Reference no: EM133133522

FNSACC412 Prepare operational budgets

Assessment 1 Task Instructions

Question 1. Identify and explain budgetary control and list the five key principles of budgetary control.

Question 2. Describe the concept of forecasting and two forecasting techniques.

Question 3. Outline the principles of validity and reliability in relation to statistical analysis.

Question 4. Outline the key principles of descriptive statistics and inferential statistics methods.

Question 5. Outline variance analysis and why it is performed.

Question 6. Outline four measures that can be used to describe the amount of variance in a set of data.

Question 7. Describe four key areas that should be addressed in financial administration policies and procedures.

Question 8. Describe three key features of financial administration policy and procedures that will ensure that effective financial mechanisms are in place.

Assessment Task 2: Cost of goods sold and sales breakeven point

Task summary
You are required to prepare a production and direct labour budget to assist with estimating the cost of goods sold and the required income that should be achieved.
You are then required to calculate the sales breakeven point for the same company.

Carefully read the following:

David Armstrong has been running a small die cast factory (David Die Cast) in Penrith, NSW for about ten years. His main customers are two local washing machine manufacturers, for which he makes hose connections and drive wheels. The prices of the raw materials and the labour costs have changed several times over the last few years, and Dave is no longer sure if the hose connections are making him money anymore. Dave has collected the following raw data:

Number of units produced:
April 550 units
May 1,100 units
June 2,050 units

Production costs:
Direct material 1 kg x $3 per kg
Direct labour 2 hours per unit x $5 per hour

Variable manufacturing overhead:
Power $0.025
Insurance $0.10
Depreciation $0.20

Budgeted fixed manufacturing overhead per month:
Power $3,000
Indirect materials $200
Indirect labour $500
Lease costs $1,000
Insurance $1,000
Depreciation $3,000

Finished goods inventory:
Finished goods 1 January 266 units
Finished goods units 30 March 238 units

Total sales from 1 January to 30 March: $74,560

David has given you this data and has asked you to calculate how he is doing with his hose connectors.

Complete the following activities:

Use Die Cast Report Template to guide your work.

Question 1. Calculate budgeted fixed overhead costs using a three-month budget period. Show your calculations.

Question 2. Calculate the budgeted product cost per unit for the production of 6,000 units. Show your calculations.

Question 3. Calculate the profit made on the manufacture of the product overall, and the profit per unit, for the three months ending in March. Show your calculations.

Question 4. Calculate the number of units that would have to be manufactured over a three-month period for the company to breakeven, showing your calculations.

Question 5. Prepare an income statement using the table below for when 6,000 units are sold over a three-month period to show the net profit that will be achieved and to provide information to input into sales forecasts.

With one of his customers moving its manufacturing plant offshore, David wants Dave's Die Casting to look for other customers to supply. One local manufacturer, Tim's Trolleys, has asked him whether he could provide good quality castors for their pallet movers. Dave has done the preliminary calculations for the manufacture of 30,000 units, but would like you to help him decide whether this is a viable proposition for his company.
• Selling price is $18.00 per unit
• Variable costs are $7.50 per unit
• Fixed costs are $63,000 for manufacturing the product.

Question 6. Calculate the sales breakeven point in units, showing your calculations.

Question 7. Prepare an income statement using the table below for when 30,000 units are sold to show the net profit that will be achieved and to provide information to input into sales forecasts.

Question 8. Write a short report (minimum 200 words) for David based on the information and data that he has given you.
The report should use the results of the calculations to draw conclusions and make recommendations for David. The report should also include any relevant questions about the data that would help you to form your conclusions.
The report should include clear answers to David questions:
• Are the hose connections making a profit for Andrew?
• How many connectors do they have to manufacture each month to break even?
• If David's Die castors were to manufacture 2,000 hose connectors per month, how much profit should that generate for them? What would be their return on investment?
• Would you recommend that David's company continue to manufacture the hose connectors?
• Is the proposal for manufacturing the pallet mover castors attractive for Andrew? What would be their return on investment?

Question 9. Send an email to David (your assessor) as an email attachment.
The text of the email should be in grammatically correct English, written in an appropriate (polite, business-like) style and with a logical structure.

It should introduce and summarise the contents of the attachment.

Assessment Task 3: Budget variance

Task summary
In this assessment task you will need to calculate variance and produce a cash budget variance report.
You will also be asked to develop a sales budget and an operational budget.
You will then, in the role of Accounts Manager, participate in a meeting with the company's owner and Marketing Manager (your assessor and a fellow student) to discuss some aspects of the documents that you have created.

