and especially companies engaged in manufacturing industry are required to take additional measures for keeping the workplaces safe for its employees. It has been seen that many organizations have already taken some measures regarding employee health and safety, which ultimately resulted in the increased and better financial performance of the organization. Thus, employing work health and safety measures can leave a positive impact on firm’s financial performance (Gahan, Sievewright and Evans, 2014).
Apart from this, performance reviews also assist in creating the culture of open communication in the organization. In order to know about employees’ performance, companies generally conduct annual reviews of their efficiency, work product and their attitude towards their job. The results derived from performance reviews can help the management to take certain decisions regarding the pay grade and salary increment of their employees, promotions, need of providing additional training and all other decisions related to employees. Along with this, the organization can also improve their budget forecasts for coming fiscal year. Review of performance allows to describe the role and responsibility of employees as well as help them to reflect, consolidate, plan and review their work performance (Malik, Butt and Choi, 2015).
The work health and safety programs in an organization can affect its financial performance to a great extent. Illness, injuries and death on work places can impose large costs not only on the company but also on the national economies. These costs accrue to the workers who had suffer, their families, the organizations who employed them and to the society at large because of the cost associated with health care and treatment. The WHS programs will always have a positive impact on financial performance of the company. The overall productivity of an organization will increase when it has healthy and fit employees to work with. These programs are organized to maintain and manage the health and safety of the workers. There can be several reasons behind an improved performance and increased productivity of the firm. Some of them are reduction in employee turnover, less government interference and reduced machinery hours. The employee turnover will reduce as employees will feel safe to work in an organization which has work health and safety measures. This will result in increased worker’s efficiency and reduction in cost of employment which will ultimately bring an upsurge in firm’s productivity (Business.gov.au, 2017).
WHS measures also decreases the machinery hours which will lead to the reduction in cost of production and increase in efficiency. However, firms not having WHS programs and measures can face continuous government interruption as the health and safety of the employees are covered under proper laws and regulations. Thus, if the company does not follow the rules and regulations regarding employee health and safety, then it will be liable to pay fines and penalties which may sometimes extend to the suspension of the business. Another benefit which can be derived from WHS of employees is that if the workers stay healthy, then they will be able to work more effectively and efficiently. These measures boost up the capacity of the employees to work with full confidence and in a best possible manner. On the top of that, the reputation, goodwill or brand value of a firm is also improved when it complies with health and safety norms. On the other hand, companies not having WHS measure are not only entitled to pay penalties but their goodwill can also be impacted to large extent. The reduction in the reputation will brings a negative impact on the financial performance of the organization (Schlick, ed., 2009).
Question 2.
Effectiveness of any financial plan is mainly depended upon the approach followed by an organization. The top management usually formulates all the plans, policies and procedures and then these are transferred to the middle and lower level of management for the purpose of implementation and supervision. Monitoring the implementation of financial plans is the prime responsibility of the top management. Analysis of budgeting and financial planning process of management can help in ascertaining the effectiveness of financial monitoring and planning process. The process followed must be standardized as it assists in better supervision of plans. Along with this, the financial plans implemented by the management should not be rigid because rigidity in the budgets and plans causes problems in implementation and also results in resistance among the employees. If there will be rigidity in plans then employees may not be willing to make changes in the set policies but they may be compelled to do so. Forcing the employees to do something against their wish may result in resistance that ultimately affect the monitoring process of budgets (Boone and Kurtz, 2011).
Another factor which can be used in measuring the effectiveness of a financial plans is the budgets prepared by the organization. The management must have a working budget for each month. On the basis of which, management can judge the effectiveness of its plans and policies. Budgets help in making decisions regarding the achievement of long term financial goals. With the help of them, companies can prepare their financial plans and procedure and can also identify the variances if any. Thus working budget helps in monitoring the plans formulated by the management. Eliminating the debt can also result in an effective financial plan. Companies should make efforts to eliminate their debt as it is not useful when the organization save money and invest it in paying the higher interest rates on the funds borrowed. The position of debt in an organization reflects how effective its financial plan is. If management has lot of debt, then it has to cut down its spending are put efforts to increase it earnings in order to pay off the debts. This shows that the company does not properly monitor its plans, procedures and policies. Therefore, organization must have standard procedures, flexible policies, working budget and low debt in order to make its financial plans effective (Atkinson and Messy, 2012).
Question 3.
The main element of financial planning and procedure is monitoring. It is the responsibility of the top management to formulate plans and budgets for coming years and to review them regularly. During the process of reviewing, management identifies the area where changes are required and after the identifications done, it forms policies and procedures in order to carry out such changes. It is very essential to make sure that the changes are accurately made and the improvements which are required in the monitoring process are carried out properly. Verification and comparison of new plans and procedures is very crucial in order to monitor such improvements. The new process must reflect the changes done by management and they should be in contrast with the previous one. Moreover, the evaluator must also consider the experience and qualification of the persons who are held responsible for making such changes in the monitoring process. As a person having professional and specialized qualification would monitor the changes in more effective manner (Localmanagement, 2017).
In order to monitor the improvements, the organization should make team of professionals or competent persons which can carried out the monitoring process more effectively and efficiently. Proper documentation should be there which contains the details of the results derived from making changes in financial procedures. The duties and responsibilities should be properly and clearly assigned to the team members and is must be the duty of the team to check that whether the results from improvements have positive or negative impact on the overall performance of the organization. A report must be sent to the top management which contains all the details of the improvements and everything should be done within the standard procedures (Brose, et. al. 2014).
