BSBFIM501 Manage budgets and financial plans Assessment 4

Learner Instructions 4

(Review and evaluate financial management processes)

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 scenario, tasks and financial information contained in the appendices of this assessment task.
2. On a separate electronic document, provide written responses to the following five tasks (i.e. tasks A to E).
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.

Specifications

You must:

• provide responses to the five tasks provided in this assessment task submit answers on an electronic document such as Microsoft Word.

Your assessor will be looking for:

• numeracy skills to read and understand a budget and perform cost accounting calculations
• knowledge of basic accounting principles to identify and use account balances
• knowledge of organisational requirements related to financial management
• knowledge of current requirements of the Australian Taxation Office with respect to GST
• knowledge of principles and techniques involved in:

budgeting

cash flow

electronic spreadsheets

GST

ledgers and financial statements

profit and loss statements.

Appendix 1 – Scenario

Big Red Bicycle Pty Ltd 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:

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 short approximately $175,000 of this goal.

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 Bicycle feels that more cash will be needed to make investments to achieve strategic aims. One significant risk to plans is bad debt and poor cash flow due to large and unsustainable trade debtor balances quarter by quarter.

Note: Strategic plans dictate that Big Red Bicycle 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 tasks.

Task A

As you are aware, one risk to the strategic plans of Big Red Bicycle (BRB) is bad debt and poor cash flow due to large trade debtor balances. Consider the following:

• According to its policies, BRB offers 30 day terms to debtors.
• BRB does not currently train sales staff on credit terms.
• There is currently no enforcement of credit terms.
• Warehousing of stock is expensive at current leased premises.
• Many bicycles need to be thrown out if parts rust; this problem exacerbates the problem of waste expense.

You have the following information from the Statement of Financial Position and current ledger accounts in the electronic accounting system (MYOB AccountRight).

Complete the following.

Task B

In addition to its Australian business, Big Red Bicycle is considering manufacturing a new range of cheaper bicycles in Indonesia. The following information is available:

• The Indonesian plant has capacity to manufacture 8,000 units.
• Big Red Bicycle’s strategic goal is to generate a pretax profit of $1,000,000 for the next financial year for Indonesian operations.
• Clients will pay a maximum of $500 per bicycle
• Possibility exists for move to Indian plant with capacity for 10,000 units.
• Market for bicycles is growing rapidly and BRB will be able to sell all units produced.
• Limited ability to renegotiate costs with suppliers.
• Pricing and cost information is as follows.

Complete the following.

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)

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

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.

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

Task C

Soon you will need to prepare a Business Activity Statement (BAS) for the first quarter on 2019/20.

Complete the following.

1. State how many years you will need to keep GST records in order to satisfy ATO requirements.
2. Complete the GST budget on the following page to anticipate GST liability.

Task D

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

Task E

Reflecting on the tasks you have undertaken and on your knowledge of financial management and planning principles:

1. describe basic accounting principles
2. describe cash flows
3. describe ledgers and financial statements
4. describe profit and loss statements.

Summarise your reflections in a short, written statement and submit this to your assessor.

You may revisit the five fundamental principles of accounting. For example, the list is said to be crucial to effective management decision-making:

1. Control – managers need to control and monitor the business.
2. Relevance – decision-makers need information that is timely, useful etc.
3. Compatibility – the accounting systems should match the aims of a company.
4. Flexibility – the accounting systems need to adapt to the company’s needs.
5. Cost-benefit – the benefits of the accounting information system need to outweigh the cost.

What do you think?

Appendix 2 – Financial information

Statement of Financial Performance

Ageing debtors budget