BSBFIM601 Manage Finances Task Assessment 2

Performance objective

This assessment task requires you to monitor the implementation of a budget and report on the variances, trends, and performance of the established budget for a fictional business, and provide recommendations for ongoing financial viability.

Assessment description

You will need to review the provided current case study information and compare it to the budget you established in Assessment Task 1. After evaluating these you will need to report on the following:

• significant issues
• variances from budget
• comparative performances
• recommendations for ongoing financial viability
• evaluation of financial management processes.

Procedure

1. Read the case study provided in this task.

2. Develop a variance report based on the format and template provided by Houzit.

3. Complete a cash flow analysis on the average length of time it takes Houzit to collect funds from its debtors to determine the trend based on the financial reports in Assessment Task 1.

4. Examine the sales budget, profit budget, cash flow budget and debtor ageing summary to identify the following in a report:

a. Issues:

i. Identify, describe and prioritise significant issues that are evidenced in the provided case study information and describe reasons or causes of these issues. Include in this issues of financial probity that you have identified or considered when monitoring these budgets.

b. Variances:

i. Complete an actual-to-budget variance report, using the template provided in the case study.

ii. Identify variances by comparing actual results with the established budget, and provide reasons why these variances may have occurred.

c. Performance:

i. Compare financial performance of the organisation (according to financial information provided) to industry benchmarks for this organisation in line with the retail trade sector.

ii. Respond to the performance questions provided by the CEO, as provided by the board of Houzit,

iii. Determine a trend of the average debtor days and the impact to the cash flow of Houzit.

d. Recommendations:

i. Outline your recommendations for ongoing financial viability for the organisation, based on your assessment of the issues, reasons for variances and organisational performance you have identified (Steps 1–3).

ii. Include in this section your plans for a revised budget, effectively managing contingencies and issues that have been identified in feedback and monitoring of the budgets.

e. Evaluation:

i. Provide a summary review of the financial management processes in place for the organisation, in light of your assessment of the issues, reasons for variances and organisational performance you have identified. Include in this section any recommendations you have for modifying management processes.

5. Prepare for and undertake the role-play presentation.

a. Arrange a time with Jim Schneider, CEO of Houzit Pty Ltd (your assessor), and another senior manager (played by a course colleague), to present an oral explanation of your variance report. Ensure that your assessor and role-play colleagues have copies of or access to documents you will be referring to by circulating the budget the day prior to allow time to prepare questions.

b. Deliver the presentation of your variance report.

i. Summarise your findings (issues, variances, financial performance).

ii. Prioritise and present your recommendations.

iii. Outline reporting requirements and required financial delegations.

c. Ask for questions, either during or at the end of the presentation, to:

i. demonstrate your oral communication skills

ii. use questioning and listening techniques

iii. demonstrate competent exchange of information

iv. use appropriate conventions and protocols

v. ensure the manager and CEO are clear about budgets before seeking approval.

d. Seek approval of (or discuss as required) your recommendations in the report, and implement budget by distribution to managers after approval.

Specifications

You must submit:

• a complete actual-to-budget variance report
• a completed report detailing the issues, variances, performance, recommendations and evaluations identified from the financial information for Houzit Pty Ltd.

Your assessor will be looking for:

• Evidence that you reviewed the provided case study information to develop an evaluative report concerning the progress of the budget.

Adjustment for distance-based learners

• No changes to the task are required.

Case study: Houzit Pty Ltd

Soon after the end of the first quarter, Jim Schneider the CEO of Houzit, asked you to follow up with Celina Patel, Houzit’s accountant, to see how the actual results compared with the budget you had prepared three months ago. You explained that you had a meeting with Celina that afternoon to get the results and that you would report back as soon as you had done some analysis.

The key questions that the board was most interested to have answered from the budgets and the variance reports were:

• ‘To what extent do the reports support the view of the board that Houzit is financially viable?’
• ‘Will we be able to maintain our gross profit margins in the predicted downturn?’

Jim and you both agreed that it had been a tough quarter with the economy still in recession and the impact this was having on the retail sector. Banks are raising interest rates in line with the increased upward international pressure and Houzit has a significant part of their loan funds on a variable interest rate which changes directly with market conditions. Jim was pleased that the sales seem to be holding up reasonably well as first quarter results are generally impacted by factors relating to public and school holidays but he was concerned about the discounts that had to be given to generate these sales.

‘That’s going to hurt us at some point’ Jim said. ‘Just a pity we could not get into some national magazines this quarter to promote the store offers. I’m sure that would have helped us exceed the budgets you set. I guess we will just have to spend that advertising money in the next quarter’ Jim said. ‘I still think we are running our wages and salaries a bit high. The industry benchmark for wages and salaries is close to 11% of sales’

Jim went on to explain, ‘One of our contingency plans in a slowing economy is to reduce our exposure to debt by applying our profits to the repayment of the long term debt. This will help reduce the interest burden on the business and take some pressure off the diminishing profits. It would also be of interest to determine the impact that our debtors has on the cash flow of the business from 2010/11.’

You are a beneficiary of the company’s profit bonus scheme that is based on the profitability of the company’s financial reports which you are required to prepare. You also prepare the departmental reports that form the basis of the performance review of the managers. You are the manager of the finance/administration and prepare this department’s report as well.

You met that afternoon with Celina and she provided you with the following report on the actual results for the quarter ended 30 September 2011. 

Budget variance report template

According to the organisational policy and procedures, the following format is to be used when preparing a budget variance report.

Note: F = Favourable, U = Unfavourable

Debtor ageing ratio template

Anticipate that the trade debtors for the 2011/12 financial period maintain the same growth as that which took place between 2009/10 to 2010/11.