The organization must follows the same process for monitoring the changes as it had followed in monitoring the financial procedures. The process used can be modified as and when required. The employees must be trained enough to comply with the improvements made and should accept them positively. In order to ensure this, management should provide additional training to its employees and workers and make them component to deal with the changes. Following standard procedures, having a team of professionally qualified persons, proper documentation and verification and having trained employees can help in monitoring the improvements made at the time of monitoring financial procedures.
Bilateral and Regional Trade Agreements are important phenomena in today’s era. In literal meaning, Bilateral Trade Agreement (BTA) is the one which is made between the two contracting parties whereas Regional Trade Agreements (RTA) is the one which is made between two or more contracting parties who share a common denomination which is conceptually known as “region”. The main aim of these agreements is to strengthen trade relations between members. Within the framework of Word Trade Organization, these agreements are been concluded to provide additional trade benefits to the contracting parties in compliance with the principles set out by WTO (Lester, Mercurio and Bartels, 2016).
International Commercial Terms (INCOTERMS) are the terms developed by International Chamber of Commerce and is a three letter trade terms which is widely used in the contracts done internationally and domestically for the sale of goods. These terms have got a worldwide acceptance by the government and shippers and are used to avoid uncertainties and misunderstandings. It defines the rights and obligations of each of the parties which enters into a contract, made for delivery of goods sold. Distribution of transaction costs and responsibilities between the buyer and seller is specified by INCOTERMS (Moses, 2017).
Competition and Consumer Act 2010 is an act of Parliament of Australia. This law lay emphasis on promoting completion, fair trading and protecting the consumers in Australia. It replaces the Trade Practices Act 1974 on January 1, 2011. Australian Competition and Consumer Commission (ACCC) administers the act. The act covers areas of market such as relationship between wholesalers, retailers, suppliers and consumers. Its overall objective is to enrich the welfare of Australian people by establishing fair competition and consumer protection provisions. Mainly it includes price monitoring, safety of product, mergers and acquisition, industry codes and unfair market prices. The act also laid down the rights and responsibilities of the consumer (Corones, 2014).
Warsaw convention is known as the convention for the unification of some rules related to international carriage by air. The liability for international carriage of goods, luggage and persons which is carried out by aircraft is regulated by this convention. It was originally written in France and the original documents were deposited with the Ministry for Foreign Affairs of Poland. It also provides the requirements for the format and content of the documents which are used for air transport such as passenger tickets, luggage tickets and many more ( 2018).
The global organization which deals with the rules of trade between countries is known as World Trade Organization. The main component of WTO is the world trade agreements that are negotiated and signed by the large number of trading nations and approved in their parliaments. The main aim of WTO is to provide help to the importers, exporters and producers of goods and services in conducting their business ( 2018)
It is Australian Tax Office that levies Goods and Services Tax (GST) on the sales of goods and services made in the country. The businesses operating in Australia are required to file returns to ATO on periodic basis in regards to GST paid and collected. Further, companies are required to pay company tax at rate of 30% on the profits made (ATO. 2018). Employer deduct PAYG from the salary of the employee and the amount is deposited to ATO.
(a) The organization should have dedicated employees who are keen to do their job of computing tax liabilities and remitting the dues of ATO timely. Along with this, an integrated information system must also be there in the business, which collects the information from various sources and provide reports to the management on timely basis. Having dedicated employees and integrated information system can result in proper internal control of the firm. Management can properly control the activities of the business and take appropriate decisions regarding any discrepancies in the operations.
(b) The Australian Tax office provide options to report and pay Goods and Services Tax. The period for reporting and payment of GST will be one from the following:
Monthly: if the GST turnover is more than or equal to $20 million.
Quarterly: if the GST turnover is less than $20 million and no notification has been received from ATO regarding monthly reporting of GST.
Annually: if the company is voluntarily registered for GST and having a turnover under $75,000. For non-profit organizations, the limit is $150,000 ( 2018).
According to ATO, an individual needs to lodge a PAYG withholding report at the end of each and every fiscal years, if the business of an individual suspended amounts from the payment made to:
Non-residents (interest, dividend and royalty payments)
Employees
Foreign residents
Business which do not quote on ABN
The reports regarding entity tax or company tax are produced annually on or before 30th September 2017 and the information is derived from tax returns and amendments (ATO. 2018).
(c) Business operating in Australia are required to report to the Australian Taxation Office (ATO), Australian Securities and Investments Commission (ASIC) and the Australian Securities Exchange (ASX). In order to report their tax obligations and payments, the businesses need to lodge a business activity statement (BAS) to ATO. This statement can be lodged electronically, by mail or in person. For filing GST return, business use BAS and the company return is filed using the form of company tax return.
Question 6.
Companies engaged in production and manufacturing of goods are liable to pay excise duty. It is necessary for every manufacturer or producer to apply for a license from the Australian Tax Office. As and when sale of goods and services is made, the license holder is required to pay excise duty to ATO. Furthermore, license holders are provided with option in regard to their excise duty payment. They are allowed periodic settlements and prepayments. Under the option of prepayments, they can pay the duty before the liability of paying it actually arises.
Some business are exempted from the payment of duty of excise such as goods produced by the companies, which are used in diplomatic missions. Exemption is been given to such organizations. In regard with the imports of goods and services, traders are liable to pay import and export duties to the Australian Government. However, Australia has Free Trade Agreements with six countries, therefore no import and export duty will be levied on the goods and services imported and exported from or to these countries (ATO. 2018).
Question 7.
