Assessment Task 4 BSBFIM501A Manage budgets and financial plans

Review and evaluate financial management processes (BSBFIM501A)

BY :
MAYRA ALEJANDRA NUNEZ ZULUAGA
CODE: 603327
Assessor: Cindy Forester.
Submission details

Candidate’s name Mayra Alejandra Nunez Z Phone no.

Assessor’s name Cindy Forester Phone no.

Assessment site OZFORD, 310 KING ST

Assessment date/s 15 –OCTOBER -2017 Time/s

The assessment task is due on the date specified by your assessor. Any variations to this
arrangement must be approved in writing by your assessor.
Submit this document with any required evidence attached. See specifications below for
details.

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 four scenario activities below along with the scenario background
information and financial information contained in the appendices of this assessment
task.

2. On a separate electronic document, provide written responses to the following four

scenario activities.
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.

Appendix 1 – Scenario background information

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Big Red Bicycle 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 CEO

Tom Copeland Managing Director

John Black 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 about $175,000 short of goals.
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 Bicycles feels that more cash will be needed to make
investments to achieve strategic aims. One chief risk to plans is bad debt and poor cash flow
due to large and unsustainable trade debtors balances quarter by quarter.
Note: Strategic plans dictate that Big Red Bicycles 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
four activities.

TASK A

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

a. The average debtor days _______46 days_________

= Trade debtors / Sales * 365

= 362,500 / 2,900,000 * 365

= 45.625

b. The average creditor days _____30 days__________

= Trade creditors / Purchases * 365

= 80,000 / 1,000,000 * 365

= 29.2

c. The average stock turnover _______2 times per year_______

= Cost of good sale / Average stock

Average stock = (100.000+300.00)/2

= 380,000 / 200,000

= 1.9

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

*Calculations are above each financial performance form.

2. Consider the existing BRB ageing debtor’s budget. 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.

Consider the existing BRB ageing debtor’s budget, we can say that: 65% of our customers
are paying on time or in the same day of purchase and just the 20% of them are taking
within 30 days term, as our BRB policy allow.

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 However, 12% of our clients are taking until 60 days and the 3% rest until 90 days of
overtime, affecting us in our cash flow balance for the continuity of the company e further
investments.

The recommendations for improving cash flow according BRB policy, refer to:

 Re-train all sales staff about BRB policies and credit terms.

 Charge an extra fee as a penalty, for delay payment and a discount for cash or
early payment.

 Review the term of payment and reduce the number of days that payment is
required.

 Ensure overdue payments are followed up promptly.

 Ensure the invoices provide all the required details in order for the debtors to pay
on time.1

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

The sources of information that we can consult to analyse the case, can be:

 Ratios: which is the formula or the method that help us to calculate:

o Average debtor days

o Average creditor days

o Average stock turns over.

 Scenario information: is a brief description about the company, that allows us to

know its goals, structure and the current conditions to identify weaknesses to
improve and reinforce strengthens.

 Ageing debtors budget: indicate the average time it takes for business to collect
money from its debtors.

 Statement of financial performance: shows how the business is managing its

finances according organisational goals for further decision making.

1
BSBFIM501A Manage budgets and financial plans, page 110.

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TASK B

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).

 Contribution Margin = Price – Variable Cost

CM = 500 - 250
CM = $250 per unit

 Units = (fixed Cost + Profit) / Contribution Margin

Units = (1,280,000 + 1,000,000) / 250
Units = 9,120 units

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

 New CM = Fixed cost + Profit) / Current manufacturing capacity

New CM = 1,280,000 + 1,000,000 / 8000
New CM = $285 per unit

 New variable Cost = Price – New CM

New variable Cost = 500 - 285
New variable Cost = 215 per unit

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.

 Big Red Bicycle’s strategic goal is to generate a pretax profit of $1,000,000 for the next
financial year for Indonesian operations. But, regarding to the information provided, we
can see that the Indonesian plant is not available to construct among the 9.120 units at
current variable costs that we need to produce to reach the pretax profit desire.
For consequence, the recommendation that is more convenient for us, due that BRB has a
limited ability to renegotiate cost with suppliers and the market for bicycles is growing
rapidly, is to move to the Indian plant which capacity is 10.000 units per month.

