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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 2

Based 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%

Question 4

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:

  1. 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.
  2. 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).
  3. 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).
  4. 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).
  5. 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).
Question 7

Some of the recommendations for the company has been shown below:

  1. 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).
  2. 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.
  3. 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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