Discrepancies or errors in any business transaction would not be acceptable by the organization. Having discrepancies in the transactions can cost too high to the business and therefore in order to avoid them, management must have adequate controls over the process of recording transactions. Errors generally occurs at the time of recording the transactions such as omission of the amounts, wrong amounts recorded or incorrect presentation of the data. Recording incorrect amount, omitting the transactions or wrongly presenting the data, all of them are considered as discrepancies and companies has to face consequences of the same. Variations or error in the business transactions that are in books, records or returns which are required to be submitted to outside agencies are not acceptable because they could result in heavy penalties, fine and litigations to the company (Alhabeeb, 2014).
Though discrepancies in the books, records and reports which are used for internal use can tolerable as long as they do not affect the long term decisions of the management. Further, if they are use at internal level, management is able to detect the errors and rectify them as soon as possible. Thus, it should be a vital responsibility of the management of the company to make sure that there are no discrepancies in filing the tax returns which are to be submitted to taxation offices and authorities. Return filed with securities exchange commission should also be free from variations.
To avoid such discrepancies, errors or variations, companies place adequate controls over the transaction recording process. These controls regularly monitors the recording of business transactions and identify the errors and rectify them time to time. Companies should have strong control over the preparation of tax returns and returns submitted to SEC in order to save the reports and returns from being wrongly filed. Organization must follow a standard procedure for verifying the accuracy of the data, which is filled in the returns to be filed with SEC and taxation authorities (Alhabeeb, 2014).
Part B
Question 1.
|
Cash collection Schedule |
||||||||
|
May |
Jun |
July |
August |
September |
October |
November |
December |
|
|
Sales |
42,100 |
47,300 |
59,000 |
44,100 |
46,000 |
51,600 |
47,000 |
67,000 |
|
Cash Inflow: |
||||||||
|
Cash sales (60%) |
35,400 |
26,460 |
27,600 |
30,960 |
28,200 |
40,200 |
||
|
Collection from last month (30%) |
14,190 |
17,700 |
13,230 |
13,800 |
15,480 |
14,100 |
||
|
Collection from second to last month (10%) |
4,210 |
4,730 |
5,900 |
4,410 |
4,600 |
5,160 |
||
|
Total Cash Receipt |
53,800 |
48,890 |
46,730 |
49,170 |
48,280 |
59,460 |
Question 2.
|
Jul |
Budget |
Over the Budget $ |
% of budget |
Aug |
Budget |
Over the Budget $ |
% of budget |
|
|
Income |
||||||||
|
Reimbursed expense |
0 |
600 |
(600) |
(1) |
800 |
1,200 |
(400) |
(33) |
|
Sales |
59,000 |
61,200 |
(2,200) |
(4) |
44,100 |
42,000 |
2,100 |
5 |
|
Service |
0 |
0 |
300 |
100 |
200 |
200 |
||
|
Total income |
59,000 |
61,800 |
(2,800) |
(5) |
45,200 |
43,300 |
1,900 |
4 |
|
Expense |
||||||||
|
Bank service charges |
50 |
50 |
40 |
50 |
(10) |
(20) |
||
|
Books and publication |
80 |
100 |
(20) |
(20) |
200 |
100 |
100 |
100 |
|
Dues and subscription |
50 |
50 |
0 |
0 |
50 |
(50) |
(100) |
|
|
Expensed equipment |
600 |
500 |
100 |
20 |
450 |
500 |
(50) |
(10) |
|
Advertising |
2,000 |
2,000 |
0 |
0 |
2,000 |
2,000 |
0 |
0 |
|
Insurance |
10,000 |
10,000 |
0 |
0 |
300 |
1,000 |
(700) |
(70) |
|
Finance charges |
0 |
100 |
(100) |
(100) |
10 |
10 |
0 |
0 |
|
Loan interest |
4,970 |
5,000 |
(30) |
(1) |
3,300 |
3,300 |
0 |
0 |
|
License & permits |
1,100 |
700 |
