FNSACC503 - Manage Budgets and Forecasts

Task 1

Patrick Sablo has been working in a manufacturing company getting his monthly salary. The information presented below relates to the actual incomes and expenses of Patrick during the month. This information has been obtained from various sources on a realistic basis.

List of all monthly incomes and expenses:

Incomes:

Incomes
Incomes	Amount($)
Income from salary	9600
Digital marketing	1100
Extra Income	400
Total monthly income	11100

Expenses

Expenses
	Amount($)		Amount($)
Housing		Entertainment
Housing rent	960	Video gaming	35
electricity charges	35	Movies	50
Transport	20	Badminton	70
Phone	25	Live theatre	120
Water	25	Subtotals	275
Maintenance or repairs	32
Others	40	Loans
Subtotals	1137	Personal	1300
		Student	100
Transportation		Credit card	250
Vehicle payment	1800	Subtotals	1650
Insurance	120
Fuel	250	Taxes
Licensing	40	Personal	250
Maintenance	120	Business	50
Subtotals	2330	Subtotal	300

Variance analysis:

Variance- Variance analysis refers to the identification of budgeted performance for the enterprise and then comparing the actual results with budgeted performances to record the variances obtained. These variances will be properly evaluated for the purpose of identifying the reasons for the same and getting solutions (Hancock, et. al., 2017). The variance has been calculated for Patrick for the year with the help of actual results obtained:

Actual monthly income	Incomes	Amount($)
	Income from salary	9600
	Digital marketing	1100
	Extra Income	400
	Total monthly income	11100

Projected monthly income	Incomes	Amount($)
	Income from salary	9600
	Digital marketing	1050
	Extra Income	300
	Total monthly income	10950

Expenses
	Actual($)	Budgeted($)	Difference		Actual($)	Budgeted($)	Difference
Housing				Entertainment
Housing rent	960	960	0	Video gaming	25	35	10
electricity charges	40	35	-5	Movies	60	50	-10
Transport	25	20	-5	Badminton	80	70	-10
Phone	30	25	-5	Live theatre	100	120	20
Water	20	25	5	Subtotals	265	275	10
repairs	32	32	0
Others	40	40	0	Loans
Subtotals	1147	1137	-10	Personal	1200	1300	100
				Student	100	100	0
Transportation				Credit card	300	250	-50
Vehicle payment	1800	1800	0	Subtotals	1600	1650	50
Insurance	110	120	10
Fuel	350	250	-100	Taxes
Licensing	50	40	-10	Personal	260	250	-10
Maintenance	70	120	50	Business	56	50	-6
Subtotals	2380	2330	-50	Subtotal	316	300	-16

Variance analysis:

Particular	Amount($)
Projected balance(Projected income minus expenses)	5258
Actual balance(Actual income minus expenses)	5392
Difference	134

Introduction:

The report helps in discussing the fact about how efficiently Patrick has been able to manage budget prepared for the month. The results of actual expenditure have been estimated on a reasonable basis and these results have been compared with budgeted figure to identify and analyze various variances.

Content:

The above variance analysis conducted on the basis of available information shows that the overall variance obtained by Patrick is $134 which is favorable for him as the actual amount of balance as realized for the month is greater than the budgeted balance expected during the month (Bonin, 2013). The same includes variance obtained in estimated income and actual income realized which is favorable for Patrick and the unfavorable variance obtained in budgeted expenditure of $16.

The favorable variance obtained in income realized by Patrick is due to the wrong estimations made in income to be realized form digital marketing and other income sources. Patrick has been efficient enough to earn the income from other sources and the source of digital marketing has provided him with enough opportunities to increase his income source with innovation in new technology (Sponem & Lambert, 2016).

The unfavorable variance in overall expenditure of Patrick is obtained due to heavy expenditure incurred on fuel and credit card expenses. The budgeted expense for fuel was $250 but the actual expense incurred was $350, same as in the case of credit card expenses which exceeded its budgeted expenses by $50. The other variances were in the permissible limit and being set off with the efficiencies and less expenditure incurred in various other expenses of Patrick. Therefore it can be observed that the total expenditure of the company is within its permissible limit. Also, the estimations regarding his tax expenditures should be made accurately by applying reasonable assumptions and the same should be controlled (Rutherford, 2016).

Conclusion:

The above report leads to the conclusion that Mr. Patrick has been efficient enough to maintain and manage its budgeted results. However, a proper attention has to be made for the variances recognized in fueland credit card expenses and the same should be controlled by Patrick.

