Task 2: Monitor and review the budget
Introduction
The expense pent during the financial year has been used to estimate the GST expenditure. The company tax credit was deducted from the present tax liability which represents the last year tax credit. The whole year GST is apportioned based on sale revenue received in each year. The company tax liability has been computed accordingly. The report will also involve the computation of different variance to measure if the company achieved the set standard. Company is faced by different economic and legal policies hence this report will start with identification of current issues affecting the operation and performance of the company (Fullerton & Widener, 2013). Finally, this report presents the variance cash flows, recommendation and summary of the variances.
Significant issues
Houzit Pty. Ltd is required to comply will all government statutory requirement to avoid government in organization matters. The company uses applicable laws to compute tax liability. The company financial statements are prepared according to in accordance with Australia accounting standard board (AASB) and tax shall be computed on tax profit obtained after deductions of all the expenditures. Houzit Pty. Ltd does not comply with wage rate when computing payroll and here it is important to ensure compliance. Don't use plagiarised sources.Get your custom essay just from $11/page
It is noted that the economy is facing recession and hence sales are not glowing as budgeted. The main reason for this recession in the economy is due to an increase in interest rates as well as decreasing investment growth. The interest rate increase will directly affect the interest payout as a result of not complying by set statutory requirements.
To increase the sale levels the company will be required to advertise the budget review. The management should prepare and allocate additional cost to review the budget used to advertising.
To attract new customer the company propose to implement a price discount as one of its marketing strategy. Adoption of sales discount will play a critical role in attracting more clients and hence raising the company sales volume.
The other issue identified in this case study is the issue of the bonus scheme. This associate with the company improved performance. Increase in company profitability will result in improved payout ratio.
Finally, the budget plan increases efficiency in the company. Efficient reporting will help in increasing the company profitability and general performance.
Variance
Variance is the difference between the actual result and the actual income and expenditures of the company.
| Houzit Pty Ltd | |||||
| Variance to Budget | |||||
| Actual Results | Budget – Q1 | Actual – Q1 | $ Variance | %variance | F or U |
| Sales | 3,394,247 | 3,371,200 | -23,047 | -1 | U |
| Cost Of Goods Sold | 2,025,234 | 1,955,296 | -69,938 | -3 | U |
| Gross Profit | 1,369,013 | 1,415,904 | 46,891 | 3 | F |
| Gross Profit % | 40% | 42% | 2% | F | |
| Expenses | F | ||||
| Accounting Fees | 2,500 | 2,500 | 0 | 0 | F |
| Interest Expenses | 21,127 | 28,150 | 7,023 | 33 | F |
| Bank Charges | 400 | 380 | -20 | -5 | U |
| Depreciation | 42,500 | 42,500 | 0 | 0 | F |
| Insurance | 3,348 | 3,348 | 1 | 0 | F |
| Store Supplies | 750 | 790 | 40 | 5 | F |
| Advertising | 200,000 | 150,000 | -50,000 | -25 | U |
| Cleaning | 3,256 | 3,325 | 69 | 2 | F |
| Repairs & Maintenance | 16,068 | 16,150 | 82 | 1 | F |
| Rent | 660,127 | 660,127 | 0 | 0 | F |
| Telephone | 2,999 | 3,100 | 101 | 3 | F |
| Electricity Expense | 5,356 | 5,245 | -111 | -2 | U |
| Luxury Car Tax | 3,000 | 12,000 | 9,000 | 300 | F |
| Fringe Benefits Tax | 7,000 | 7,000 | 0 | 0 | F |
| Superannuation | 37,404 | 37,404 | 0 | 0 | F |
| Wages & Salaries | 415,600 | 410,500 | -5,100 | -1 | U |
| Payroll Tax | 19,741 | 19,741 | 0 | 0 | F |
| Workers’ Compensation | 8,312 | 8,312 | 0 | 0 | F |
| Total Expenses | 1,449,488 | 1,410,572 | -38,916 | -3 | U |
| Net Profit (Before Tax) | -80,475 | 5,333 | 85,808 | -107 | U |
| Income Tax | -24,142 | 1,600 | 25,742 | -107 | U |
| Net Profit | -56,332 | 3,733 | 60,065 | -107 | U |
| Cash flow variance analysis | ||||
| CASH FLOW ANALYSIS – GST | Budgeted | actual | variance | variance % |
| GST Collected | 33,943 | 3,37,120 | -3,03,178 | -893.209104 |
| Less GST Paid | 90266 | 2,79,988 | -1,89,722 | -210.181021 |
| GST Payable | -56,324 | 57,132 | 809 | -1.43545767 |
| Debtor aging ratio | |||
| 2009/10 | 2010/11 | 2011/12 | |
| Trade Debtors | 850,000.00 | 975,000.00 | 1,100,000.00 |
| Sales | 14,550,100.00 | 15,714,108.00 | 16,971,236.64 |
| Debtor Days | 21.32 | 22.65 | 23.66 |
| Debtor Days | 21 | 23 | 23 |
Performance
Based on variance analysis the company did not achieve satisfactory performance as the set profits were not obtained. The results of the company were not favourable as the company only got the minimum profits shares instead of huge profits.