The Indian plant not only produces us the minimum amount we need to achieve the
desired profit but also gives us a small gap in case the demand for the bicycle increases
unexpectedly.

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

 Ratios: which is the formula or the method that help us to calculate:

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 o Units at current variable cost.

o Contribution margin.

o New variable cost at current manufactory capacity.

 Scenario information: is a brief description about the company, that allows us to

know its goals, structure and the current conditions to identify weaknesses to improve
and reinforce strengthens.

 Ledger accounts: is an account or record used to sort and store balance sheet and
income statement transactions that allow us to understand better cost and profits of the
business.

TASK C
Soon you will need to prepare a business activity statement (BAS) for the first quarter on
2012/13.

Complete the following.

1. State how many years you will need to keep GST records in order to satisfy ATO
requirements.
 In order to prepare an accurate tax return and support the claims you make, you need
to keep careful records. Generally, the written evidence must be kept for five years
from the date that tax return is lodged2.

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

2
https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Keeping-your-
tax-records/

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 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 200,000 *10% 240,000*10% 160,000*10%

= 20,000 = 24,000 = 16,000

b) Cash payments 33,600 * 10% 40,400 * 10% 35,500* 10%

= 3,360 =4,040 = 3,550

c) GST liability 20,000 – 3,360 24,000 – 4,040 16,000 – 3,550

= 16,640 = 19,960 = 12,450

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

ACTION PLAN FOR IMPLEMENT AND MONITOR THE CASH FLOW

RECOMMENDATIONS

Objective: to improve the cash flow in BRB for the next financial year 2012 in ageing
debtors budget.

ACTIVITY MONITORING DATE PERSON

ACTIVITY

 Monthly Aged debtor Q1 and Q3 Holly burke – HR

Re-train all sales staff
report. Manager.
about BRB policies and
credit terms.  Staff performance Sam Gellar – Sales
report. General Manager.
Charge an extra fee as a  Negotiations with Monthly Pat Roberts - Senior
penalty for delay customers. Accountant
payment and a discount  Monthly Aged debtor Sam Gellar - Sales
for cash or early report. General Manager
payment.

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 Review the term of  Account meeting to Q1 Pat Roberts - Senior
payment and reduce the asses the number of Accountant
number of days that days of credits. Jhon Black - CFO
payment is required
 Monthly Aged debtor Monthly Sam Gellar - Sales
Ensure overdue
report. General Manager
payments are followed
up promptly.

 Redesign invoices Q1 Pat Roberts - Senior

Ensure the invoices
provide to customers Accountant
provide all the required
details in order for the where allow them to Stuar Laroux –
debtors to pay on time. see bigger the pay operations general
date limit and the manager.
extra fee or discounts
for early or late
payment.

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Assessment Task 4 BSBFIM501A Manage budgets and financial plans

Appendix 2 – Financial information

Statement of Financial Performance

Big Red Bicycle

Statement of Financial Performance

For the year ended 30 June 2012
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 25,000
Marketing Expenses
Advertising 208,000
Employment Expenses
Superannuation 45,000
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 1,422,500
NET PROFIT (BEFORE INTEREST & TAX) 825,000
Income Tax Expense 206,250
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Assessment Task 4 BSBFIM501A Manage budgets and financial plans

NET PROFIT AFTER TAX 618,750

Page

Ageing Debtors budget

Big Red Bicycle

AGED DEBTORS TOTAL Qtr 1 Qtr 2 Qtr 3 Qtr 4

BUDGET 2011/12

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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Assessment Task 4 BSBFIM501A Manage budgets and financial plans

Task E
1. Basic accounting principles
These principles and guidelines are founded under ten main
principles including, economic, monetary, time, and cost

2. Cash flow is the total amount of money that a business organization

has entering and leaving the entity and, in most cases, affect the
liquidity of the business.

3. Ledgers and financial statements

Ledgers are financial records that hold the company financial

information and are used to prepare the financial statements; the
financial statements consist statement of financial position and
profit and loss statement.

4. Profit and loss statements

This is a company financial record that shows the company’s
earnings and expenses over a period.
Organization profitability is determined by how well the management can keep
control of the organization finances as well as the activities. Having a good
cost benefit analysis ensures that the management decision-making process is
relevant and compatible with the accounting systems available as well as gives
room for flexibility.

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