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BSBFIM501 Manage budgets and financial plans Assessment 4

Learner Instructions 4

(Review and evaluate financial management processes)

Performance objective

The candidate will demonstrate the ability to review and evaluate financial management processes.

Assessment description

Using the scenario information supplied, you will respond to a number of scenario tasks. You will collect and analyse financial data and make recommendations to improve existing processes. You will also create a plan to implement and monitor solutions.

Procedure

  1. Consider the scenario, tasks and financial information contained in the appendices of this assessment task.
  2. On a separate electronic document, provide written responses to the following five tasks (i.e. tasks A to E).
  3. Submit a document containing your responses to your assessor as per the specifications outlined below. Ensure you keep a copy of all work submitted for your records.

Specifications

You must:

  • provide responses to the five tasks provided in this assessment task submit answers on an electronic document such as Microsoft Word.

Your assessor will be looking for:

  • numeracy skills to read and understand a budget and perform cost accounting calculations
  • knowledge of basic accounting principles to identify and use account balances
  • knowledge of organisational requirements related to financial management
  • knowledge of current requirements of the Australian Taxation Office with respect to GST
  • knowledge of principles and techniques involved in:

budgeting

cash flow

electronic spreadsheets

GST

ledgers and financial statements

profit and loss statements.

Appendix 1 – Scenario

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 had aimed to achieve a net profit before tax of $1,000,000. Actual figures showed the company fell short approximately $175,000 of this goal.

After successful labour cost cutting measures and improved sales team performance, the company aims to generate a net profit before tax of $1,200,000 from Australian operations alone.

This year, 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.

The board of directors of Big Red Bicycle feels that more cash will be needed to make investments to achieve strategic aims. One significant risk to plans is bad debt and poor cash flow due to large and unsustainable trade debtor balances quarter by quarter.

Note: Strategic plans dictate that Big Red Bicycle must reduce its debt levels and so additional financing to increase cash flow is not an option.

Role

You are the Senior Accountant. As part of your role, you will need to complete the following tasks.

Task A

As you are aware, one risk to the strategic plans of Big Red Bicycle (BRB) is bad debt and poor cash flow due to large trade debtor balances. Consider the following:

  • According to its policies, BRB offers 30 day terms to debtors.
  • BRB does not currently train sales staff on credit terms.
  • There is currently no enforcement of credit terms.
  • Warehousing of stock is expensive at current leased premises.
  • Many bicycles need to be thrown out if parts rust; this problem exacerbates the problem of waste expense.

You have the following information from the Statement of Financial Position and current ledger accounts in the electronic accounting system (MYOB AccountRight).

Account

$

Trade debtors

362,500

Trade creditors

80,000

Opening stock

100,000

Closing stock

300,000

Purchases

1,000,000

Complete the following.

1. Review the Statement of Financial Performance in Appendix 2 to calculate:

a. The average debtor days _____________

b. The average creditor days ____________

c. The average stock turnover ___________

d. Show calculations and results on your response document for this assessment task.

2. Consider the existing BRB ageing debtors budget in Appendix 2. On your response document, make two written recommendations for improvement to existing financial management processes to improve cash flow. To support your recommendations, refer to data sources, organisational needs, and analytical techniques, for example:

a. Statement of Financial Performance

b. ledger accounts

c. scenario information

d. ageing debtors budget

e. ratios.

3. On your response document, list three sources of information of use to complete this activity.

Task B

In addition to its Australian business, Big Red Bicycle is considering manufacturing a new range of cheaper bicycles in Indonesia. The following information is available:

  • The Indonesian plant has capacity to manufacture 8,000 units.
  • Big Red Bicycle’s strategic goal is to generate a pretax profit of $1,000,000 for the next financial year for Indonesian operations.
  • Clients will pay a maximum of $500 per bicycle
  • Possibility exists for move to Indian plant with capacity for 10,000 units.
  • Market for bicycles is growing rapidly and BRB will be able to sell all units produced.
  • Limited ability to renegotiate costs with suppliers.
  • Pricing and cost information is as follows.

Bicycle price per unit

$500 (excl. GST)

Current variable costs per unit

$250

Fixed costs

$1,280,000

Complete the following.

1. On your response document, work out:

a. how many units at current variable cost would need to be produced to achieve profit target (show calculations)

b. what the variable costs per unit would need to be to achieve profit target at current manufacturing capacity (show calculations).

