FNSACC503 Manage budgets and forecasts - prepare budgets

Assessment Task 2: Budget and forecast preparation project
Task summary

For this assessment task, you are required to prepare budgets and a pre-meeting report and then participate in a meeting to discuss the proposed budget and finalise the budget.
• Access to textbooks/other learning materials
• Computer with Microsoft Office and internet access
• Budget Report Template
• Balance Sheet
• Risk Management Policy and Procedures
• Green Cat Budget Template

Review the following information:

Green Cat Clothing is a wholesaler of vintage clothing, selling to retail stores across Australia. The business is managed by Beverley Simons, who currently operates the business as a sole trader. The business is registered for GST and prepares a BAS on a quarterly basis.

As Beverley's Finance Officer, you are required to prepare the budgets according to the business' budget objectives, as well as financial procedures, which state that budgets are to be prepared on a month-by-month basis for the upcoming quarter.

Beverley has also recently advised you that she wishes to expand the business by purchasing a factory and manufacturing and selling vintage fabrics. The budget for the following three months is therefore particularly important, as she would like to provide it to the local bank manager to assist in her application to secure a loan for the business expansion.

Beverley has therefore asked for you to prepare the budget, as well as a budget report that identifies key performance indicators that can be used to monitor financial performance, as well as the relevant milestones for each of the performance indicators. Beverley considers that this will also show the Bank Manager that the business is closely monitoring its performance.

Beverley provides you with her latest Balance Sheet (dated 30 March 2017) and has asked you to prepare month-by-month budgets to 30 June 2017.

She also provides you with the following additional Information:
Actual sales
Actual sales for the first quarter of 2017 (to March 31, 2017)
• January $350,000
• February $346,000
• March $385,000

Due to high consumer demand for the company's products, Beverley has advised the following forecasted sales for the next quarter as follows:
• April $423,500
• May $466,000
• June $512,500

Terms of sale:
Most sales (80%) are on a credit basis with customers offered a 1% discount for payment of invoices within 10 working days of the invoice date.
Cash sales for the business amount to 20%.
The Accounts Receivable Balance at 30 March 2017 is $376,500, which includes $80,045 of debtors from February and the remainder from March.
Debtor payment information:
Based on experience, debtors usually pay as follows:
• 50% pay within the 10 working days and receive the cash discount.
• 20% pay within one month of the invoice (no discount applies).
• 27% pay in the second month after the invoice date.
• 3% are bad debts and are written off.

Purchase and inventory:
Purchases of vintage clothing for resale are all on credit and are paid in the month following the purchase. Beverley's supplier provided her with a 2% cash discount on 20% of the payments. GST applies to the discount.
Stock mark up: 70%
Closing inventory: to represent 40% of the following months sales.
Operational expenses:
Beverly has the following costs:
Administration expenses: this amount to 10% of each month's purchase and are paid in the month in which the expenses are incurred.
Marketing expenses represent 8% of each month's sales and are also paid in the month in which they are incurred.
Beverley bought a warehouse for her business and pays mortgage interest each month. So as to maximize tax reduction, the loan for the warehouse is interest only. The interest rate for the mortgage is 4.5%. No GST is payable.
Rates are also payable on the property and amount to $18,000 per year. Rates are payable each quarter ($4,500 per quarter). No GST is payable.

There is an outstanding amount of GST payable to the ATO as per the Balance Sheet.

Now complete the following activities:
1. Prepare budgets
The first part of this assessment requires you to review the case study information provided and prepare the following budgets using the Green Cat Budget Template:
• Sales budget
• Purchases budget
• Cost of goods sold budget
• Expenses budget
• Schedule of payments
• Schedule of collection from debtors
• Cash budget
• GST Payable ledger account

You are also required to prepare:

• A budgeted Profit and Loss for the quarter
• Budgeted Balance Sheet for the quarter

Prepare a Worksheet for each budget and income statement/balance sheet.

2. Write a budget meeting preparation report
Use the Budget Report Template to guide your writing of the report.

Consider how you will handle the meeting to ensure that the meeting is conducted so as to ensure understanding, goodwill and ongoing cooperation. Make suggestions in your report as to how to handle this.

Based on the above information, you are required to prepare a short report to provide to Beverley prior to the meeting with the Bank Manager and that includes:
• The budget's objectives
• How your Green Cat Budget is relevant to the objectives.
• An outline of key assumptions and parameters for the budgets prepared
• The prepared budgets
• An explanation of recommended key performance indicators and milestones including a clear rationale for such
• Key financial risks for the organisation (at least three) and recommended strategies to address these, as set out in the risk management policy and procedures.
• Strategies to gain understanding, goodwill and ongoing cooperation.

3. Send an email to Beverly (your assessor).
The text of the email should be in grammatically correct English, written in an appropriate (polite, business-like) style.
It should summarise the contents of the attachment.
Attach your Fat Cat Budget and Budget Report to the email.

Your assessor will also advise you of the place, date and time of the meeting.

4. Participate in the meeting
The next part of the assessment activity requires you to participate in the meeting with the Bank Manager (roleplayed by your assessor).

Carefully explain each of the budgets you have prepared and key assumptions, as well as the key performance indicators to ensure the budget is on track.

At the meeting you will be required to demonstrate effective communication skills including:
• Speaking clearly and concisely
• Using active listening and questioning to confirm and clarify information.
• Using the strategies that you have identified to promote understanding, cooperation and goodwill.

5. Write a short report on the vintage clothing industry.
The report should be about half a page long.
It should sales identify trends in the vintage clothing industry and give a more realistic estimate for the growth in Green Cat Clothing's sales.

6. Revise the Green Cat budget
Using the figure that you arrived at in the previous activity, recalculate the budget.
Name this Workbook Revised Green Cat Budget.

7. Send an email to the Bank Manager (your assessor).
The text of the email should be in grammatically correct English, written in an appropriate (polite, business-like) style.

Assessment Task 3: Budget variance project

Task summary
In this assessment tasks students are required to review actual and budget information and provide a performance reports with recommendations.
• Access to textbooks/other learning materials
• Computer with Microsoft Office and internet access
• Performance Report Template

Carefully read the following:

Renata Resonance Ltd specialises in audio equipment. The company commenced operations on 1st July 2016.

Actual and budgeted figures for the financial year ending 2017 are as follows:







Cost of Sales


60% of budgeted sales

Promotional expenses


15% of budgeted sales

Administration expenses



General expenses



Complete the following activities:

1. Assume that Renata has hired you to review the company's finances and to create a performance report for the company that includes final calculations of:
• Sales
• Cost of sales
• Gross profit
• Promotional expenses
• Administration expenses
• General expenses
• Total expenses

Renata would also like you to:
• show the variances in dollars and as a percentage
• indicate whether the variance is favourable or unfavourable
• make recommendations based on your analysis for addressing any unfavourable variances

Use the Performance Report Template to guide your writing of the report.
The report should include
• completed calculations
• summary of variances
• recommendations regarding how to address variances
A table is included in the report to assist you in presenting the financial information.

2. Send an email to your assessor
The text of the email should summarise the contents of the attachment.
Attach your report to the email.

Note: Task 2 and task 3

Attachment:- Assignment.rar


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