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Assessment Task 1 (BSBFIM501) Assessment Task 1BSBFIM501 Manage budgets and financial plans Plan financial management approaches Submission details Candidate’s name Phone no. Assessor’s name Phone no. Assessment site Assessment date/s 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 plan financial management approaches. Assessment description In response to the scenario provided, you will clarify budget plans with your manager and negotiate changes to the budget. You will then identify and analyse a risk to the budget and prepare a contingency plan to prevent or minimise the risk. Procedure 1. Read the scenario provided in Appendix 1 to this assessment task and tasks A and B. 2. Prepare to meet with your manager (assessor) to clarify budget and negotiate changes: a. identify areas of the budget that are not achievable, inaccurate or unclear b. prepare to negotiate necessary changes to the budget c. set up a time with your manager to meet. 3. Meet with your manager (assessor) to clarify budget and negotiate changes: a. identify at least two issues for clarification b. negotiate at least two changes c. include discussion of basic accounting principles d. refer to relevant legislation and ATO requirements e. refer to principles and techniques of managing budget items f. take and keep notes of agreed changes. 4. Use the template provided in Appendix 3 to this assessment task to prepare a contingency plan document for persistent risks after budget changes 5. Submit all documents required in the specifications below to your assessor. Ensure you keep a copy of all work submitted for your records. Specifications You must: · meet with your assessor to clarify budget and negotiate changes · provide a contingency plan · submit your notes. Your assessor will be looking for: numeracy skills to read and understand a budget and negotiate budget re-allocations knowledge of basic accounting principles to identify and use account balances knowledge organisational requirements related to financial management such as contained in organisational policies and procedures knowledge of principles and techniques involved in budgeting. Adjustment for distance-based learners No variation of the task is required. Documentation can be submitted electronically or posted in the mail. 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. Person Position Michelle Yeo Chief Executive Officer (CEO) Tom Copeland Managing Director John Black Chief Financial Officer (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 aims to achieve a net profit before tax of $1,000,000. The chief risks to this goal are: · poor sales due to economic downturn · increases in expenses such as wage expenses. 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. Role You are the manager of Sales Centre A, based in Adelaide. The centre has achieved great success over the last year and consistently outsells other sales centres. In fact, due to the large number of accounts managed by your sales team and larger staff, your centre is expected to sell as much volume as the other two sales centres put together. Naturally, you expect cost allocations to reflect the both the needs and importance to the business of Cost Centre A. Task A The Sales General Manager, Sam Gellar, has asked you to review the master budget and cost centre budgets prepared by the Senior Accountant. She would like you to meet with her to discuss the whether the budget projections are achievable, accurate, understandable and fair. She would like you to look closely at the budget for your cost centre, note any changes you think are necessary, develop an argument for the changes and negotiate those changes with her. Information you are aware of includes: · Sales in the first quarter (Q1), third quarter (Q3), and the fourth quarter (Q4) are generally 30% less than the second quarter (Q2). · Sales in Q2 depend on completion of 90% of repair and maintenance. · Sales for Q2 have been estimated to be $1,000,000. · Commission negotiated with members of the sales team is now at 2.5%. Task B It has come to the attention of the Managing Director, Tom Copeland, that due to the current economic climate, sales volume may be 20% below target this financial year. Tom is worried that this may severely impact profit projections. The company can accept as much as a 10% variance in profit projections; however, more than this could severely affect the company’s ability to pay obligations and invest. Reliable data to determine whether the risk has eventuated should be available by mid Q2, when