The paper "Managing Budgets and Financial Plans" is a good example of a finance and accounting assignment. In response to the scenario provided, you will use the information provided to capture monitoring information in accordance with organisational policies and procedures. Complete the Cash Variance Report for Simply Stunning for the year ended 30 June 2014. State whether the variance is favourable or unfavourable. Justify your answer. Variance Report for the year ended 30 June 2014 Budget Actual Variance F/U Current assets $ $ $ Cash at bank 12000 11200 800 F Accounts receivable 6500 6350 150 F Inventory 2600 3400 800 U Prepaid expenses 1000 950 50 F 22100 21900 200 F Non-current assets Land 30000 30000 0 F Building and equipment 90000 90000 0 F Accumulated depreciation -30000 -30000 0 F 90000 90000 0 F Total assets 112100 111900 200 F less liabilities Current liabilities Accounts payable 5900 6850 950 U Accrued expenses 1100 1150 50 U 7000 8000 1000 U Non-current liabilities Loan - due 2005 57500 57500 0 F 64500 65500 1000 U Net assets 47600 46400 1200 F Owner's equity Capital 30000 30000 0 F Accumulated profits or losses 17600 16800 800 F 47600 46800 800 F Types of Variances can occur.
What could be the reasons why actual and planned results differed in the following instances. ACTIVITY POSSIBLE REASONS FOR VARIANCE Your petrol budget for the month was $130 but you spent $160. Unfavourable negative result. Worse economy. During the period, the prices may have risen due to an increase in the international markets. You plan to spend $200 per month entertaining clients but you end up spending $180 per month. Favourable positive result. Better management of materials. Your budget for new plant and equipment in your restaurant for $140,000. Your overall cost for the P& E is $183,000. Unfavourable negative result Purchase of high-quality goods. A Haulage contractor plans 20 return payloads /trips per month from Sydney to Canberra with an average cost of $280.
His average cost at the end of the month for each return trip is $380. Unfavourable negative result A rise in the market labour rates. Explain the benefit of preparing a Cash Variance Report. Price Occasionally a favorable or the unfavorable income variance occurs if the real selling price is greater or less than the planned selling price, in that order. A medium company might be competent to raise prices if there is a strong adequate demand or if everyone is increasing prices to cover advanced input expenses.
Nonetheless, an aggressive price reduction could result in an unfavorable income variance. Plans to counteract an unfavorable discrepancy include growing the advertising budget and promoting customer service. Volume During calculations, the favorable or the unfavorable income variance also transpires if the concrete sales volume is bigger or less than budgeted sales volume, in that order. Management requires anticipating demand properly because it influences profitability. companies that do not have adequate products in reserve could lose income and may risk losing consumers to its competitors, as overestimating consumer demand may result in higher stock costs and operating expenses and loss. Profit A corporation`s income variance may influence its profit and cash inflow and outflow.
If at all the favorable revenue discrepancy coincides with advanced expenses, it could signify a loss. On the other hand, if an unfavorable income variance matches with the lower operating expense, it could thus signify a profit. Budget The budget preparation procedure is determined by revenue, cost and other variances.
For instance, if the income variance this financial period was due to violent price discounting, the management might regulate the product mix or search for ways to decrease input expenses to attain profit targets. Assessment Part 4. Review and evaluate financial management processes For the coming year, monitoring mechanisms to be used to ensure better controlled and more efficient financial management process. The owner expects a price increase for his products. Calculate the new budget for the coming year. Item Current Year Actual % inc Next year Budget Sales 10,000,000 15% 11,500,000 Advertising Exp’ s 300,000 5% 315,000 Salaries 800,000 6% 848,000 Marketing Exp’ s 250,000 5% 262,500 Transport 80,000 9% 87,200 Travel costs 30,000 8% 32,400 Selling costs 280,000 9% 305,200 You own a small services business.
It is the middle of Month 2 of your financial year, and your accountant has just given you the results for Month 1 and the latest revenue forecast for Month 2, most of the actual amount is same as Month 1 but if repairs & maintenance cost decrease 3%, wages increased 5%, telephone increased 2%, what is the variance for month 1 and month 2. Month 1 Month 1 Month 2 Month 2 Budget Actual Variance Budget Actual Variance Revenue $50000 $45000 5000(f) $50000 $37500 12500(f) Purchases $22000 $22000 0(f) $22000 22000 0(f) Advertising $500 $2000 1500(u) $500 2000 1500(u) Cleaning costs $500 $500 0(f) $500 500 0(f) Office Supplies $2000 $1750 250(f) $2000 1750 250(f) Repairs & Maintenance $1000 $3000 2000(u) $1000 970 30(f) Telephone and postage $1500 $1000 500(f) $1500 1530 30(u) Wages & on-costs $10000 $10000 0(f) $10000 10500 500(u) Profit (or Loss) $12500 $4750 7750(f) $12500 1750 14250(f) What reasons do you feel might exist for the favourable or unfavourable variances? The reasons for a favourable variance would be due to a healthier environment, more advertising, less competition, lower selling prices and up-to-date products. The reasons for unfavourable variances would be due to a worse economy, less advertising, more competition, high selling prices and dated products.
REFERENCES• Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall