Making business recommendations
Part A:
Performance objective
1.Make, record and disclose asset and liability valuations in accordance with organisational requirements.
2.Ensure that discrepancies, unusual features or queries are identified, resolved or referred to the appropriate authority.
3.Use conversion and consolidation procedures to compile analysis in accordance with organisation requirements.
Assessment description
1.Identify the asset and liability valuations that the organisation has recorded on the Balance Sheet.
2.Complete a comparison of the Profit and Loss Statement and Budget and identify any information that requires further investigation due to a discrepancy, unusual feature or query.
3.Complete financial calculations.
Procedure
Part B
1.Using a red pen, circle on the Balance Sheet the asset and liability valuations that the organisation has recorded.
2.Using a red pen, mark a number on the Profit and Loss Statement next to any information that requires further investigation due to a discrepancy, unusual feature or query when comparing the information with the information contained in the Budget.
Each discrepancy, unusual feature or query should have a different number.
Using the table below list each number, which you have detailed on the Profit and Loss Statement, and provide a short sentence describing the issue and how you would resolve it.
Question 1
The assets and the liabilities valuations shown in the balance sheet have been encircled below with the red ink (Arnott, Lizama, & Song, 2017).
In the above table, four accounts, which require valuation, has been marked. They are receivables, inventory, property, plant, equipment, and the provision for employee entitlements.
Question 2Based on the profit and loss account of the entity, the unusual nature items have been picked out, some of them have been listed below along with the nature of the unusualness, and how the same can be resolved.
|
Number |
Details |
|
1. |
Sales: The target of sales was $231000 whereas the actual achievement was $ 211000, which is almost 10% below the target. The expenses have been more or less constant as compared to the budget and therefore it was expected that the sales would also be constant. The same can be resolved by checking if the completeness in recording the sales has been ensured and whether the revenue recognition criteria has been followed and the cut off entries has been correctly recorded in the books (Belton, 2017). |
|
2. |
Bad Debts: The budgeted bad debts expenses was $2625 whereas the actual was $10200. This is almost 4 times the estimated bad debt and therefore is one of the major unusualness in the profit and loss account. It needs to be seen whether the forecast was wrong or the management has shown greater bad debts in order to reduce profit (Alexander, 2016). The ageing and the collection policies of the company needs to be examined as to whether the same is adequate and the internal control is sufficient. |
|
3. |
Factory Rental: The factory rental for the year was $10000 whereas the estimation was $ 20000. This clearly shows that either the expenses have not been completely recorded or the provision has been missed out in books or the current year expenses have been shifted to the future years. Since this is in the nature of the fixed expenses, therefore it needs to be checked if the accounting and the accrual recording has been done correctly (Choy, 2018). |
Question 3
The analysis of the mobile phone expenditure of Carol’s Cup Cakes Pty has been shown in the table below. Since the budgeted mobile phone expenditure per month and per employee has not been given, therefore the same has been computed using the budgeted number as $125 per month and per employee (Mun, 2018).
|
CAROL’S CUP CAKES |
||||||||
|
MOBILE PHONE EXPENDITURE |
||||||||
|
Sales Representative |
