1. Identify and explain the key principles of budgetary control

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1. Identify and explain the key principles of budgetary control

ASSESSMENT COVER SHEET

Subject Name:                                                 Budgeting

Method:                                                Written and Practical Questions

Assessment No.:                                  1                                                                     

Competency Title/s:                               FNSACC402 A –Budgeting

Assessment 1                                                  (100 Marks)

Weighting:                                           (50%)

Purpose of this assessment:

The purpose of these Assessment Tasks is to assess that student is able:

1. Establish and confirm budgetary milestones and performance indicators
2. Prepare budgets for a variety of purposes and organisations
3. Accurately record and document budget reports.

Note: If a specific volume or frequency is not stated, then evidence must be provided at least once.

Employability Skills:

This unit of competency contains the employability skills.

Assessment criteria:

In judging how well a student has achieved the desired outcomes outlined in performance criteria, the following aspects will be considered:

Knowledge Evidence:

To complete the unit requirements safely and effectively, the individual must:

1. Identify and explain the key principles of budgetary control
2. Describe a variety of forecasting techniques
3. Explain the principles of double-entry bookkeeping
4. Outline the key principles of statistical analysis and measures of variance   
5. Describe the key features of organisational procedures and policy for financial administration.

Task 1: Oral / Written (questions and answers)

1. Explain the importance of strategic planning to the ongoing success of a company/business.                                                                                            5 Marks

Strategic planning is important for the success of a company/ business because of the following,

• Communicating or "marketing" the plan,

• managing the implementation of the plan,

• supervising the actual work, and • monitoring and reporting progress on the plan

On an ongoing basis the organization should:

• evaluate of its performance by gathering and analysing information;

• inform the planning group to review performance and reassess goals, outcomes, strategies to make recommendations for changes.

1. List the four stages of the strategic planning cycle and outline how each stage affects the budgeting operations of a company.                                                                    4 Marks

1)       Prepare

Three critical steps must be accomplished prior to developing a strategic plan: vision,evaluation or assessment and implementation

In each of these areas, you will need to review and build on what is already in place—vision and mission statements, state‐wide assessments, and input from ongoing groups of internal and external stakeholders already engaged in planning.

2)       Plan

For planning, you have to establish priorities by considering the needs, strengths, and resources of your organization. Keep in mind that

• What you want to achieve in the future?

• What will we do to get there?

• How you know if you are making progress? make your draft document and circulate it for input, revise and finalize.

3)       Implement:

The following steps ensure that plans are used to guide the work of the organization:

• Communicating or "marketing" the plan,

• managing the implementation of the plan,

• supervising the actual work, and • monitoring and reporting progress on the plan

4)       Review/Revise:

Update your plan continuously,this will keep it current and meaningful to the organization.

On an ongoing basis the organization should:

• evaluate of its performance by gathering and analysing information;

• inform the planning group to review performance and reassess goals, outcomes, strategies to make recommendations for changes.

1. Explain the following terms and outline their utilisation within the strategic planning process.                                                                                                         3 Marks

Forecasting:

A financial forecast is a tool that allows you to use your resources where they’remost needed, so you can control the cash flow of your business, instead of itcontrolling you. It allows you to control your money so you are more likely toachieve your desired net profit.

Key Performance Indicators:

Milestones:

1. List three budgetary worksheets commonly utilised by most Australian Companies and outline their major uses.                                                                                              3 Marks

1. Explain the following terms in respect to operational budgets.                                          7 Marks

Cash Sales:

Debtor Sales:

Revenue:

Expenditure:

Assets:

Liabilities:

Cash flow:

1. What is Double Entry Accounting and why is it important in the creation of budget documents?                                                                                                     5 Marks

1. List one internal and one external party who may be required to consult or analyse company budget sheets. Explain your choices.                                                      2 Marks 

Internal

External

1. How could the breakdown of budgetary results into specific timeframes (e.g. monthly/quarterly) assist in strategic planning and/or forecasting operations?       5 Marks

1. In what manner could these budget breakdowns be presented to assist in the strategic planning/furcating processes of company management?                                       5 Marks

1. List and explain three requirements that may influence the completion timeframes of budget documents within Australian companies.                                                    3 Marks

1. How can you ensure you communicate with stakeholders that a budget applies to in a way that promotes goodwill and cooperation?                                                        5 Marks

1. Why are budgets important to stakeholders and management for forecasting and evaluating the business?                                                                         5 Marks

1. What are three examples of financial administration policies and procedures you will be required to take into consideration in your daily work role? How will you ensure you are working in line with these policies and procedures?                                               3 marks

1. What methods would you use to communicate with and relate to a range of people from diverse social, economic and cultural backgrounds?                                                  5 marks  

Task 2: Practical Exercises

Question 1 – Master Budget                                                                                       5 marks                         

Master budget is not a single budget. It is the name given to the complete set of budget used in an organisation. Most budgeting systems comprise a number of individual budgets that are linked by common figures, bases or assumptions.