Carefully read the following:

Renata Resonance Ltd specialises in audio equipment, with Renata contracting as an audio consultant, showing customers how to get the best sound quality for their music venues. It commenced operations on 1st January 2017 in a small shopfront in Brunswick, a suburb of Melbourne.
Several months before opening, Renata had prepared a chart of expected revenue and expenditure for the first month of operation.
Opening bank balance (1 January 2017) $30,000
Income
Consulting fees $25,000
Expenditure
Fixed costs $5,400
Wages $20,000
Marketing expenses $1,000
Contractors $1,600

At the end of the month, the actual figures for the Month of January were found to be the following:
Opening bank balance (1 January 2017) $22,000
Income
Consulting fees $21,500
Expenditure
Fixed costs $5,800
Wages $20,000
Marketing expenses $1,000
Contractors $2,400

Renata has hired your financial services company that to look into Renata Resonances' finances. You are given the above data, and asked to complete the following activities:

Question 1. Calculate the net cash flow and variance.
Using the expected revenue and expenditure information given above, complete the following table in Budget Variance Report Template.

Question 2. Prepare a cash budget variance report.
This should be about a page long. It should give possible explanations for each of the above variances, and what impact each may have on the business overall.

Renata needs the report to discuss each point separately, in language that she can understand, taking into account that she is neither an accountant nor a bookkeeper.

Use Budget Variance Report Template to record your response

Question 3. Prepare a sales budget for 2018 using Microsoft Excel.
Create a new Excel Workbook to record your responses.
Save this as Renata Resonance Workbook.

Use the data above to calculate the budget.
include the figures for 2017 and projections for 2018 in the spreadsheet.

Question 4. Develop an operational budget.
Add another Worksheet to the Excel Workbook created in the previous activity, and name it Budget 2018.
Using the data in the table below, complete a Worksheet that calculates the forecasted monthly budget for 2018.
This should give monthly figures, as well as a total for the year and a monthly average.

If you have any comments or questions concerning the above data, make notes, and bring these to the meeting you will have in activity six of this assessment task.

Also, Renata would like you to predict the following two milestones from the data:
a. Renata won't consider the company to be a going concern until it returns a monthly net profit of at least $30,000. Identify the month when this should happen.

b. Renata would also like to know when she can expect the business to have generated at least a quarter of a million dollars for the year.

Print out a copy of your Renata Resonance Workbook to take with you to the meeting with Renata.

5. Write an email to Renata (your assessor).
The text should be written in correct English. Its tone should be appropriate for the task, namely polite and respectful.
The text of your email should summarise the contents of the attachment and give your responses to activities 4a and b.

Attach the budget variance report and Renata Resonance Workbook to the email:

Your assessor will respond to your email with the date and the time of a meeting.

Question 6. Meet with the client to discuss your reports.
Meet with Renata (your assessor) and her Marketing Manager to discuss the cash variance report that you wrote for activity 2, and to look at the sales and operational budgets you developed in activities 3 and 4.

You will attend the meeting in the role of the Accounts Manager that Renata has recently hired. Renata has told you that she does not fully understand the documents that you have sent her and would like you to explain them to her.

Renata has also recently hired a Marketing Manager (who will be role-played by another student), who will also be at the meeting. They have received the same data as you and would like to discuss some of the forecasts with you and Renata. In particular, the Marketing Manager believes that the marketing budget should be increased above the 15% already forecast.

At the meeting, you are to take the stance that an increase in the marketing budget above 15% is not warranted: the figures in your budgets show healthy growth for the business already. Your concern is the impact that the increase in consultancy fees could have on consultancy bookings. What you believe is needed is accurate monitoring of the effect that the increase in consultancy fees has on demand, with the increase to be reconsidered if it is found to result in less bookings. Any further increase to the marketing budget should be for specific projects that have measurable results. Also, can the company handle more work? Are staff trained and ready to take on more work than they already have? If not, should this be budgeted for?

At the meeting you will be negotiating with Renata and her Marketing Manager over any changes that should be made to the budgets that you have prepared. The other student at the meeting, in the role of Marketing Manager, should not be seen as competition. The objective is to build on each other's interpretations and understanding of the data, providing Renata with a full understanding of budget changes, their causes and potential consequences. Any conclusions that are reached should be from the perspective of what is optimal for the company, rather than any one person's opinion.

It is important that your interactions with Renata and her Marketing Manager are conducted in a professional manner that promotes goodwill between all participants.

During the meeting, you are required to Demonstrate effective communication skills including:
• Speaking clearly and concisely, using appropriate vocabulary
• Using non-verbal communication to assist with understanding
• Asking questions to identify required information
• Responding to questions as required
• Using active listening techniques to confirm understanding

Use the hard copies of the documents you brought with you to the meeting to take notes during the meeting.

Question 7. Revise the operational budget
This version of the file should include any changes that were decided on during the meeting.
Use the notes that you made on the hard copy of your document to guide your changes.

Save this document as Revised Renata Resonance Workbook.

Question 8. Revise the variance report
This version of the file should include any points brought up at the meeting that were not in your original report.
Use the notes that you made on the hard copy of your document to guide your changes.

Save this document as Revised Variance Report.

Question 10. Send an email to Renata (your assessor)
The text of the email should summarise the changes that you have made to your documents.
Use grammatically correct and socially appropriate language to convey this information.

The email should be sent within the timeline given.

Attach your Revised Renata Resonance Workbook and Revised Variance Report to the email.

Attachment:- Prepare operational budgets.rar