9-Jan |
9-Feb |
9-Mar |
9-Apr |
9-May |
9-Jun |
Average Monthly Spend |
Variance from Budget |
|
Charlotte Sherlock |
122 |
124 |
116 |
128 |
118 |
127 |
122.50 |
-2.00% |
|
Brody Spears |
112 |
114 |
106 |
118 |
109 |
116 |
112.50 |
-10.00% |
|
Archie Short |
119 |
121 |
113 |
125 |
115 |
124 |
119.50 |
-4.40% |
|
Abby Pope |
157 |
160 |
149 |
165 |
152 |
163 |
157.67 |
26.13% |
|
Jack Smythe |
123 |
125 |
117 |
129 |
119 |
128 |
123.50 |
-1.20% |
|
Olivia Burke |
145 |
148 |
138 |
152 |
141 |
151 |
145.83 |
16.67% |
|
Grace Masters |
178 |
182 |
169 |
187 |
173 |
185 |
179.00 |
43.20% |
|
Henry Fulton |
148 |
151 |
141 |
155 |
144 |
154 |
148.83 |
19.07% |
|
Oliver Harris |
132 |
135 |
125 |
139 |
128 |
137 |
132.67 |
6.13% |
|
Mia Wright |
95 |
97 |
90 |
100 |
92 |
99 |
95.50 |
-23.60% |
|
Average Monthly Spend |
133.10 |
135.70 |
126.40 |
139.80 |
129.10 |
138.40 |
||
|
% Variance from Budget |
6.48% |
8.56% |
1.12% |
11.84% |
3.28% |
10.72% |
||
The trend analysis of the actual performance as compared to the budgeted performance for the entire period of 12 months has been shown below:
|
Packett Packaging Pty Ltd |
||||
|
Profit and Loss Statement |
||||
|
For 12 months from 1st July 2009 to 30th June 2010 |
||||
|
Particulars |
Budgeted |
Actual |
Variance |
Variance % |
|
Income |
||||
|
Sales - Goods and Services |
231,000 |
211,000 |
(20,000) |
-8.7% |
|
Other Sales |
84,000 |
83,000 |
(1,000) |
-1.2% |
|
Interest Received |
21,000 |
20,000 |
(1,000) |
-4.8% |
|
Total Income |
336,000 |
314,000 |
(22,000) |
-6.5% |
|
Expenses |
||||
|
Accounting and Audit Fees |
5,250 |
5,250 |
- |
0.0% |
|
Advertising and Marketing |
7,350 |
9,350 |
2,000 |
27.2% |
|
Depreciation - Plant and Equipment |
2,100 |
2,100 |
- |
0.0% |
|
Annual Leave - Office and Sales Employees |
5,250 |
5,250 |
- |
0.0% |
|
Bad Debts |
2,625 |
10,200 |
7,575 |
288.6% |
|
Bank Charges |
2,100 |
2,100 |
- |
0.0% |
|
Computer Expenses |
15,750 |
14,000 |
(1,750) |
-11.1% |
|
Consultancy |
1,050 |
1,050 |
- |
0.0% |
|
Donations and Fund Raising |
2,100 |
2,100 |
- |
0.0% |
|
Employee Benefits - Office and Sales Employees |
3,150 |
3,150 |
- |
0.0% |
|
Entertainment/ Travel - Office and Sales Employees |
2,100 |
2,100 |
- |
0.0% |
|
Factor Rental |
20,000 |
10,000 |
(10,000) |
-50.0% |
|
Filing Fees / Fines |
10,500 |
8,500 |
(2,000) |
-19.0% |
|
Fringe Benefit Tax |
2,625 |
2,625 |
- |
0.0% |
|
Gifts / Miscellaneous |
5,250 |
5,250 |
- |
0.0% |
|
Hire Purchase / Lease Charges |
2,100 |
2,100 |
- |
0.0% |
|
Insurance General |
1,050 |
1,050 |
- |
0.0% |
|
Interest |
1,575 |
1,575 |
- |
0.0% |
|
Legal Fees |
5,250 |
4,500 |
(750) |
-14.3% |
|
Long Service Leave - Office and Sales Employees |
5,250 |
5,250 |
- |
0.0% |
|
Motor Vehicle Expenses |
2,100 |
1,985 |
(115) |
-5.5% |
|
Payroll Tax - Office and Sales Employees |
6,300 |
6,300 |
- |
0.0% |
|
Security |
5,250 |
5,250 |
- |
0.0% |
|
Postage/ Courier |
10,500 |
9,554 |
(946) |
-9.0% |
|
Printing and Stationary |
630 |
750 |
120 |
19.0% |
|
Repair and Maintenance - Office Equipment |
525 |
4,000 |
3,475 |
661.9% |
|
Salaries - Office and Sales Employees |
105,000 |
105,000 |
- |
0.0% |
|
Staff Amenities - Office and Sales Employees |
1,050 |
950 |
(100) |
-9.5% |
|
Staff Training Courses - Office and Sales Employees |
10,500 |
10,500 |
- |
0.0% |
|
Staff Uniform - Office and Sales Employees |
1,575 |
1,575 |
- |
0.0% |
|
Superannuation - Office and Sales Employees |
9,450 |
9,450 |
- |
0.0% |
|
Sundry Expenses |
945 |
805 |
(140) |
-14.8% |
|
Telephone expenses |
10,500 |
10,500 |
- |
0.0% |
|
Workers Comp - Office and Sales Employees |
10,500 |
10,500 |
- |
0.0% |
|
Total Expenses |
277,250 |
274,619 |
(2,631) |
-0.9% |
|
Net Profit / (Loss) |
58,750 |
39,381 |
(19,369) |
-33.0% |
Given below is the average profit or cost per unit (cardboard box manufactured) for each month.