Task 2

Budgets:

The budgets refer to the actions plan in a form of a financial document which is prepared and used for the purpose projecting various incomes and expenses of the enterprise. The preparation of budgets allows the organization to operate control and cost reduction activities in the enterprise.

Market trends and factors which affect business growth:

At the level of the local market, the hospitality industry is affected by short-term economic, physical and political factors. There are certain keydrivers which also affect the performance of this industry and these are as below:

Major drivers –

1. GDP growth in the economy – The GDP growth in economy increases the earning capacity and purchasing power of the individual and thus affects the demand in hotel industry.

2. Rising middle class– The rising number of middle class also affect the demand in this industry.

3. Shift to multi-purpose trips – The major shift of middle-class families is from a single-purpose trip to multi purposes and they are leaning towards multi tours projects (Bonin, 2013).

Major trends–

1. Increased number of mobile bookings– It can be observed that mobile booking will account for 40 percent of online booking by the time of the year 2020.

2. Social networking – The emergence of social networking has helped majorly in planning trips and share experiences so that a large number of other potential tourists gets attracted.

3. The growth of travel intermediaries – there has been significant growth in travel intermediaries due to which more customers get influenced (Näsi, et. al., 2014).

Preparation of budgets:

The budgets of the enterprise are prepared on the basis of business’s financial and operating goals. The results in the preparations of budgets are expressed in quantitative terms. The preparation of budgets requires setting realistic goals and objectives which should be consistent with organization success and stability in the long run. In the concerned case of All GUEST AND WELCOME RESORTS, thepreparation of budgets for the year 2018 will include certain goals and objectives which are:

1. Cost reduction– It can be observed for the income statement of the year 2017 thatthecompany has been expanding lot on its operating expenses and therefore the main goal of the company for the year 2018 will be to reduce its operating expenses. The cost of sales has been increasing with each year and the same has to be controlled in order to achieve desired results. The budgeted cost and revenues will be based on these goals only. The information regarding the cost estimations and trends are as follows:

a. Cost of goods sold – Thecost of goods sold for the company in the year 2018 will be estimated to be at the same level as there is no significant change in the sales structure and factors of the industry. The cost items and the inflationary rate will be assumed to be moderate (Rutherford, 2016).

b. Transport– The transport expenses of the company will increase by 4% due to increase in fuelprices and change in the international crude prices.

c. Payroll– The payroll expenses of the company will increase by 5% due to revised labor budget policy of the government of Australia. The increase will give a rise to the expenses of next year.

d. Interest expense– The interest expense of the company will experience a slight high due to burden of additional cost imposed by the government. Also, the growth opportunity of the company will give rise to this expense.

e. Other expenses– The other expenses of the company will be increased by 2%.

2. Business growth– The strategic goal of the company regarding business growth has been to explore new opportunities and increase its sales by increasing the levels of activity. The same will result in increase in the sales of the company. On the basis of examining the industry trend related hospitality industry, there will be an increase of 15% in ten sales of the company (Näsi, et. al., 2014).

3. Debt reduction– The debt structure of the company will be revised as per the revised estimates in capital structure of the company. The aim here will be to shift to equity as a source of funding because of the increased number of regulations imposed on debt financing in Australian market. The company All GUEST AND WELCOME RESORTS will maintain a debt-equity ratio of 2:1 in the year 2018 (Gelman, et. al., 2014).

The various budgets and forecasts have been prepared on the basis of the previous year information of All GUEST AND WELCOME RESORTS and the market trends of the industry and the same has been presented appropriately:

Sales forecast:

Sales forecast
Particulars	2017 ($)	2018 ($)
Departments:
Rooms	1,200,000.00	1,380,000.00
Food	600,000.00	690,000.00
Beverage	240,000.00	276,000.00
Telecommunications	35,000.00	40,250.00
Other Income	9,500.00	10,925.00
Total sales	2,084,500.00	2,397,175.00

Assumption:
The sales have been increased by 15% in the year 2018.

Expense budget:

Expense budget
Particulars	2017 ($)	2018 ($)
Cost of sales:
Rooms	-
Food	178,200.00	179000.00
Beverage	37,620.00	38000.00
Telecommunications	14,100.00	14500.00

Payroll Expenses:
Rooms	247,200.00	259,560.00
Food	182,400.00	191,520.00
Beverage	44,580.00	46,809.00
Telecommunications	4,500.00	4,725.00

Operating expenses:
Resort Manager	116,234.00	118,558.68
General Staff	310,080.00	316,281.60
Administrative and General	113,100.00	115,362.00
Information Systems	29,700.00	30,294.00
Security	48,600.00	49,572.00
Transportation	27,900.00	29,016.00
Marketing	129,360.00	131,947.20
Depreciation	197,475.00	201,424.50
Property Maintenance	99,750.00	101,745.00
Insurance	35,000.00	35,700.00
Interest expense	15,000.00	20,000.00
Utility Costs (Water, Electricity)	99,250.00	101,235.00

TOTAL EXPENSES	1,930,049.00	1,985,249.98

Assumptions:

Cost of goods sold realized no significant change.
Transport expenses increased by 4%.
Payroll expense realized in increase of 5%
The interest expense increases slightly in comparison to last year performance.
All other expenses increased by 2%.