Recommendations
Based on this report it is reported that the company management should consider the impact of the economy on the company business activities. The management should also consider controlling the advertisement expenditure in a manner that delivers economic profits to the company through the achievement of sales targets. The company SGHT liability wrongly estimated and hence in the next quarter the company should be careful to ensure accurate estimation of cash flows. Adoption of new accounting software can play a critical role in carving this problem as it ensures correct estimation and recording of transactions (Granlund & Lukka, 2017).
Conclusion
The company management should implement the appropriate mechanisms to attain the required sales targets. Further, appropriate pricing strategies should be adopted to ensure accurate sales discount the company’s customers. Adoption of sale discount will play a critical role in increasing sales hence achieving the budgeted sale target. The company should control the advertisement expenses in a way benefit accrued from the expenditure exceeds the advertisement cost.
Evaluation
From the above budget, it is observed that despite incurring high expenses on the advertisement activities and sales promotion the organization has not been able to attain the projected sales. This is a result of a slowdown in economic evidenced in the economy (Soheilirad & Sofian, 2016). The company should, therefore, make an effort to enhance efficiency in advertisement sectors. Further, the company should control the cost of goods sold by the company which was reported to be $54517 in this quarter.
The decline in the interest rate has a significant effect on the company performance. It was observed that the bank charges raised and accounting fees increased by 75% in this quarter however no much significant to the company performance. The company have been able to control other administrative expenses include electricity, rent and other expense and hence need for further control on these expenditures.
The company cash flow analysis demonstrates that the profit of the company has been low compare to the standard profit evaluated. This has been observed due to the increase in advertisement expenditures and cost of goods sold. The adopted price discounts to customers by the company should be pegged on appropriate pricing strategy and should aim at profit maximization (Hoppe & Henderson, 2015).
The organization management was not able to correctly estimate the income liability of the business. This would result in non-compliance with the government and hence may result in an adverse effect of the company performance. The actual income tax liability has been lower compared to the budgeted amount. Hence, the management is required to accurately estimate the company tax liability. The company financial probity which includes bonus share has a significant effect on the company profits. This report has also reviewed the performance to analyze the company variance. This will play a critical role in reviewing the company performance.
References
Fullerton, R. R., Kennedy, F. A., & Widener, S. K. (2013). Management accounting and control
practices in a lean manufacturing environment. Accounting, Organizations and Society, 38(1), 50-71.
Granlund, M., & Lukka, K. (2017). Investigating highly established research paradigms:
Reviving contextuality in contingency theory based management accounting research. Critical Perspectives on Accounting, 45, 63-80.
Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: Theory & cases: An
integrated approach. Cengage Learning.
Hoppe, M., & Henderson, B. (2015). Strategic inter-organizational management accounting-A
case study at Lantmännen Maskin.
Soheilirad, S. & Sofian, S., 2016. A proposed model of the mediating effect of strategic
management accounting on the relationship between perceived environmental uncertainty and firm performance. International Journal of Research–Granthaalayah, 4(1), pp.231-239.