The master budget, therefore, is a combination of budgets that reflects the integrated plans and expected financial results of all operations and departments of the organisation.

Required

The following diagram is supposed to be a typical master budget network for a provider of trading businesses.  Match the appropriate labels to the appropriate boxes below.

Labels

1. Cash payments budget
2. Purchases budget
3. Cost of goods sold budget
4. Administration expenses budget
5. Income Statement budget
6. Financial expenses budget
7. Statement of Cash flows budget
8. Cash receipts budget
9. Selling expenses budget

Question 2 – Simple Cash budget                                                                             15 marks                         

a)    Kollette runs a handbag shop in the Wollongong. He prepares a simple cash budget quarterly to ensure that he has sufficient funds to operate the business.

The figures in the table below show three (3) months cash budget and are all GST inclusive.

Note: The opening cash balance on 1 July 2016 was $2,000

Required

Students are to prepare the budget for Kollette below using an Excel spreadsheet. In the budget, students must use the Excel formulas to generate Total cash outgoing and net cash increase (decrease). For example, the net surplus/deficit is equal to the cash in from sales less the sum of the cash out for operations (cash payments). In addition, students are to calculate closing cash balances and opening cash balances for the month of July, August, September and total. (The opening cash balance on 1 July 2016 is given above).

b)    Kollette collected the actual figures for the three (3) months’ operations (July to September) as follows.

Cash from sales                              $ 285,000

Cash for purchases                           $147,000

Wages                                               $54,000

Shop expenses                                   $12,000

Rent                                                  $24,000

Stationery, other costs                          $2,400

Advertising                                           $8,200

Required

Students are required to add a new column (Actual) on the right side of “Total” column to the budget to include the actual cash flows, using Excel. In the budget, students must use the Excel formulas to generate total cash outgoing and net cash increase (decrease). For example, the net surplus/deficit is equal to the cash in from sales less the sum of the cash out for operations (cash payments). In addition, students are to calculate closing cash balances and opening cash balances for the three (3) months’ actual figures.

The heading is done for you below.

c)    Performance reporting is the documentation of the variance between actual results and budget expectations. You are asked by Kollette to create a performance report for his handbag business for the three (3) months ended 30 September 2016. 

Required

Students are required to add a new column (Variance) on the right side of the above “Actual” column for the variance between budget and actual figures. Students must calculate the variances in dollar ($) amounts and percentage (%). In the performance report, students must provide the constructive analysis and recommendation to describe the comparisons as well as suggestions to manage cash surplus or deficit.

The heading is done for you below.

d)    Explain possible reasons of the variances for Kollette’s cash flow variances. In addition, provide a recommendation for the usage of net cash flow for the quarter ended 30 September 2016.

e)    What is the purpose of using a cash budget? List advantages of using the cash budget in businesses.

Question 3 – Sales budget (October 2016)                                                                    10 marks                         

Continue from Kollette ’s handbag sales business, students are to prepare the following sales budget.

Kollette provided the following details regarding to his handbag sales for October 2016.

• Kollette has two categories of handbags. One is the discount range of old, low-demand or B-grade bags that sell at a discount rate of $28 each.
• The other is normal range consisting of current, high-demand that sells for $45 each
• Both prices above exclude GST

The following units were sold in September 2016 at the same prices above.

• Discount range 1,050 handbags
• Normal range 1,340 handbags

Kollette is now working on his October estimates. Kollette expects the handbag sales will be increased by 15% on the September figures.

Required

Complete the following sales budget in units and in dollars for Kollette for the month of October 2016.

Question 4 – Sales budget (November and December 2016)                                      10 marks                         

Continue from the information in the task 3, students are to prepare the following sales budget.

Kollette is now preparing a sales budget for November and December 2016. Consider the following points to prepare the sales budget for November and December.

• For November sales: (round up sales volume to whole numbers)
• Kollette intends to increase the sales price of the discount range by 5%. Kollette expects that the increase price will have no effect on the numbers sold and he anticipates that he will sell the same number of discount handbags in November as October.
  • Kollette will leave the sales price of the normal range of handbags unchanged. He expects the number of the normal range of handbags sold to increase by 6% in November.
  • For December sales: (round up sales volume to whole numbers)
  • Kollette expects that sales volume will increase by 5% (in both categories) in December from November sales.

Required

a)    Complete the following sales budget in units and in dollars for Kollette for the month of November and December 2016.

b)    Complete the sales budget for Kollette for the three months ended 31 December 2016

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