2. On your response document, make one written recommendation based on your analysis. To support your recommendation ensure you refer to the organisational needs or situation, and any analytical techniques used. You may also suggest possible actions for BRB to take depending on possible future scenarios.

3. On your response document, list three sources of information of possible use to complete this activity.

Task C

Soon you will need to prepare a Business Activity Statement (BAS) for the first quarter on 2019/20.

Complete the following.

  1. State how many years you will need to keep GST records in order to satisfy ATO requirements.
  2. Complete the GST budget on the following page to anticipate GST liability.

July

August

September

Budgeted cash receipts incurring GST:

Cash sales

20,000

10,000

10,000

Cash revenue (besides sales)

0

0

0

Cash receipts from sale of assets (not stock)

0

0

0

Total receipts for GST

20,000

10,000

10,000

Budgeted non-cash receipts incurring GST:

Debtors sales

180,000

230,000

150,000

Total non-cash receipts

180,000

230,000

150,000

Total budgeted receipts incurring

GST

200,000

240,000

160,000

Budgeted cash payments incurring GST:

Cash purchases of stock

0

0

0

Cash expenses

4,300

5,200

5,250

Total cash receipts incurring GST

4,300

5,200

5,250

Budgeted credit payments incurring GST:

Credit purchases of stock incurring

GST

25,000

30,000

25,000

Credit purchases of assets (besides stock)

4,300

5,200

5,250

Total cash payments incurring GST

29,300

35,200

30,250

Total budgeted cash payments incurring GST

33,600

40,400

35,500

GST cash budget calculations

a) Cash receipts

b) Cash payments

c) GST liability

Task D

Choose one of the recommendations from Task A or B and develop an action plan to implement and monitor the recommendation. Ensure you include appropriate activities, monitoring, timelines and accountabilities.

Task E

Reflecting on the tasks you have undertaken and on your knowledge of financial management and planning principles:

  1. describe basic accounting principles
  2. describe cash flows
  3. describe ledgers and financial statements
  4. describe profit and loss statements.

Summarise your reflections in a short, written statement and submit this to your assessor.

You may revisit the five fundamental principles of accounting. For example, the list is said to be crucial to effective management decision-making:

  1. Control – managers need to control and monitor the business.
  2. Relevance – decision-makers need information that is timely, useful etc.
  3. Compatibility – the accounting systems should match the aims of a company.
  4. Flexibility – the accounting systems need to adapt to the company’s needs.
  5. Cost-benefit – the benefits of the accounting information system need to outweigh the cost.

What do you think?

Appendix 2 – Financial information

Statement of Financial Performance

Big Red Bicycle Pty Ltd

Statement of Financial Performance

For the year ended 30 June 2019

REVENUE

Sales

2,900,000

Less direct wages and commissions

272,500

Opening stock

100,000

Purchases

300,000

Closing stock

20,000

Less cost of goods sold

380,000

Gross Profit

2,247,500

EXPENSES

General & Administrative Expenses

Travel

22,000

Legal fees

4,500

Bank charges

700

Office supplies

4,000

Postage & printing

500

Dues & subscriptions

600

Telephone

11,200

Repairs & maintenance

45,000

Payroll tax

0

Marketing Expenses

Advertising

208,000

Employment Expenses

Superannuation

47,500

Wages & salaries

500,000

Staff amenities

23,000

Occupancy Costs

Electricity

38,000

Insurance

100000

Rates

100,000

Rent

200,000

Water

35,000

Waste removal

60,000

TOTAL EXPENSES

1,400,000

NET PROFIT (BEFORE INTEREST & TAX)

847,500

Income Tax Expense

254,250

NET PROFIT AFTER TAX

593,250

Ageing debtors budget

Big Red Bicycle Pty Ltd

AGED DEBTORS BUDGET 2018/19

TOTAL

Qtr 1

Qtr 2

Qtr 3

Qtr 4

Sales

2,900,000

600,000

900,000

800,000

600,000

% Debtors Sales

50%

50%

50%

50%

Total Debtors

100%

300,000

450,000

400,000

300,000

Current

65%

195,000

292,500

260,000

195,000

30 Days

20%

60,000

90,000

80,000

60,000

60 Days

12%

36,000

54,000

48,000

36,000

90 Days

3%

9,000

13,500

12,000

9,000

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