400 |
57 |
0 |
0 |
0 |
|
|
Motor expense |
9,900 |
9,000 |
900 |
10 |
3,100 |
2,570 |
530 |
21 |
|
Office supplies |
30 |
150 |
(120) |
(80) |
90 |
150 |
(60) |
(40) |
|
Payroll expense |
25,000 |
25,000 |
0 |
0 |
25,000 |
25,000 |
0 |
0 |
|
Postage & delivery |
30 |
20 |
10 |
50 |
70 |
20 |
50 |
250 |
|
Printing & Reproduction |
770 |
1,000 |
(230) |
(23) |
500 |
350 |
150 |
43 |
|
Accounting fees |
0 |
0 |
0 |
1,200 |
1,200 |
0 |
0 |
|
|
Legal fees |
0 |
0 |
0 |
500 |
0 |
500 |
||
|
Recruitment & Training |
0 |
0 |
0 |
0 |
500 |
(500) |
(100) |
|
|
Rent |
1,200 |
1,200 |
0 |
0 |
3,500 |
3,500 |
0 |
0 |
|
Repairs |
250 |
300 |
(50) |
(17) |
0 |
300 |
(300) |
(100) |
|
Software expense |
300 |
300 |
0 |
0 |
60 |
60 |
0 |
0 |
|
Stamp duty |
70 |
100 |
(30) |
(30) |
100 |
100 |
0 |
0 |
|
Telephone |
90 |
100 |
(10) |
(10) |
300 |
100 |
200 |
200 |
|
Travel & Ent |
800 |
1,500 |
(700) |
(47) |
230 |
1,000 |
(770) |
(77) |
|
Utilities |
247 |
250 |
(3) |
(1) |
250 |
250 |
0 |
0 |
|
Total Expense |
57,537 |
57,420 |
117 |
0 |
41,200 |
42,110 |
(910) |
(2) |
|
Net Income |
1,463 |
4,380 |
(2,917) |
(67) |
4,000 |
1,190 |
2,810 |
236 |
|
Opening Balance |
51,200 |
51,200 |
0 |
0 |
47,463 |
49,260 |
(1,797) |
(4) |
|
Receipts |
53,800 |
55,480 |
(1,680) |
(3) |
49,990 |
49,250 |
740 |
2 |
|
Payments |
57,537 |
57,420 |
117 |
0 |
41,200 |
42,110 |
(910) |
(2) |
|
Closing Balance |
47,463 |
49,260 |
(1,797) |
(4) |
56,253 |
56,400 |
(147) |
(0) |
|
Sep |
Budget |
Over the Budget $ |
% of budget |
1st Quarter |
Budget |
Over the Budget $ |
% of budget |
|
|
Income |
||||||||
|
Reimbursed expense |
1,200 |
2,000 |
(800) |
(40) |
2,000 |
3,800 |
(1,800) |
(47) |
|
Sales |
46,000 |
41,000 |
5,000 |
12 |
149,100 |
144,200 |
4,900 |
3 |
|
Service |
100 |
400 |
(300) |
(75) |
400 |
500 |
(100) |
(20) |
|
Total income |
47,300 |
43,400 |
3,900 |
9 |
151,500 |
148,500 |
3,000 |
2 |
|
Expense |
#DIV/0! |
|||||||
|
Bank service charges |
50 |
50 |
140 |
150 |
(10) |
(7) |
||
|
Books and publication |
80 |
100 |
(20) |
(20) |
360 |
300 |
60 |
20 |
|
Dues and subscription |
60 |
50 |
10 |
20 |
110 |
150 |
(40) |
(27) |
|
Expensed equipment |
12,000 |
12,000 |
0 |
0 |
13,050 |
13,000 |
50 |
0 |
|
Advertising |
500 |
500 |
0 |
0 |
4,500 |
4,500 |
0 |
0 |
|
Insurance |
700 |
1,000 |
(300) |
(30) |
11,000 |
12,000 |
(1,000) |
(8) |
|
Finance charges |
10 |
10 |
0 |
0 |
20 |
120 |
(100) |
(83) |
|
Loan interest |
3,300 |
3,300 |
0 |
0 |
11,570 |
11,600 |
(30) |
(0) |
|
License & permits |
0 |
0 |
0 |
#DIV/0! |
1,100 |
700 |
400 |
57 |
|
Motor expense |
3,100 |
1,200 |
1,900 |
158 |
16,100 |
12,770 |
3,330 |
26 |
|
Office supplies |
150 |
150 |
0 |
0 |
270 |
450 |
(180) |
(40) |
|
Payroll expense |
25,000 |
25,000 |
0 |
0 |
75,000 |
75,000 |
0 |
0 |
|
Postage & delivery |
50 |
20 |
30 |
150 |
150 |
60 |
90 |
150 |
|
Printing & Reproduction |
80 |
150 |
(70) |
(47) |
1,350 |
1,500 |
(150) |
(10) |
|
Accounting fees |
0 |
0 |
0 |
#DIV/0! |
1,200 |
1,200 |
0 |
0 |
|
Legal fees |
0 |
1,200 |
(1,200) |
(100) |
500 |
1,200 |
(700) |
(58) |
|
Recruitment & Training |
0 |
0 |
0 |
#DIV/0! |
0 |
500 |
(500) |
(100) |
|
Rent |
3,500 |
3,500 |
0 |
0 |
8,200 |
8,200 |
0 |
0 |
|
Repairs |
0 |
0 |
0 |
#DIV/0! |
250 |
600 |
(350) |
(58) |
|
Software expense |
60 |
60 |
0 |
0 |
420 |
420 |
0 |
0 |
|
Stamp duty |
100 |
100 |
0 |
0 |
270 |
300 |
(30) |
(10) |
|
Telephone |
300 |
100 |
200 |
200 |
690 |
300 |
390 |
130 |
|
Travel & Ent |
200 |
100 |
100 |
100 |
1,230 |
2,600 |
(1,370) |
(53) |
|
Utilities |
250 |
0 |
250 |
#DIV/0! |
747 |
500 |
247 |
49 |
|
Total Expense |
49,490 |
48,590 |
900 |
2 |
148,227 |
148,120 |
107 |
0 |
|
Net Income |
(2,190) |
(5,190) |
3,000 |