Budgeted Profit and loss:

Budgeted Profit & Loss for All GUEST AND WELCOME RESORTS for the year ended 2018
Profit & Loss	July ($)	Aug ($)	Sep ($)	Oct ($)	Nov ($)	Dec ($)	Jan ($)	Feb ($)	March ($)	April ($)	May ($)	June ($)	Total ($)
Sales	199780	199725	185225	200000	205000	199850	199225	198550	202552	199825	198250	209193	2397175
Less: Cost of sales	19290	19200	19280	18000	17500	21000	20500	19850	20255	19250	19000	18375	231500
Gross Profit	180490	180525	165945	182000	187500	178850	178725	178700	182297	180575	179250	190818	2165675
Expenses:
Payroll Expenses:
Rooms	21630	21650	20500	21500	20250	21843	22580	20000	20700	20560	21500	26847	259560
Food	15960	16000	15850	15750	16050	16120	16000	15800	15700	15850	15980	16460	191520
Beverage	3900	3800	4000	3800	3900	3915	3825	3700	4052	4056	3900	3961	46809
Telecommunications	393	400	392	450	350	390	380	370	393	350	400	457	4725

Operating expenses:
Resort Manager	9879	9800	9700	9600	9500	9825	9875	9990	9985	9945	9758	10701	118558
General Staff	26356	26350	26550	25660	25487	26881	26451	25882	27252	27522	26365	25525	316281
Administrative and General	9613	9600	9700	9600	9566	9635	9590	9622	9635	9600	9563	9638	115362
Information Systems	2524	2500	2495	2485	2515	2563	2500	2521	2496	2563	2500	2632	30294
Security	4131	4100	4000	4165	4185	4195	4050	4200	4300	4023	4065	4158	49572
Transportation	2418	2400	2395	2375	2395	2420	2450	2485	2400	2410	2495	2373	29016
Marketing	10995	10998	11000	10850	10750	11250	11050	11420	10998	10997	10885	10754	131947
Depreciation	16785	16785	16785	16785	16785	16785	16785	16785	16785	16785	16785	16789	201424
Property Maintenance	8478	8475	8475	8500	8352	8569	8425	8596	8200	8400	8500	8775	101745
Insurance	2975	2975	2975	2975	2975	2975	2975	2975	2975	2975	2975	2975	35700
Interest expense	1666	1666	1666	1666	1666	1666	1666	1666	1666	1666	1666	1974	20000
Utility Costs (Water, Electricity)	8436	8437	8489	8462	8362	8225	8465	8355	8465	8456	8356	8727	101235
Total Expenses	146139	145936	144972	144623	143088	147257	147067	144367	146002	146158	145693	152746	1753748

Net Profit	34351	34589	20973	37377	44412	31593	31658	34333	36295	34417	33557	38072	411927

Budgeted balance sheet:

Budgeted balance sheet for All GUEST AND WELCOME RESORTS for the year ended 2018
Particulars	Budget estimate 2018 ($)
Assets
Financial assets
Cash and cash equivalents	250000
Trade and other receivables	315622
Total financial assets	565622
Non-Financial Assets
Plant and equipment	5125000
Intangibles	3621830
Total non-financial assets	8746830
Total assets	9312452

Liabilities
Provisions	120000
Employees	50000
Other	150000
Total provisions	320000
Payables
Supplies	825000
Total payables	825000
Total liabilities	1145000
Net assets	8167452

Equity:
Net profit	411927
Shareholders’ equity	2500000

Long-term liabilities:
Debt	5255525

Total Equity	8167452

Profit and loss forecast for next two quarters:

Profit & Loss	July ($)	Aug ($)	Sep ($)	Oct ($)	Nov ($)	Dec ($)	Quarter ending September 2018	Quarter ending December 2018
Sales	199780	199725	185225	200000	205000	199850	584730	604850
Less: Cost of sales	19290	19200	19280	18000	17500	21000	57770	56500
Gross Profit	180490	180525	165945	182000	187500	178850	526960	548350
Expenses:
Payroll Expenses:
Rooms	21630	21650	20500	21500	20250	21843	63780	63593
Food	15960	16000	15850	15750	16050	16120	47810	47920
Beverage	3900	3800	4000	3800	3900	3915	11700	11615
Telecommunications	393	400	392	450	350	390	1185	1190

