BSBFIM501A Manage Budgets and Financial Plans

Assessment 1

Part A - Plan financial management approaches

Task 1:      Knowledge Questions

1.    What is a budget?

This is generally described as an estimate or income and expenditure within a given business period.

2.    What is meant by budgetary control?

This implies how mangers adopt budge well for the purpose of managing and controlling costs and expenditure within a given business period.

3.    What factors would need to be taken into consideration before developing a sales budget?

The major factors to consider are historical data (of how the goods have been purchased and prices they were bought for), and consumers (market) demands. These factors will be used to ensure that what is produced can be completely sold off within a given period of time.

4.    Name Six (6) internal and external factors should be taken into consideration when planning and preparing a budget?

Internal factors

-          Expertise

-          Training and development

-          Raw materials availability

-          Production quality

-          Production time

-          Customer complaints

External factors

-          Market demand

-          Competition

-          Pricing

-          Suppliers

-          Tax

-          Distributors

5.    What is cash budget?

This is a form of budget that is based on expected cash receipts and disbursements during the period

Why cash budget is very important in a company?

The importance is that the expected cash can be used to finance business processes, and ensure sustainability of the company’s performance in the process.

What method is used for monitoring the cash budget, please explain.

Cash receipts and payment. The cash receipt is used to determine the volume of cash coming in (income / revenue), while payments are used to determine the volume of expense going out (expenditure). Thus, it will allow the manager to ensure that expenses does not supersede income and the business is made sustainable in the process.

What are the main causes of cash flow problems, please explain.

The main causes are lack of monitoring – which forces the company to incur more expenses that it can generate (bring about huge debt deficit). Additionally, issues can arise as a result of expected cash not actually being received, which will also result to issues of debt.

Task 2:      Applied Learning Task

1	Revenue budget – this is the budget of expected income or revenue to be generated from sales within a given accounting period. It is important because it represents the company’s monetary capital, and it is the foundation on which other budgets are laid.
2	Expenditure budget – this is a budget of the total expenses that the company can incur within a given accounting period. Its importance is based on the fact that it is used to determine the volume of productions that the company can generate within the same accounting period.
3	Production budget – this is a budget of the volume of production that the company can be able to manufacture for the consumers within the given accounting period. The importance is that it helps to determine raw materials needed and make them available in their right quantity for an effective and efficient production process.
4	Purchase budget – this is the purchase of all expected purchases that will be made in order to ensure efficient and effective production process within the accounting period. The importance is that it is used to define the expenditure budget.

 

 Part B - Implement financial management approaches

Task 1

Tool	Advantages	Disadvantages
Tool 1: Spreadsheet	It has direct formula for easy calculation. It can contain vast volume of data within the budgeting process.	The user must know all the formulas in order to effectively use it. It does not have the ability to detect errors within the budgeting process.
Tool 2: Mint	Provides a wealth of information on spending, budgets, and even trends.	It relies on advertising revenues and constantly provide users with varied adverts. Thus, it can actually encourage over expenditure in the process.
Tool 3: Quicken	It allows users to connect to all of their finances, including budgeting, investments, bill pay, and reporting.	It has vast functions that one must know in order to effectively use it. The cost is also another factor to consider.
Tool 4: Personal Capital	It has same benefits as quicken. Plus, users can download all their financial data.	It is expensive.
Tool 5: YNAB (You Need a Budget)	It is based on excellent spreadsheet platform. It encourages users to live below last month’s budgets. It adopted varied graphs and charts to demonstrate overall expenses.	Cost is another problem here. Some of its functions are very complex to effect.

Task 2

Identify the risk	Probability of it occurring Very Likely (VL) Likely (L) Unlikely (UL)	Impact of the Risk High (H), Medium (M) Low (L)	Monitoring the Risk	Risk prevention in the future
Reduced sales	VL	H	It can be monitored through effective marketing and sales related budgeting plan	Offering top quality products that are properly marketed will help prevent the future occurrence of this risk.
Bad debt	L	M	It can be controlled by limiting credit sales.	Limit credit sales and in special cases where credit sales is necessary; offer that to only the worthy consumers.
Compliance risk	UL	L	It occurs in cases where the company does not comply with established corporate standards.	Always ensure that the company’s business processes are in line with established standards.
Operational risk	L	H	Occurs due to the staffs not following the production process strictly.	Have a monitoring and control unit to ensure that the whole production process are strictly followed.
Reputational risk	UL	H	Due to the company offering poor quality or below standard products.	Ensure that all products meet expected standards in the market.

Task 3

Scenario: Dolly’s Delight Manufacturing Company Doll’s Delight Manufacturing builds and sells dolls and dollhouses to retail companies. The company employs 70 people in both office and manufacturing business. The Business is owned and run by Bill Smith who is the chief executive officer (CEO) and works on site in one of the on-site offices. Bill is personally responsible for Sales and Marketing. He employs a Chief Financial Manager (CFO), Mary Jones, who is responsible for setting financial plans and budgets and reporting back to Bill. Gary Guest is the Human Resources Manager and supervises the office and administrative team of 15 people. Gary also negotiates Salary and Wages Agreements with employees. Hank Stevens is the Production Manager, responsible for Planning and Organising the plant and equipment and the manufacturing process. Reporting to Bill is Kate Fowler, who, as a team leader, is responsible for the 55 employees who work in the manufacturing area. Issue: It is time to set the wage and expense budgets for the next year.

Questions;

1.    Who is responsible for developing and documenting the budget?

Mary Jones

2.    Who would the person developing the budgets need to consult and why?

The CEO, Bill Smith

3.    Why is it important for a number of people to have an input into the budget process?

To eliminate errors (such as over budgeting or under budgeting) that might occur due to only one person handling the budgeting process.

4.    Who would have the final say over the financial plans?

Bill Smith, the CEO

5.    If Hank wanted additional money to replace equipment, who should he approach?

Mary Jones, the CFO