(58) |
3,273 |
380 |
2,893 |
761 |
|
Opening Balance |
56,253 |
56,400 |
(147) |
(0) |
51,200 |
51,200 |
0 |
0 |
|
Receipts |
48,030 |
45,210 |
2,820 |
6 |
151,820 |
149,940 |
1,880 |
1 |
|
Payments |
49,490 |
48,590 |
900 |
2 |
148,227 |
148,120 |
107 |
0 |
|
Closing Balance |
54,793 |
53,020 |
1,773 |
3 |
54,793 |
53,020 |
1,773 |
3 |
|
Oct |
Budget |
Over the Budget $ |
% of budget |
Nov |
Budget |
Over the Budget $ |
% of budget |
||
|
Income |
|||||||||
|
Reimbursed expense |
0 |
0 |
0 |
900 |
700 |
200 |
29 |
||
|
Sales |
51,600 |
49,300 |
2,300 |
5 |
47,000 |
41,000 |
6,000 |
15 |
|
|
Service |
300 |
0 |
300 |
1,000 |
200 |
800 |
400 |
||
|
Total income |
51,900 |
49,300 |
2,600 |
5 |
48,900 |
41,900 |
7,000 |
17 |
|
|
Expense |
|||||||||
|
Bank service charges |
50 |
50 |
0 |
0 |
30 |
50 |
(20) |
(40) |
|
|
Books and publication |
30 |
100 |
(70) |
(70) |
80 |
100 |
(20) |
(20) |
|
|
Dues and subscription |
0 |
50 |
(50) |
(100) |
50 |
50 |
0 |
0 |
|
|
Expensed equipment |
0 |
500 |
(500) |
(100) |
400 |
500 |
(100) |
(20) |
|
|
Advertising |
16,000 |
16,000 |
0 |
0 |
500 |
500 |
0 |
0 |
|
|
Insurance |
1,000 |
1,000 |
0 |
0 |
1,300 |
1,000 |
300 |
30 |
|
|
Finance charges |
30 |
10 |
20 |
200 |
10 |
10 |
0 |
0 |
|
|
Loan interest |
3,300 |
3,300 |
0 |
0 |
3,300 |
3,300 |
0 |
0 |
|
|
License & permits |
700 |
700 |
0 |
0 |
20,050 |
20,000 |
50 |
0 |
|
|
Motor expense |
3,200 |
2,000 |
1,200 |
60 |
2,200 |
2,570 |
(370) |
(14) |
|
|
Office supplies |
400 |
150 |
250 |
167 |
140 |
150 |
(10) |
(7) |
|
|
Payroll expense |
25,000 |
25,000 |
0 |
0 |
32,500 |
32,500 |
0 |
0 |
|
|
Postage & delivery |
70 |
20 |
50 |
250 |
10 |
20 |
(10) |
(50) |
|
|
Printing & Reproduction |
300 |
150 |
150 |
100 |
900 |
1,000 |
(100) |
(10) |
|
|
Accounting fees |
0 |
0 |
0 |
1,200 |
1,200 |
0 |
0 |
||
|
Legal fees |
0 |
0 |
0 |
300 |
0 |
300 |
|||
|
Recruitment & Training |
10,000 |
10,000 |
0 |
0 |
500 |
500 |
0 |
0 |
|
|
Rent |
3,500 |
3,500 |
0 |
0 |
3,500 |
3,500 |
0 |
0 |
|
|
Repairs |
500 |
300 |
200 |
67 |
200 |
300 |
(100) |
(33) |
|
|
Software expense |
60 |
60 |
0 |
0 |
60 |
60 |
0 |
0 |
|
|
Stamp duty |
0 |
100 |
(100) |
(100) |
0 |
100 |
(100) |
(100) |
|
|
Telephone |
300 |
100 |
200 |
200 |
200 |
100 |
100 |
100 |
|
|
Travel & Ent |
1,200 |
1,500 |
(300) |
(20) |
1,200 |
1,500 |
(300) |
(20) |
|
|
Utilities |
250 |
250 |
0 |
0 |
250 |
250 |
0 |
0 |
|
|
Total Expense |
65,890 |
64,840 |
1,050 |
2 |
68,880 |
69,260 |
(380) |
(1) |
|
|
Net Income |
(13,990) |
(15,540) |
1,550 |
(10) |
(19,980) |
(27,360) |
7,380 |
(27) |
|
|
Opening Balance |
54,793 |
53,020 |
1,773 |
3 |
38,373 |
35,110 |
3,263 |
9 |
|
|
Receipts |
49,470 |
46,930 |
2,540 |
5 |
50,180 |
44,270 |
5,910 |
13 |
|
|
Payments |
65,890 |
64,840 |
1,050 |
2 |
68,880 |
69,260 |
(380) |
(1) |
|
|
Closing Balance |
38,373 |
35,110 |
3,263 |
9 |
19,673 |
10,120 |
9,553 |
94 |
|
Dec |
Budget |
$ over Budget |
% of Budget |
2nd Quarter |
Budget |
$ over Budget |
% of Budget |
|
|
Ordinary Income/Expense |
||||||||
|
Income |
||||||||
|
Reimbursed Expenses |
400.00 |
500.00 |
(100.00) |
-20% |
1,300.00 |
1,200.00 |
100.00 |
8% |
|
Sales |
67,000.00 |
63,000.00 |
4,000.00 |
6% |
165,600.00 |
153,300.00 |
12,300.00 |
8% |
|
Service |
200.00 |
– |
200.00 |
#DIV/0! |
1,500.00 |
200.00 |
1,300.00 |
650% |
|
Total Income |
67,600.00 |
63,500.00 |
4,100.00 |
6% |
168,400.00 |
154,700.00 |
13,700.00 |
9% |
|
Expense |
– |
– |
#DIV/0! |
– |
– |
#DIV/0! |
||
|
Bank Service Charges |
10.00 |
10.00 |
– |
0% |
90.00 |
110.00 |
(20.00) |
-18% |
|
Books and Publications |
80.00 |
20.00 |
60.00 |
300% |
190.00 |
220.00 |
(30.00) |
-14% |
|
Dues and Subscriptions |
100.00 |
50.00 |
50.00 |
