Manage Budget and Financial Plans for Motorcycle- myassignmenthelp

Question: Discuss about theManage Budget and Financial Plans for Motorcycle Company. Answer: The budget of Black helmet Motorcycle Company is prepared by assuming that there would be increase in total Australian market and share of on road segment is expected to remain stable. There will be fluctuation in sales revenue of both the products. Sales volume for both the products that is Roadster and trailer will be achieved with assumed price of $ 5200 and $ 3700. Sales revenue budget of company is prepared by considering various factors such as current situation of market, costs and readiness of sales team. When looking at the market situation, it is essential for company tom consider several aspects of market as the performance of organization is considerably affected (Chen et al. 2014). Demand of products is also influenced by market reaction. The development of budget will be done by adopting top down approach that enables complete control over allocation of budget by streamlining accounting process of business. Appropriate financial allowance for the promotion of budget is determined by upper management. Some of the critical factors that should be considered while developing budget involves control spending, cooperation of sales team and external factors such as market conditions (Fullerton et al. 2013). Category - Market, Operational or Financial The Risk - What Can Happen? Source - How Can it Happen? Impact - If Risk Occurs Potential Treatment Options Market Risk - Demand of consumers - Taste and preferences pattern This particular risk is external to company and this happens due to changing market scenario driven by factors such as inflation rate and government measures. Market risks would impact the forecasted value and there could be wide variation in actual and budgeted figures. Company is required to conduct market research before arriving at the forecasted value. It should take into consideration several factors and investment should be made in research and development. Financial risk - Fraud - Errors in preparing financial statement - Improper disclosure financial statement This type of risk might occur due to performance of auditor or finance managers. Involvement of managers in fraudulent activities would enhance occurrence of such risks. Financial risks might lead to formation of undesirable key performance indicators. Formation of financial statement should be done as per the standard to minimize the chance of improper disclosures and auditors should be employed for verifying accounts and minimizing errors. Operational risk - Insufficient internal control of company This type of risk might occur due to lack of internal control system of organization. Operational risk might weaken the internal control system further. There should be proper designing of internal control system and analyzing the cause of deficiency. Requirement 1: The revenue comparative statement of JH Shoe Company depicts the actual and budgeted quantity, price and revenue for the full year budget. Current performance of organization versus future is explained by budgeted value and actual value. In order to gain an understanding of the value and accordingly talking future actions, it is required to have an understanding of the reasons behind positive or negative variances. From the statement, it can be seen that total actual quantity produced is lower than budgeted quantity by $ 3500. This represents negative variance. On other hand, average budgeted price is lower than actual average price. This difference in value depicts negative variance of $ 8. Unfavourable variance has also been noticed in terms of revenue by $ 980000. This is so because budgeted total revenue is less than actual revenue. Therefore, unfavourable variances have been noticed in terms of quantity of output produced, average price and total amount of revenues generated. Su ch negative variances have been attributable from the selling price, quantity and revenue generated from selling of Boots. Requirement 2: In order to understand the current performance of budget and several future actions, it is required by production or operation managers to review the budgeted figures for the purpose of analysing the trend. Some of the key points and questions that are to be raised are as follows: Analysing the reasons for success and failures leading to favourable and unfavourable budgeting positions. Reviewing key objectives for current year and long term planning re-establishment for meeting budget needs. Working out for threats and opportunities Some of the questions that should be asked are as follows: What are direct cost for sales? What are overheads and fixed cost for particular budgeted period? What are projected sales and the factors for their determination? Requirement 3: Planning of budget is done by forecasting the values as it is considered essential for such plan development. It enables business to coordinate their