Operating expenses:
Resort Manager	9879	9800	9700	9600	9500	9825	29379	28925
General Staff	26356	26350	26550	25660	25487	26881	79256	78028
Administrative and General	9613	9600	9700	9600	9566	9635	28913	28801
Information Systems	2524	2500	2495	2485	2515	2563	7519	7563
Security	4131	4100	4000	4165	4185	4195	12231	12545
Transportation	2418	2400	2395	2375	2395	2420	7213	7190
Marketing	10995	10998	11000	10850	10750	11250	32993	32850
Depreciation	16785	16785	16785	16785	16785	16785	50355	50355
Property Maintenance	8478	8475	8475	8500	8352	8569	25428	25421
Insurance	2975	2975	2975	2975	2975	2975	8925	8925
Interest expense	1666	1666	1666	1666	1666	1666	4998	4998
Utility Costs (Water, Electricity)	8436	8437	8489	8462	8362	8225	25362	25049
Total Expenses	146139	145936	144972	144623	143088	147257	437047	434968

Net Profit	34351	34589	20973	37377	44412	31593	89913	113382

Perceived Financial Risks and Mitigation Strategies:

Risk assessment and contingency– The assessment of risk refers to the identification of various risks that are associated with a business enterprise and the actions that must be implemented at the time of risk. The planning strategy will include the set of actions that must be executed at the time of risk and the cost associated with the occurrence of that risk (Sponem & Lambert, 2016).

Strategies and steps to mitigate the risk– The various mitigation strategies will be followed in order to minimise the risk so that the business can achieve sustainable growth and development. Following are the steps to be involved in risk mitigation strategies:

1. Forecasting the risk – The step will involve identification of various threats including human, operational, physical, environmental threats and measuring the risk associated with each of these threats.

2. Risk option evaluation– The evaluation of the risk will include choosing the appropriate strategy whether to avoid, mitigate, and reduce or retention of the risk (Gelman, et. al., 2014).

3. Creation of contingency plans – The contingency plan to reduce or mitigate the risk will include certain planned steps or actions to be taken at the time of occurrence of risks. The proper implementation of the same will ensure that a business operation doesn’t get affected by these risks.
4. Plan evaluation and monitoring – The same will include continuous monitoring of the plans and risk mitigation strategies so that they can be practically implemented at the time of risk (Sponem & Lambert, 2016).

References:

1. Baxter, W. T. (2014). Accounting theory. Routledge.Vol. 3

2. Bonin, H. (2013). Generational accounting: theory and application. Springer Science & Business Media.

3. Gelman, A., Carlin, J. B., Stern, H. S., Dunson, D. B., Vehtari, A., & Rubin, D. B. (2014). Bayesian data analysis (Vol. 2). Boca Raton, FL: CRC press.

4. Hancock, P., Marriott, N., & Duff, A. (2017). Research–teaching yin–yang? An empirical study of accounting and finance academics in Australia and New Zealand. Accounting & Finance.

5. Luh, W. M., & Guo, J. H. (2016). Allocating sample sizes to reduce budget for fixed-effect 2× 2 heterogeneous analysis of variance. The Journal of Experimental Education, 84(1), pp. 197-211.

6. Maksimovska-Veljanovski, A., & Stojkov, A. (2014). Performance-Based Budgeting In South-Eastern Europe: A Legal And Economic Perspective. Central European Journal of Public Policy, 8(1), pp. 50-77

7. McLendon, M. K., & Hearn, J. C. (2013). The resurgent interest in performance-based funding for higher education. Academe, 99(6), pp. 25.

9. Näsi, S., Saccon, C., Wüstemann, S., & Walton, P. (2014). European accounting theory: evolution and evaluation. The Routledge Companion to Accounting, Reporting and Regulation, pp. 54-71.

10. Rutherford, B. A. (2016). Articulating accounting principles: Classical accounting theory as the pursuit of “explanation by embodiment”. Journal of Applied Accounting Research, 17(2), pp. 118-135.

11. Sponem, S., & Lambert, C. (2016). Exploring differences in budget characteristics, roles and satisfaction: A configurational approach. Management Budget AccountingResearch, 30, pp. 47-61.

FNSACC503 - Manage Budgets and Forecasts