100% |
150.00 |
150.00 |
– |
0% |
|
Expensed Equipment |
700.00 |
500.00 |
200.00 |
40% |
1,100.00 |
1,500.00 |
(400.00) |
-27% |
|
Advertising |
500.00 |
– |
500.00 |
#DIV/0! |
17,000.00 |
16,500.00 |
500.00 |
3% |
|
Insurance |
1,200.00 |
1,000.00 |
200.00 |
20% |
3,500.00 |
3,000.00 |
500.00 |
17% |
|
Finance Charge |
10.00 |
10.00 |
– |
0% |
50.00 |
30.00 |
20.00 |
67% |
|
Loan Interest |
3,300.00 |
3,300.00 |
– |
0% |
9,900.00 |
9,900.00 |
– |
0% |
|
Licenses and Permits |
– |
– |
– |
#DIV/0! |
20,750.00 |
20,700.00 |
50.00 |
0% |
|
Motor Expense |
2,100.00 |
2,000.00 |
100.00 |
5% |
7,500.00 |
6,570.00 |
930.00 |
14% |
|
Office Supplies |
140.00 |
150.00 |
(10.00) |
-7% |
680.00 |
450.00 |
230.00 |
51% |
|
Payroll Expenses |
48,500.00 |
48,500.00 |
– |
0% |
106,000.00 |
106,000.00 |
– |
0% |
|
Postage and Delivery |
80.00 |
20.00 |
60.00 |
300% |
160.00 |
60.00 |
100.00 |
167% |
|
Printing and Reproduction |
100.00 |
150.00 |
(50.00) |
-33% |
1,300.00 |
1,300.00 |
– |
0% |
|
Accounting Fees |
– |
– |
– |
#DIV/0! |
1,200.00 |
1,200.00 |
– |
0% |
|
Legal Fees |
– |
– |
– |
#DIV/0! |
300.00 |
– |
300.00 |
#DIV/0! |
|
Recruitment & Training |
18,000.00 |
18,000.00 |
– |
0% |
28,500.00 |
28,500.00 |
– |
0% |
|
Rent |
3,200.00 |
3,500.00 |
(300.00) |
-9% |
10,200.00 |
10,500.00 |
(300.00) |
-3% |
|
Repairs |
– |
– |
– |
#DIV/0! |
700.00 |
600.00 |
100.00 |
17% |
|
Software Expense |
60.00 |
60.00 |
– |
0% |
180.00 |
180.00 |
– |
0% |
|
Stamp Duty |
100.00 |
100.00 |
– |
0% |
100.00 |
300.00 |
(200.00) |
-67% |
|
Telephone |
50.00 |
100.00 |
(50.00) |
-50% |
550.00 |
300.00 |
250.00 |
83% |
|
Travel & Ent |
200.00 |
100.00 |
100.00 |
100% |
2,600.00 |
3,100.00 |
(500.00) |
-16% |
|
Utilities |
250.00 |
– |
250.00 |
#DIV/0! |
750.00 |
500.00 |
250.00 |
50% |
|
Total Expense |
78,680.00 |
77,570.00 |
1,110.00 |
1% |
213,450.00 |
211,670.00 |
1,780.00 |
1% |
|
– |
– |
#DIV/0! |
– |
– |
#DIV/0! |
|||
|
Net Income (EBIT) |
(11,080.00) |
(14,070.00) |
2,990.00 |
-21% |
(45,050.00) |
(56,970.00) |
11,920.00 |
-21% |
|
Opening Balance |
19,673.00 |
10,120.00 |
9,553.00 |
94% |
54,793.00 |
53,020.00 |
1,773.00 |
3% |
|
Receipts |
60,060.00 |
55,600.00 |
4,460.00 |
8% |
159,710.00 |
146,800.00 |
12,910.00 |
9% |
|
Payments |
78,680.00 |
77,570.00 |
1,110.00 |
1% |
213,450.00 |
211,670.00 |
1,780.00 |
1% |
|
Closing Balance |
1,053.00 |
(11,850.00) |
12,903.00 |
-109% |
1,053.00 |
(11,850.00) |
12,903.00 |
-109% |
|
Proactive Management Consultants Pty Ltd – Actuals – July to December 200X |
||||||
|
July |
Aug |
Sep |
Oct |
Nov |
Dec |
|
|
Ordinary Income/Expense |
||||||
|
Income |
||||||
|
Reimbursed Expenses |
– |
800.00 |
1,200.00 |
– |
900.00 |
400.00 |
|
Sales |
59,000.00 |
44,100.00 |
46,000.00 |
51,600.00 |
47,000.00 |
67,000.00 |
|
Service |
– |
300.00 |
100.00 |
300.00 |
1,000.00 |
200.00 |
|
Total Income |
59,000.00 |
45,200.00 |
47,300.00 |
51,900.00 |
48,900.00 |
67,600.00 |
|
Expense |
||||||
|
Bank Service Charges |
50.00 |
40.00 |
50.00 |
50.00 |
30.00 |
10.00 |
|
Books and Publications |
80.00 |
200.00 |
80.00 |
30.00 |
80.00 |
80.00 |
|
Dues and Subscriptions |
50.00 |
– |
60.00 |
– |
50.00 |
100.00 |
|
Expensed Equipment |
600.00 |
450.00 |
12,000.00 |
– |
400.00 |
700.00 |
|
Advertising |
2,000.00 |
2,000.00 |
500.00 |
16,000.00 |
500.00 |
500.00 |
|
Insurance |
10,000.00 |
300.00 |
700.00 |
1,000.00 |
1,300.00 |
1,200.00 |
|
Finance Charge |
– |
10.00 |
10.00 |
30.00 |
10.00 |
10.00 |
|
Loan Interest |
4,970.00 |
3,300.00 |
3,300.00 |
3,300.00 |
3,300.00 |
3,300.00 |
|
Licenses and Permits |
1,100.00 |
– |
– |
700.00 |
20,050.00 |
– |
|
Motor Expense |
9,900.00 |
3,100.00 |
3,100.00 |
3,200.00 |
2,200.00 |
