Financial Budgets

Task A (25 marks) CASE SCENARIO 1 ACA Travel Agency is a small size travel agency, that has a been in business since 2009. It currently employs 2 travel consultant staff and one manager based in the CBD. The main destination of the clientele that visit the agency is South East Asia. This is because your reputation of quality service, good competitive pricing and skilled and knowledgeable agents. Customers are from many nationalities and some of the South East Asian tours that you offer have been very profitable over recent times due to the increase in the commission rate from the suppliers. A detailed review of the ACA Travel Agency Business plan prior to commencement is recommended. Sections of the business plan can be used throughout this assessment and you may refer to its details for your task completion. The owners have recently created a position for a contracted financial officer and you have been selected to review the ACA Travel Agency Business Plan, and using the background knowledge and information you will research and apply to the tasks below. The external accountant provided these updated records of Income & expenditure. You are looking at the below Quarterly Business income statement for the quarter ending 30th April 201X. You have been assigned the task to calculate the Budgeted Income Statement for quarter ending 30th April 201X.) /10 Marks A1. The following information is given below: You are to calculate and complete all the shaded areas: BUDGETED INCOME STATEMENT ACA TRAVEL AGENCY For quarter ending 31st March 201X Budget Actual Variance $ % Variance Income International Packages $ 865,000 $ 668,000 Domestic Packages $ 729,000 $ 705,000 International Air $ 456,000 $ 468,000 Domestic Air $ 458,000 $ 395,000 Total Income Cost of Sales International Packages $ 495,000 $ 358,000 Domestic Packages $ 365,000 $ 345,000 Total Cost of Sales Gross Profit Expenses International Packages Salaries and Wages $ 265,000 $ 248,000 Electricity $ 5000 $ 5000 Advertising & Promotion $ 301,000 $ 245,000 Domestic Packages Salaries and Wages $ 200,000 $ 220,000 Electricity $ 5,000 $ 6,000 Advertising & Promotion $ 100,000 $ 120,000 International Air Salaries and Wages $ 325,000 $ 130,000 Electricity $ 10,000 $ 12,500 Advertising & Promotion $ 85,000 $ 100,000 Domestic Air Salaries and Wages $ 185,000 $190,000 Electricity $ 1,800 $ 1,950 Advertising & Promotion $ 55,000 $ 65,000 Total Expenses Net Profit/Loss A2. Using the BUDGETED INCOME STATEMENT ACA TRAVEL AGENCY (above) for quarter ending 30th April 201X, discuss in 150-200 words the overall outcome of the budget when compared to the actual: Is it Favourable/Unfavourable? /5 marks A3. Investigate the BUDGETED INCOME STATEMENT ACA TRAVEL AGENCY for quarter ending 30th April 201X. Discuss in 150-200 words at least two (2) actions that might be taken by you, as a manager, to correct adverse deviations (unfavourable) in the following situations: /5 marks • an excess of departmental salaries over budget; • a lower actual income volume compared with budget A4. Based on the above information and your justifications, forecast/budget for the next quarter ending 30 June 201X. You are to forecast and complete all the shaded areas: Several internal and external factors need to be analysed when completing the forecast for ACA Travel: • Seasonal travel to South East Asia • Travel Advisory/terrorism Alerts available through www.safetraveller.gov.au • Market demand change due to online competition • Direct bookings with airlines and hotels • Packages available through consolidator website BUDGETED INCOME STATEMENT ACA TRAVEL For quarter ending 30th June 201X /5 marks Budget ending 30 June 201X Income International Packages $ Domestic Packages $ International Air $ Domestic Air $ Total Income Cost of Sales International Packages $ Domestic Packages $ Total Cost of Sales Gross Profit Expenses International Packages Salaries and Wages $ Electricity $ Advertising & Promotion $ Domestic Packages Salaries and Wages $ Electricity $ Advertising & Promotion $ International Air Salaries and Wages $ Electricity $ Advertising & Promotion $ Domestic Air Salaries and Wages $ Electricity $ Advertising & Promotion $ Total Expenses Net Profit/Loss Task B (15 marks) CASE SCENARIO 2 ACA Travel Agency, has a been in business since 2009 in Sydney CBD. It has not upgraded its Computers, software and printers since opening in 2009. The owner is thinking of buying new Apple computers and a new professional multifunction printer in three months’ time (December, 201X) at a cost of $65,000. The old computers and printer equipment will be sold for scrap at that time for $3,000. Record provided by the Accountant show that the opening bank balance of $50,000 at the beginning