sales data for the company’s product are in. As a special project, the Managing Director has asked you to perform a risk assessment and develop a contingency plan to manage the risk of sales falling 20%. As per organisational policy you should use the contingency plan template provided. Appendix 2 – Budgeting and finance policy Budget preparations The business plan will set the key parameters for all financial budgeting. Variations to the business plan must be approved by the CEO and senior management strategic committee. Prior period results are to be analysed to identify the profit level of cost centres, identify correlations between financial statistics and to set key performance indicators and benchmarks for future budgets. The budget planning committee will meet prior to budgets being developed and agree on budget parameters. The committee will consist of all department managers plus the CEO and CFO. A CAPEX budget will be developed from the approved business plan. A detailed sales budget must be completed before completing the profit budget for the year. A cash flow budget covering the first three months will be prepared after the profit budget is completed. A master budget including profit projections will be completed from which cost centre allocations will be made. Budget notes that contain all the assumptions used in the budgets should accompany the master budget or be made available as a separate document. Where possible, the notes should justify the basis on which the estimates were made. Overheads (non-direct expenses) will be apportioned across the cost centres equally. Exceptions need to be negotiated with relevant authorities. All expenses and income will be spread equally throughout the year unless otherwise required by business needs or business environment. The financial cycle for budgeting purposes will be yearly ending 30 June. Financial delegations · Each manager is responsible for achieving the revenue budgets agreed to by the budget committee. · Each manager is responsible to approve, by signing the necessary paperwork, all expenditures that fall within their area of responsibility. · Expenditures must be within the budget guidelines for the individual departments. Format for budgets and reports All budgets must include the following details: · name of the person who prepared it · cost centre (if applicable) · name of the budget/report, i.e. sales, expenses, CAPEX, cash flow, budget variation report · period of the budget. Appendix 3 – Budgets and templates Master budget with profit projections Big Red Bicycle Pty Ltd Master Budget FY 2011/2012 FY Q1 Q2 Q3 Q4 REVENUE Commissions (2% sales) 60,000 15,000 15,000 15,000 15,000 Direct wages fixed 200,000 50,000 50,000 50,000 50,000 Sales 3,000,000 750,000 750,000 750,000 750,000 Cost of Goods Sold 400,000 100,000 100,000 100,000 100,000 Gross Profit 2,340,000 585,000 585,000 585,000 585,000 EXPENSES General & Administrative Expenses Accounting fees 20,000 5,000 5,000 5,000 5,000 Legal fees 5,000 1,250 1,250 1,250 1,250 Bank charges 600 150 150 150 150 Office supplies 5,000 1,250 1,250 1,250 1,250 Postage & printing 400 100 100 100 100 Dues & subscriptions 500 125 125 125 125 Telephone 10,000 2,500 2,500 2,500 2,500 Repairs & maintenance 50,000 12,500 12,500 12,500 12,500 Payroll tax 25,000 6,250 6,250 6,250 6,250 Marketing Expenses Advertising 200,000 50,000 50,000 50,000 50,000 Employment Expenses Superannuation 45,000 11,250 11,250 11,250 11,250 Wages & salaries 500,000 125,000 125,000 125,000 125,000 Staff amenities 20,000 5,000 5,000 5,000 5,000 Occupancy Costs Electricity 40,000 10,000 10,000 10,000 10,000 Insurance 100,000 25,000 25,000 25,000 25,000 Rates 100,000 25,000 25,000 25,000 25,000 Rent 200,000 50,000 50,000 50,000 50,000 Water 30,000 7,500 7,500 7,500 7,500 Waste removal 50,000 12,500 12,500 12,500 12,500 TOTAL EXPENSES 1,401,500 350,375 350,375 350,375 350,375 NET PROFIT (BEFORE INTEREST & TAX) 938,500 234,625 234,625 234,625 234,625 Income Tax Expense (25%Net) 234,625 58,656 58,656 58,656 58,656 NET PROFIT AFTER TAX 703,875 175,969 175,969 175,969 175,969 Sales cost centre expense budget Sales Centre A Sales Centre B Sales Centre C Commissions $20,000 $20,000 $20,000 Wages $100,000 $100,000 $100,000 Telephone $3,000 $3,000 $3,000 Office supplies $1,000 $1,000 $1,000 Contingency plan template Contingency Plan Company name: Big Red Bicycle Pty Ltd Person developing the plan: Name:Position: Risk identified: Strategies/activities to minimise the risk By when By whom © 2015 Innovation and Business Industry Skills Council Ltd1st edition version: 1 Page 1 of 7