Produce a revised budget for the second, third and fourth quarters, with an explanation of what actions you will take to deal with the deviation to the budget

Assessment task 3:  Prepare and monitor budgets

Instructions to Students

You are required to demonstrate your ability to complete a comparative balance sheet and gain an understanding of how to prepare budgets.  You can do this in consultation with your assessor who will provide you with feedback.  Once you have completed the tasks, discuss your answer with your assessor.

Activities: Prepre a balance sheet for the year ended 30 June 2009 for TML Ltd. Refer to the additional information provided to complete the balance sheet.

 

TMH Ltd. Comparative Balance Sheets for years ending 30 June 2008 and 2009
                                                                    2009                                                    2008
Assets:                                                              $                                               $

Current Assets:

Cash                                                                             52,000                                                                    46,000

Accounts Receivable                                                                                                                              134,000

Inventory                                                                   156,000                                                                    176,000

Total Current Assets:                                                                                                                                    356,000

Land                                                                                                                                                               140,000

Buildings                                                                                                                                                         290,000

Less Accumulated Depreciation                           (120,000)                                                                    (105,000)

Total Land and Buildings                                                                                                       325,000

Total Assets:                                                                                                                              681,000

 

Liabilities

Current Liabilities

Expense Payable                                                     155,000                                               124,000

Accounts Payable                                                                                                              197,000

Total Current Liabilities                                               322,000                                               321,000

Long-Term Borrowings                                                                                                             139,000

 

Owner’s Equity

Ordinary Share Capital                                               50,000                                                 45,000

Retained Earnings                                                                                                                   176,000

Total Owner’s Equity                                                                                                               221,000

 

Additional Information:

  • Profit for year ended 31 June 2009 was $94,000
  • Cash received from customers totalled $330,000
  • Cash paid for inventory totalled $170,000
  • Cash paid for expenses totalled $20,000
  • Dividends paid during the year were: $67,000
  • During the year, accounts receivable decreased by $10,000
  • Cost of new buildings acquired during the year $125,000
  • You are now required to analyse the balance sheet utilising both vertical and horizontal analysis and ratio analysis. Document your answer in the space below.

 

 

  • Once the above statements are completed, you are required to further analyse the company’s performance by comparing the above data with company goals as stated below and explain how the company goals have varied from the actual data.

 

TMH Management had the following aims for 2009:

•          To reduce liabilities by 5%

•          To increase profits by 8%

•          To increase sales by at least 5%

 

  1. Were these goals met?
  2. Were they exceeded?
  3. Did they fall short?

 

  • Case Study

 

You manage a small event management company. The business is growing steadily and you have decided to develop a budget to help plan for future growth.

Over the past year, sales have been increasing by 6% per quarter, with the most recent quarterly sales being $48,000.  Your objective is to grow the gross profit by 8% per quart higher than this projection offers.

Expenses for the last quarter have been as follows:

·         Staffing (two staff) = $18,600

·         Telephone/Internet = $680

·         Rent = $3,600

·         Advertising = $1,250

·         Equipment Hire = $8,400

·         Event catering = $13,850

Without any major changes, you are projecting that sales will continue to increase by 6% per quarter, with equipment hire, event catering and telephone/internet expenses rising by 4%.

 

Instructions to students

You will be required to prepare a budget, finalise a budget, monitor and review the budget.  This task must be undertaken individually and presented professionally to your assessor.  The report must also be word processed and not hand written.  You will have dedicated time given to you by your trainer and assessor to complete this task.

 

  1. Develop a report that includes the following information:
    • What are your company’s objectives?
    • What budgets will you need to prepare?
    • What sources of information will you see to develop a budget?
    • Conduct a SWOT analysis and explain what internal and external factors might impact on the budget?
    • Explain how you will involve your colleagues in the budget planning process.

 

  1. Once you have developed the budget, you are required to monitor and review the budget. By the end of the first quarter you can see that your actual sales grew by only 4% and expenses were as follows:
  • Staffing = $22,400
  • Telephone/Internet = $580
  • Rent = $3,600
  • Advertising = $1,650
  • Equipment hire = $9,800
  • Event catering = $14,250

Prepare a profit and loss report for this quarter, including the budgeted, actual and variance amounts.

 

Produce a revised budget for the second, third and fourth quarters, with an explanation of what actions you will take to deal with the deviation to the budget