of October. Other details include: • The owner estimates $70,000 sales/commission for each month. Half these sales are received in cash and half are received in the next month as they are credit sales from the corporate accounts at the travel agency has payment arrangements with. Octobers credit sales from September, amount to $35,000. • Purchases amount to 25% of sales (excluding scrap) and are paid for in cash. • Full time labour/staff direct costs are $20,000 each month. • Superannuation ($3,000), rent ($3,000), energy bills ($2,000), miscellaneous ($2,500) are all paid monthly. • General couriering work amount to $1,000 per month for brochure movement around the . • Rates are paid once in October of $5,000. Requirements: Respond to the following by completing the template and prepare a report of recommendations in 300-400 words to answer; B1 Cash budget for each month for ACA Travel Agency, (complete template below) with the view to recommendations to the owner whether they are able to pay $65,000 cash for the computer and printing equipment at the end of December 201X. /4marks B2 Outline actions to rectify the problem if the balance at the end of December 201X was negative /2mark B3 Identify people to consult and inform in relation to reporting and financial responsibilities in this case /2 Marks ACATravel Agency Cash budget for the three months ending 31/12/201X October November December TOTAL Quarter Cash receipts Cash sales Debtors Scrap Total cash receipts Cash payments Purchases Labour cost Superannuation Rent Energy bills Miscellaneous Transport and couriers Rates New equipment Total cash payments Surplus / Deficit Cash balance at start Cash balance at end CASE SCENARIO 3 The cash budget you have just completed needs to be modified after some negotiations based on the policy and procedures of ACA Travel Agency and the Business plan. • The owner estimates $70,000 sales/commission for each month to remain • With sales averaging 90% cash and 10%, debtors for September were $6,000 • Purchases average 30% of sales • Bank Balance at the start of the quarter was $4,000 • All other details remain same as above Requirements: Respond to the following by completing the template and prepare a report of recommendations in 300-400 words to answer; B4 Prepare a REVISED cash budget for each month for ACA Travel Agency, (complete template below) with the above information view to making recommendations to the owner whether they can pay $65,000 cash for the computer and printing equipment at the end of the third month (December). /2marks B5 Justify the REVISED cash budget /2 marks B6 Identify personnel you to consult and inform in relation to the finalisation of the budget and how have these modifications effected the decision to revise the Cash Flow budget? /2marks B7 Using the initial and revised “Cash Flow budgets” outline reasons behind this type of budget used and the monitoring needs to be undertaken. /1mark ACA Travel Agency Cash budget for the three months ending 31/12/201X October November December TOTAL Quarter Cash receipts Cash sales Debtors Scrap Total cash receipts Cash payments Purchases Labour cost Superannuation Rent Energy bills Miscellaneous Transport and couriers Rates New equipment Total cash payments Surplus / Deficit Cash balance at start Cash balance at end Task C (20 marks) CASE SCENARIO 4 ACA Travel Agency needs some training for the staff and have contacted AAI Training Consultant to help. AAI Training is a small training business focusing on the Travel agency customer service improvement. The owner over the last 4 years of AAI training has realised that the credit terms are best described at Net 30. AAI Training have in their Terms of Service that 10% must be paid when the consultation training agreement is signed. The remainder is billed on completion of the training program. So from experience with accounts receivable collections, the owner assumes the following when projecting cash receipts for the cash flow budget; • 70% of the accounts receivable are collected in the month following the completion of the training • 20% of the accounts receivable are collected in the second month following the completion of the training • 10% of the accounts receivable are collected in the third month following the completion of the training Requirements: C1 Using AAI Training Cash Receipts accounts receivable collection pattern and sales forecast, complete the template below to represent cash receipts projection for the first 6 months of 201X. The actual sales for October, November and December of the previous year were $30,000. These cells have been inserted below; /10 marks AAI Training Cash Receipts projection Jan 201X Feb 201X March 201X April 201X May 201X June 201X Forecast