Learner Instructions 1
(Plan financial management approaches)
The candidate will demonstrate the ability to plan financial management approaches.
In response to the scenario provided, you will clarify budget plans with your manager and negotiate changes to the budget. You will then identify and analyse a risk to the budget and prepare a contingency plan to prevent or minimise the risk.
You must:
Your assessor will be looking for:
Big Red Bicycle Pty Ltd is a bicycle manufacturer based in Bendigo, Victoria. The company produces bicycles which it sells to retailers in the domestic Australian market.
The senior management structure of the company appears below.
Person |
Position |
Michelle Yeo |
Chief Executive Officer (CEO) |
Tom Copeland |
Managing Director |
John Black |
Chief Financial Officer (CFO) |
Stuart LaRoux |
Operations General Manager |
Pat Roberts |
Senior Accountant |
Sam Gellar |
Sales General Manager |
Charles Pierce |
Production Manager |
Holly Burke |
HR Manager |
According to company strategic plans, the company aims to achieve a net profit before tax of $1,000,000. The chief risks to this goal are:
In addition to Australian operations, the company is considering manufacturing overseas to take advantage of reduced costs. The company is also considering diversifying its product range to reduce exposure to poor sales of one product.
You are the manager of Sales Centre A, based in Adelaide. The centre has achieved great success over the last year and consistently outsells other sales centres. In fact, due to the large number of accounts managed by your sales team and larger staff, your centre is expected to sell as much volume as the other two sales centres put together. Naturally, you expect cost allocations to reflect the both the needs and importance to the business of Cost Centre A.
The Sales General Manager, Sam Gellar, has asked you to review the master budget and cost centre budgets prepared by the Senior Accountant. She would like you to meet with her to discuss the whether the budget projections are achievable, accurate, understandable and fair.
She would like you to look closely at the budget for your cost centre, note any changes you think are necessary, develop an argument for the changes and negotiate those changes with her. Information you are aware of includes:
It has come to the attention of the Managing Director, Tom Copeland, that due to the current economic climate, sales volume may be 20% below target this financial year. Tom is worried that this may severely impact profit projections. The company can accept as much as a 10% variance in profit projections; however, more than this could severely affect the company’s ability to pay obligations and invest. Reliable data to determine whether the risk has eventuated should be available by mid Q2, when sales data for the company’s product are in.
As a special project, the Managing Director has asked you to perform a risk assessment and develop a contingency plan to manage the risk of sales falling 20%.
As per organisational policy you should use the contingency plan template provided.
All budgets must include the following details:
Big Red Bicycle Pty Ltd |
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Master Budget FY 2018/2019 |
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FY |
Q1 |
Q2 |
Q3 |
Q4 |
|
REVENUE |
|||||
Commissions (2% sales) |
60,000 |
15,000 |
15,000 |
15,000 |
15,000 |
Direct wages fixed |
200,000 |
50,000 |
50,000 |
50,000 |
50,000 |
Sales |
3,000,000 |
750,000 |
750,000 |
750,000 |
750,000 |
Cost of Goods Sold |
400,000 |
100,000 |
100,000 |
100,000 |
100,000 |
Gross Profit |
2,340,000 |
585,000 |
585,000 |
585,000 |
585,000 |
EXPENSES |
|||||
General & Administrative Expenses |
|||||
Accounting fees |
20,000 |
5,000 |
5,000 |
5,000 |
5,000 |
Legal fees |
5,000 |
1,250 |
1,250 |
1,250 |
1,250 |
Bank charges |
600 |
150 |
150 |
150 |
150 |
Office supplies |
5,000 |
1,250 |
1,250 |
1,250 |
1,250 |
Postage & printing |
400 |
100 |
100 |
100 |
100 |
Dues & subscriptions |
500 |
125 |
125 |
125 |
125 |
Telephone |
10,000 |
2,500 |
2,500 |
2,500 |
2,500 |
Repairs & maintenance |
50,000 |
12,500 |
12,500 |
12,500 |
12,500 |
Payroll tax |
0 |
0 |
0 |
0 |
0 |
Marketing Expenses |
|||||
Advertising |
200,000 |
50,000 |
50,000 |
50,000 |
50,000 |
Employment Expenses |
|||||
Superannuation |
47,500 |
11,875 |
11,875 |
11,875 |
11,875 |
Wages & salaries |
500,000 |
125,000 |
125,000 |
125,000 |
125,000 |
Staff amenities |
20,000 |
5,000 |
5,000 |
5,000 |
5,000 |
Occupancy Costs |
|||||
Electricity |
40,000 |
10,000 |
10,000 |
10,000 |
10,000 |
Insurance |
100,000 |
25,000 |
25,000 |
25,000 |
25,000 |
Rates |
100,000 |
25,000 |
25,000 |
25,000 |
25,000 |
Rent |
200,000 |
50,000 |
50,000 |
50,000 |
50,000 |
Water |
30,000 |
7,500 |
7,500 |
7,500 |
7,500 |
Waste removal |
50,000 |
12,500 |
12,500 |
12,500 |
12,500 |
TOTAL EXPENSES |
1,379,000 |
344,750 |
344,750 |
344,750 |
344,750 |
NET PROFIT (BEFORE INTEREST & TAX) |
961,000 |
240,250 |
240,250 |
240,250 |
240,250 |
Income Tax Expense (30%Net) |
288,300 |
72,075 |
72,075 |
72,075 |
72,075 |
NET PROFIT AFTER TAX |
672,700 |
168,175 |
168,175 |
168,175 |
168,175 |
Sales Centre A |
Sales Centre B |
Sales Centre C |
|
Commissions |
$20,000 |
$20,000 |
$20,000 |
Wages |
$100,000 |
$100,000 |
$100,000 |
Telephone |
$3,000 |
$3,000 |
$3,000 |
Office supplies |
$1,000 |
$1,000 |
$1,000 |
Contingency Plan Company name: Big Red Bicycle Pty Ltd Person developing the plan: Name: Position: |
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Risk identified: |
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Strategies/activities to minimise the risk |
By when |
By whom |
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