|
Packett Packaging Pty Ltd |
||||||
|
Actual Results |
||||||
|
For 12 months from 1st July 2009 to 30th June 2010 |
||||||
|
Months |
Income |
Expenses |
Profits |
Units Produced |
Cost per unit |
Profit per unit |
|
July'09 |
28,167 |
23,871 |
4,296 |
87,235 |
0.2736 |
0.0492 |
|
Aug'09 |
29,178 |
22,569 |
6,609 |
88,526 |
0.2549 |
0.0747 |
|
Sep'09 |
28,895 |
22,147 |
6,748 |
90,458 |
0.2448 |
0.0746 |
|
Oct'09 |
30,985 |
25,897 |
5,088 |
90,125 |
0.2873 |
0.0565 |
|
Nov'09 |
33,102 |
26,231 |
6,871 |
91,258 |
0.2874 |
0.0753 |
|
Dec'09 |
26,847 |
22,546 |
4,301 |
74,125 |
0.3042 |
0.0580 |
|
Jan'10 |
25,689 |
22,458 |
3,231 |
78,123 |
0.2875 |
0.0414 |
|
Feb'10 |
23,158 |
23,456 |
(298) |
81,549 |
0.2876 |
(0.0037) |
|
Mar'10 |
22,581 |
23,147 |
(566) |
80,456 |
0.2877 |
(0.0070) |
|
Apr'10 |
21,895 |
21,145 |
750 |
78,458 |
0.2695 |
0.0096 |
|
May'10 |
21,987 |
20,563 |
1,424 |
77,987 |
0.2637 |
0.0183 |
|
Jun'10 |
21,516 |
20,589 |
927 |
78,125 |
0.2635 |
0.0119 |
|
Total |
314,000 |
274,619 |
39,381 |
996,425 |
0.2756 |
0.0395 |
|
Average per month |
26,166.67 |
22,884.92 |
3,281.75 |
83,035.42 |
||
Question 6
Based on the above calculations and the analysis, there are several areas, which are significant, some, of which are as follows:
- The expenses per unit have not been constant throughout the year, at times it has been as high as 0.30 per unit and in some other months it has been as low as 0.24 in Sep and 0.25 in Aug’09. All of this is having a direct impact on the profit per unit, which has been as high as 0.07 and 0.08 per unit during Aug’09 to Nov’09 whereas at times, it has been zero (Feb’10), or even negative (Mar’10). All this is causing an inconsistency in the profit and cost mapping and is thus leading to inefficient budgeting and forecasting analysis(Heminway, 2017). All it has a direct impact on the lowering of the profit.
- With respect to the sales, the same is 8.7% below the target sales and the main reason for the same is the quantitative decrease in the months of Feb’10 to June’10. IT needs to be checked what is the reason for the decrease in sales as to whether if it is below than target sales or the competitive pressure or the decrease in selling price(Goldmann, 2016).
- There are few expenses, which should be in line with the sales and are variable in nature, like those of advertising and marketing but instead the same has increased. It needs to be examined as to why the same was increased(Jefferson, 2017).
- Some expenses like those of bad debts and the repair and maintenance – office equipment has ended up on an exceptionally higher side as compared to budget. Therefore, it needs to be checked if the budgeting was not properly made or the expenses have been higher due to low internal control and inefficiency in managing the receivables and the fixed assets(Das, 2017).
- There was higher savings in terms of the factory rental, filing fees (fines) and computer expenses, therefore, it needs to be checked if the company has become efficient in operations or the accounting has been done incorrectly(Timothy, 2004).
Some of the recommendations for the company has been shown below:
- Budget Modifications: The company can improve the budget forecasting in terms of quantity to be sold as well as the total profit as in the current year, the quantitative sales and the profitability per has been linear. In the forthcoming year, the company can make more accurate forecasts considering the seasonality of the sales, the pricing changes during the year and the market conditions and competitiveness(Dichev, 2017).
- Business Priority areas for the upcoming 3 months: The business should be focusing of reducing some of the key costs like those of bad debts, the advertising and marketing expenses, the repair and maintenance expenses, personnel costs, telephone expenses and other sundry expenses. In addition, improvement in the processes and the internal control of the company is warranted.
- Opportunities to improve performance: The Company needs to focus on entering into the new markets and increasing the bottom-line as well as the top line. This is help the company in growing and improving the margins. It should also be focusing on decreasing the major variable costs, which can help the company in increasing the net profits(Calvasina & Calvasina, 2017).
References
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-431.
Arnott, D., Lizama, F., & Song, Y. (2017). Patterns of business intelligence systems use in organizations. Decision Support Systems, 97, 58-68.
Belton, P. (2017). Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.
Calvasina, R. V., & Calvasina, E. J. (2017). Standard Costing Games that Managers Play. Journal of Management Accounting Research, 12(2), 33-65.
Choy, Y. K. (2018). Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis. Ecological Economics, 145. Retrieved from https://doi.org/10.1016/j.ecolecon.2017.08.005
Das, P. (2017). Financing Pattern and Utilization of Fixed Assets - A Study. Asian Journal of Social Science Studies, 2(2), 10-17.
Dichev, I. (2017). On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), 617-632. doi:https://doi.org/10.1080/00014788.2017.1299620
Goldmann, K. (2016). Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, 4(3), 103-112.
Heminway, J. (2017). Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents. SSRN, 1-35.
Jefferson, M. (2017). Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland . Technological Forecasting and Social Change, 353-354.
Mun, K. a. (2018). A close look at the role of regulatory fit in consumers’ responses to unethical firms.
Timothy, G. (2004, November). Managing interest rate risk in a rising rate environment. RMA Journal, Risk Management Association (RMA).
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