training (Sales) 30,000 35,000 40,000 50,000 40,000 30,000 10% deposit 70% 1st Month 18,900 20% 2nd month 5,400 5,400 10% 3rd Month 2,700 2,700 2,700 Total Receipts Respond to the following by completing the template and prepare a report of recommendations in 200-300 words to answer; C2 Describe what “Net 30” means and whether this method of payment is appropriate for a small business such a AAI Training. Outline what the payment due date would be if the invoice was issued on the 10/7/201X (5 marks) C3 Outline FOUR (4) methods / ways of Financing that a AAI Training could use to raise capital for its future training expenditure or investment. (Name four sources of revenue) (5 marks) Task D (15 marks) CASE SCENARIO 5 ACA Travel Agency has now made an arrangement with Academies Tour company to sell their 3 hour tour to visitors. The tour is scheduled to run at 10.00am -1.00pm and 2.00-5.00pm, 5 days per week. They hired a casual tour guide and have agreed to pay them $40 per hour. Each tour is scheduled for 3 hours, but the tour guide is rostered for 4 hours for each tour. Included in the tour is a “coffee and cake” at a café costing $2.00 for cake and $2.00 for coffee per person. There are 10 customers in each tour. Entrance to the museum after the tour is $10.00 for Academies Tour company. Customers are charged $50.00 per tour. Requirements: Respond to the following by completing the template and prepare a report of recommendations in 200-300 words to answer; D1 Describe what Breakeven Point (BEP) is and a method of calculating BEP /2 mark D2 Give a summary of fixed and variable costs, and outline 3 direct and indirect costs associated with the above tour /3 mark You are required to work out the breakeven point of each tour based on the details; complete all the shaded areas: Fixed Costs Variable Costs Full time staff $1,000 per week Casual Staff Rent $1,000 per week Coffee Insurance $300 per week Cake Utilities $200 per week Entry fee Total Total D3 Using the above calculation, and show workings for the Breakeven point associated with the tour. /3 marks D4 When calculating LABOUR for this tour, we include ON COSTS. List SIX (6) items which could be classified as on costs for labour in the scenario /2 marks D5 Outline recommendations you could make to the owner of Academies Tour company to make the tour more profitable in the long term? /5 marks Task E (25 marks) CASE SCENARIO 5 ACA Travel Agency has joined with The Event Management Company(TEMC) in charge of organizing 201X “Sculptures by the Sea” Event. You are required to assist the manager of TEMC to complete a cash flow forecast. /12 marks Requirements: Respond to the following by completing the template and prepare a proposal of recommendations in 200-300 words to answer; E1 Input the information and data from the case scenario below, using computer accounting software (e.g. MYOB or MS Excel). (You are to create your own template using the accounting software or use the template provided in Appendix 1 as a sample for excel.) Your cash flow forecast will predict the bank balance at the end of each month for each month of the year. The information you have at your disposal to complete this task is as follows: o The event management company has on its books four major events to run which will take place in March, May, August and October. o The total of $265,000 of tickets sales will be earned in the months that the events are held. The March event will earn $65,000, and the other events in May, August and October will earn $55,000, $75,000 and $70,000 respectively. o Expenditures on casual wages of $10, 000, travel and transport of $60, 000, and venue hire of $24,000 will occur only in the months in which the four events take place. These expenditures will be the same for each event. An extra amount of $2000 will also occur in April and November evenly, for travel and transport and for casual wages respectively, o Salaries and Office administration expenses respectively of $180,000 and $36,000 will occur evenly every month. o The company’s opening balance on 1 January is $10,000. o The company will receive a government grant of $40,000 in July. o The company will make a small income of total $6500 from Merchandising during the months in which the four events are staged. The event in March will earn $1,500 merchandising income, and the other events in May, August and October will earn $1,600, $1,800 and $1,600 respectively. E2 Outline at least two (2) recommendations to the owner of TEMC on how the decision-making path of the future business could be changed based on your completed budget. /6 marks E3 Discuss who is required to be consulted and how the completed budget would be circulated to the stakeholders internally and externally. /7 marks