marketing efforts with the demand of customers so that market demand is satisfied. Organization will be able to plan their flow of cash and expenditures. Development of sales forecast is impacted by advertising expenditure, economic data and competitive behaviour (Lee 2016). Such information helps company in calculating market potential for the goods produced by them. Requirement 4: Revised key performance indicators can be achieved by motivating staffs by taking personal approach and through open door policy so that they can directly communicate with them. Team members can be further motivated by encouraging new ideas and collaboration. Revised KPI can also be achieved by making employees feel that they are doing something for the betterment of their organization and they should be given clear accountability and description of their jobs. Ongoing input should be gained from employees that would provide them a sense of belonging towards organization and contributing in revising of such indicators. Indicator Actual Budget Variance Impact and possible causes of Variance Possible Countermeasures for the remainder of the period Gross Profit % of Sales 30% 34% (4%) Variance for JH Shoe Company has been viewed in revenue, gross profit, expenses, total assets, total liabilities and shareholders funds. Revenue variance is unfavourable because actual revenue earned by selling boot is considerably lower than budgeted figure. Increasing the actual sales of all three categories of product that is dress shoe, casual and boot. Expenses as a % of Sales 11% 11% 0% Unfavourable variance in gross profit has been witnessed due to lower actual profit earned by selling boot and dress shoe (Keating 2014). There has been favourable variance in total expenses because actual amount of expenses incurred is lower than budgeted value. Since there is no variation in the total value of expenses, there is no requirement of any possible measures. However, steps should be taken to curtail down expenses. Net Profit % of Sales Ratio 14% 16% (2%) Attempts should be done to increase net profit after tax by enhancing revenue growth of company. Current Ratio - show as ratio e.g 2:1 2.3:1.0 3.1:1.0 (0.8:1.0) Positive variance in value of total current assets due to higher actual value of stocks and accounts receivable. Current ratio can be increased by increasing the value of current assets and decreasing the value of total current liabilities. 0.7:1.0 1.7:1.0 (1.0:1.0) Quick Ratio Negative variance has been seen in value of total liabilities because of higher actual value of accrued expenses and account payable. The actual amounts that is stuck in accounts payable should be reduced. show as a ratio e.g. 2:1 Stock Turnover Express as No. of times e.g 1.5 times 1.56 times 3.29 times (1.73) times The actual value of stock held is more than the budgeted value. This variation might be due to improper forecasting of demand. The budgeted value of stock turnover should be anticipated by performing proper market research and incorporating current market scenario and demand of products. Average Accounts 41.33 days 32.67 days (8.66) days This is because, company is receiving payment from creditors after considerable time period compared to budgeted time. Receivable Collection Period In this regard, JH Shoe Company should tighten its credit policy and should take steps so that creditors make payment on time. Express as no. of days outstanding Return on Investment % 56% 82% (26%) Actual value of shareholders fund is lower than budgeted value that indicates negative variance (Otley 2016). This is because actual value of net profit earned is lower than budgeted value. Actual return on investment can be increased by increasing revenue curtailing costs and sometimes re-evaluating the expectations. References lists: Chen, G.G., Weikart, L.A. and Williams, D.W., 2014. Budget tools: Financial methods in the public sector. CQ Press. Cooper, D.J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea: The case of the balanced scorecard. Contemporary Accounting Research. Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2013. Management accounting and control practices in a lean manufacturing environment. Accounting, Organizations and Society, 38(1), pp.50-71. Keating, S.B., 2014. Financial Support and Budget planning for Curriculum Development or Revision. EVALUATION IN NURSING, p.169. Lee, W., 2016. 6 Budget and financial management. Understanding Korean Public Administration: Lessons Learned from Practice, p.100. Lopez-Valeiras, E., Gomez-Conde, J. and Naranjo-Gil, D., 2015. Sustainable innovation, management accounting and control systems, and international performance. Sustainability, 7(3), pp.3479-3492. Otley, D., 2016. The contingency theory of management accounting and control: 19802014. Management accounting research, 31, pp.45-62. Quinn, M., 2014. Stability and change in management accounting over timeA century or so of evidence from Guinness. Management Accounting Research, 25(1), pp.76-92.