2,100.00 |
|
Office Supplies |
30.00 |
90.00 |
150.00 |
400.00 |
140.00 |
140.00 |
|
Payroll Expenses |
25,000.00 |
25,000.00 |
25,000.00 |
25,000.00 |
32,500.00 |
48,500.00 |
|
Postage and Delivery |
30.00 |
70.00 |
50.00 |
70.00 |
10.00 |
80.00 |
|
Printing and Reproduction |
770.00 |
500.00 |
80.00 |
300.00 |
900.00 |
100.00 |
|
Accounting Fees |
– |
1,200.00 |
– |
– |
1,200.00 |
– |
|
Legal Fees |
– |
500.00 |
– |
– |
300.00 |
– |
|
Recruitment & Training |
– |
– |
– |
10,000.00 |
500.00 |
18,000.00 |
|
Rent |
1,200.00 |
3,500.00 |
3,500.00 |
3,500.00 |
3,500.00 |
3,200.00 |
|
Repairs |
250.00 |
– |
– |
500.00 |
200.00 |
– |
|
Software Expense |
300.00 |
60.00 |
60.00 |
60.00 |
60.00 |
60.00 |
|
Stamp Duty |
70.00 |
100.00 |
100.00 |
– |
– |
100.00 |
|
Telephone |
90.00 |
300.00 |
300.00 |
300.00 |
200.00 |
50.00 |
|
Travel & Ent |
800.00 |
230.00 |
200.00 |
1,200.00 |
1,200.00 |
200.00 |
|
Utilities |
247.00 |
250.00 |
250.00 |
250.00 |
250.00 |
250.00 |
|
Total Expense |
57,537.00 |
41,200.00 |
49,490.00 |
65,890.00 |
68,880.00 |
78,680.00 |
|
Net Income (EBIT) |
1,463.00 |
4,000.00 |
– 2,190.00 |
– 13,990.00 |
– 19,980.00 |
– 11,080.00 |
|
Opening Balance |
51,200.00 |
47,463.00 |
56,253.00 |
54,793.00 |
38,373.00 |
19,673.00 |
|
Receipts |
53,800.00 |
49,990.00 |
48,030.00 |
49,470.00 |
50,180.00 |
60,060.00 |
|
Payments |
57,537.00 |
41,200.00 |
49,490.00 |
65,890.00 |
68,880.00 |
78,680.00 |
|
Closing Balance |
47,463.00 |
56,253.00 |
54,793.00 |
38,373.00 |
19,673.00 |
1,053.00 |
|
Note: For cash receipts, the service revenues and reimbursement of expenses is considered on cash basis. |
Question 3.
The above tables shows the result of variance analysis which states that the actual total income in month of July is less than the budgeted income by 5%. On the other side actual total income of August, September, October, November and December exceeds their budgeted income by 4%, 9%, 5%, 17% and 6% respectively. Talking about actual total expenses, July’s actual expenses are almost equal to its budgeted figures while the actual total expense of August and November are less than their budgeted expense by 2% and 1% respectively. On the other hand, September, October and December have high actual total expenses than their budgeted figures by 2% and 1% respectively.
The closing balance for the month of July is less than the budgeted balance by 4% whereas the closing balance is equal to the budgeted balance in month of August. The actual cash closing balance of September and October is higher than their budgeted figures by 3% and 9% respectively. There is a huge difference of 94% in the actual and budgeted figures of closing balance in month of November. The actual balance is higher than the budgeted one. Further, December’s closing balance is lower than the budgeted one by 109%.
On the basis of the above analysis, following recommendations are provided for the financial plans of Proactive Management Consultants:
It is recommended to take up advertisement campaign in month of August instead of taking it in October. This would result in the addition of $10,000 to the training and recruitment expenses in August and 30% to the payroll of September and October. As a result, the sales of September and October will increase which will help the company to improve its cash position in subsequent months.
The plan of moving into new premises in August is required to be deferred till next month. Having enough sales in September can make it easier for the company to bear the increase rent expense of $3,500 in these months.
The expense of $20,000 related to the purchase of a license in November should be deferred to December.
Question 4.
The new budget for the company on the basis of above recommendations:
|
Proactive Management Consultants Pty Ltd – New Budget – July to December 200X |
||||||
|
July |
Aug |
Sep |
Oct |
Nov |
Dec |
|
|
Ordinary Income/Expense |
||||||
|
Income |
||||||
|
Reimbursed Expenses |
600.00 |
1,200.00 |
2,000.00 |
– |
700.00 |
500.00 |
|
Sales |
61,200.00 |
42,000.00 |
57,400.00 |
69,020.00 |
29,285.71 |
45,000.00 |
|
Service |
– |
100.00 |
400.00 |
– |
200.00 |
– |
|
Total Income |
61,800.00 |
43,300.00 |
59,800.00 |
69,020.00 |
30,185.71 |
45,500.00 |
|
Expense |
||||||
|
Bank Service Charges |
50.00 |
50.00 |
50.00 |
50.00 |
50.00 |
10.00 |
|
Books and Publications |
100.00 |
100.00 |
100.00 |
100.00 |
100.00 |
20.00 |
|
Dues and Subscriptions |
50.00 |
50.00 |
50.00 |
50.00 |
50.00 |
50.00 |
|
Expensed Equipment |
500.00 |
500.00 |
12,000.00 |
500.00 |
500.00 |
500.00 |
|
Advertising |
2,000.00 |
2,000.00 |
500.00 |
16,000.00 |
500.00 |
– |
|
Insurance |
10,000.00 |
1,000.00 |
1,000.00 |
1,000.00 |
1,000.00 |
1,000.00 |
|
Finance Charge |
100.00 |
10.00 |
10.00 |
10.00 |
10.00 |
10.00 |
|
Loan Interest |
5,000.00 |
3,300.00 |
3,300.00 |
3,300.00 |
3,300.00 |
3,300.00 |
|
Licenses and Permits |
700.00 |
– |
– |
700.00 |
– |
– |
|
Motor Expense |
9,000.00 |
2,570.00 |
1,200.00 |
2,000.00 |
2,570.00 |
2,000.00 |
|
Office Supplies |
150.00 |
150.00 |
150.00 |
150.00 |
150.00 |
150.00 |
|
Payroll Expenses |
25,000.00 |
25,000.00 |
32,500.00 |
42,250.00 |
25,000.00 |
25,000.00 |
|
Postage and Delivery |
20.00 |
20.00 |
20.00 |
20.00 |
20.00 |
20.00 |
|
Printing and Reproduction |
1,000.00 |
350.00 |
150.00 |
150.00 |
1,000.00 |
150.00 |
|
Accounting Fees |
– |
1,200.00 |
– |
– |
1,200.00 |
– |
|
Legal Fees |
– |
– |
1,200.00 |
– |
– |
– |
|
Recruitment & Training |
– |
10,500.00 |
– |
– |
500.00 |
18,000.00 |
|
Rent |
1,200.00 |
1,200.00 |
3,500.00 |
3,500.00 |
3,500.00 |
3,500.00 |
|
Repairs |
300.00 |
300.00 |
– |
300.00 |
300.00 |
– |
|
Software Expense |
300.00 |
60.00 |
60.00 |
60.00 |
60.00 |
60.00 |
|
Stamp Duty |
100.00 |
100.00 |
100.00 |
100.00 |
100.00 |
100.00 |
|
Telephone |
100.00 |
100.00 |
100.00 |
100.00 |
100.00 |
100.00 |
|
Travel & Ent |
1,500.00 |
1,000.00 |
100.00 |
1,500.00 |
1,500.00 |
100.00 |
|
Utilities |
250.00 |
250.00 |
– |
250.00 |
250.00 |
– |
|
Total Expense |
57,420.00 |
49,810.00 |
56,090.00 |
72,090.00 |
41,760.00 |
54,070.00 |
|
Net Income (EBIT) |
4,380.00 |
(6,510.00) |
3,710.00 |
(3,070.00) |
(11,574.29) |
(8,570.00) |
|
Opening Balance |
51,200.00 |
49,260.00 |
48,700.00 |
55,904.00 |
49,516.00 |
39,377.43 |
|
Receipts |
55,480.00 |
49,250.00 |
63,294.00 |
65,702.00 |
31,621.43 |
39,714.29 |
|
Payments |
57,420.00 |
49,810.00 |
56,090.00 |
72,090.00 |
41,760.00 |
54,070.00 |
|
Closing Balance |
49,260.00 |
48,700.00 |
55,904.00 |
49,516.00 |
39,377.43 |
25,021.71 |
Question 5.
|
Actual Vs Budgeted |
||||||
|
July |
Aug |
Sep |
Oct |
Nov |
Dec |
|
|
Sales |
||||||
|
Actual |
59,000.00 |
44,100.00 |
46,000.00 |
51,600.00 |
47,000.00 |
67,000.00 |
|
Budgeted (revised) |
61,200.00 |
42,000.00 |
57,400.00 |
69,020.00 |
29,285.71 |
45,000.00 |
|
Deviation |
(2,200.00) |
2,100.00 |
(11,400.00) |
(17,420.00) |
17,714.29 |
22,000.00 |
|
Expenditure |
||||||
|
Actual |
57,537.00 |
41,200.00 |
49,490.00 |
65,890.00 |
68,880.00 |
78,680.00 |
|
Budgeted (revised) |
57,420.00 |
49,810.00 |
56,090.00 |
72,090.00 |
41,760.00 |
54,070.00 |
|
Deviation |
117.00 |
(8,610.00) |
(6,600.00) |
(6,200.00) |
27,120.00 |
24,610.00 |
Conclusion
On the basis of above analysis, it can be concluded that budgeting is that process which is required to be modified as per the changes made. Organization must critically analyse such changes and added them to the budgets time to time. Proactive Management’s budget has been changed according to the circumstances in order to improve the overall performance of the company.
References
Alhabeeb, M.J. 2014. Entrepreneurial Finance: Fundamentals of Financial Planning and Management for Small Business. John Wiley & Sons.
Atkinson, A. and Messy, F.A., 2012. Measuring financial literacy.
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Boone, L.E. and Kurtz, D.L. 2011. Contemporary Business. John Wiley & Sons.
Brose, M.S., Flood, M.D., Krishna, D. and Nichols, B. eds., 2014. Handbook of Financial Data and Risk Information I (Vol. 1). Cambridge University Press.
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