Prepare and Monitor Budgets

Assessment 2 - SITXFIN005A Prepare and monitor budgets and SITXFIN004A Manage finances within a budget

What you have to do

This assessment consists of financial questions to be answered adequately to demonstrate your knowledge and understanding of the concepts of Preparing, monitoring and managing budgets in order to be deemed competent in this unit.

The following pages detail five (5) tasks required to be completed in order of Task 1 to 5.

TASK 1 - Prepare a source of information memo report - 10 marks

TASK 2 - Prepare profit and loss budget - 30 marks

TASK 3 - Prepare a cash flow budget - 20 marks

TASK 4 - Monitor budget & manage variances - 20 marks

TASK 5 – Reporting and keeping records - 20 marks

This is a graded unit. Your result is based on the evidence you provide to meet the criteria for competence as specified in the unit of competency and grading criteria. You will receive a result of Achieved Competency (AC) or Not yet Competent (NC).

You may need to SAVE your work into a Zipped File with both Word and Excel documents.

Information on how to submit your assignment is located on the OLS OTEN website.

CASE STUDY SCENARIO

Places To Go Travel

The management of Places To Go Travel, a retail travel business, has planned to open a new branch, a second travel agency located in a large retail/office complex in a suburban residential and commercial hub. The new office will be known as 'Places To Go Travel Huntington'

It is expected that the new agency will be selling both domestic and international leisure travel to local shoppers and residents. There are also a number of small corporate accounts who have signed agreements to book with the new agency, which will contribute much needed income for the short to long term. It is predicted that eventually additional various corporate accounts will be booking with the agency, once it has become well established.

You are one of Places To Go Travel's top sales performers, and also a senior team leader in the parent travel office. You have been offered a promotion to Travel Manager and asked to run the new agency. This is an acknowledgment of your superb leadership & sales abilities.

The Travel Manager role also requires responsibility for preparing and managing the agency's budgets. As part of your job role you will need to assist with staffing, as well as negotiating expenses and costs for the running of the new office. Staff for the new office will include you, the Travel Manager (selling role), another senior consultant, one junior corporate consultant and one junior leisure consultant. You will be able to liaise with Sally Morgan in HR in regards to wages, the financial controller Mary Tran in regards to some accounting/legal fees and coordinate negotiated rent with the landlords Ascot Holdings. Additionally, in the first 3 months you will have another experienced manager Peter Lee to assist with operational advice and canvassing for new corporate accounts, however he is only on loan from the parent company.

As you are new to managing, the operations manager, Howard Min, has provided you with the brief for planning and preparing the new office's budgets to organisational standards as follows:

· Source information and data for use in preparing budgets

· Prepare budgets in accordance with organisations policies and procedures

· Monitor budgets evaluating performance

· Manage budget variances and make decisions for adjustments

· Report to management and staff regarding budget outcomes.

TASK 1 - Prepare a memo report - 10 marks

Prepare a memo report for the operations manager on ten (10) sources of information you have referred to in preparation for budgeting. Explain for each the reason you used these sources. You will need to consider how you will find information, data, figures and statistics that will have an effect on the running of the business; all income/revenue and operating costs. Where can you source information or whom can you consult to provide you with the information on; rent essential services, wages, superannuation, taxes, demographics for the area, tourism statistics, customer sales etc?

Places to Go Travel - Huntington Office
TO: FROM: DATE:
Source of information/data for budget preparation:	Why consulted?
Internal staff I have consulted in preparation for budgeting are as follows: 1. 2. 3.

TASK 2 - Prepare operational budget - 30 marks

Using the information provided in the tables below prepare an operational budget for the next twelve months showing trading of the new agency office to commence in July 20XX. This budget should be formatted indicating monthly sales and income, as well as monthly expenses, and the forecasted profit or loss underneath.

The budget is to be prepared to show the following:

1. Income/revenue: as per the below table a per annum forecast for sales has been budgeted. We have also provided these per annum figures already proportioned out per month, over the twelve months. The per month values allow for lower sales in first months due to recent start up and no pre-existing bookings and higher sales and income values in the months prior to peak travel times (Christmas, Easter and school holidays etc), when customers will be making final payments for upcoming holidays.

A travel business' 'income' is based upon earning commissions on sales of products. The commission percentages differ depending on the product sold, however can be averaged out between all products as shown on the sales/income document.

2. Expenses: to be listed alphabetically. For most expenses the per annum values are split by twelve and proportioned over the whole year evenly. However, some expenses have a payment due date and have been shown in the month due.

You will need to submit this budget formatted as either a Word table or Excel spreadsheet. An Excel spreadsheet, however will be the best option. An operational budget template document is provided on the OLS in the unit's learning materials pages to assist you.

Note: International and Domestic (Australian travel) Income shown separately as 10% GST is payable only on Domestic products sales and only on the commissions earned. You may wish to show totals for both types of incomes and a grand total for all income. GST has already been included in the figures mentioned in the below table.

Income:	Per Annum $	Income commission
International Airfares	1,400,000.00	12%
International Wholesale Packages	300,000.00	10%
International Accommodation/Car Rental	28,000.00	10%
International Cruises	200,000.00	10%
International Travel Insurance	80,000.00	35%
Domestic Airfares	300,000.00	3%
Domestic Wholesale Packages	60,000.00	10%
Domestic Accommodation/Car Rental	22,000.00	10%
Domestic Cruises	25,000.00	10%
Domestic Travel Insurance	8000	35%
Domestic Misc Service Fees	2000.00	10%
Total Income	2,425,000.00	(Average commission is 11.20%) Total commission $271,500.00
Expenses	Per Annum $	Expense due/proportioned as
Computer Leasing (4)	4320	Monthly
Staff Amenities	2340	Monthly
Entertainment	1200	Monthly
Subscriptions & Memberships	300	Due July and January 1/2 each
Licenses	2400	Due July and January 1/2 each
Computer Software incl. CRS	1200	Monthly
Rent	40560	Monthly
Advertising & Marketing	6000	Equal monthly values
Legal Fees	3000	Due Sept and Feb 1/2 each
Cleaning	1560	Monthly
Office Equipment Leasing	4800	Monthly
Wages incl. Super and Tax (4)	162000	Monthly
Insurance	7800	Due June
Communication - Telephone & ISP Connections	1800	Monthly
GST on Domestic Commission	2280	Due quarterly Apr/Jul/Oct/Jan
Repairs & Maintenance	2400	Monthly
Bank Fees	1200	Monthly
Accounting Fees	1500	Due October
Postage Printing & Stationery	3600	Monthly
Electricity Rates	3600	Due April Jul Oct Jan - 1/4 each
Travel Expenses	2400	Monthly
Couriers	1560	Monthly

Fig 1.1 - Sales, income and expenses for budget preparation. Note: commission levels above are an indication only and may not be indicative of current market levels.

Fig 1.2 – Sales and income figures for use in preparation of operational budget

TASK 3 - Prepare Cash Flow Budget - 20 marks

Using the information from the operational budget you have prepared in Task 2, now create a cash flow budget to plot the cash inflows and outflows for the operations of the business. This is to determine your monthly working capital and cash requirements required to support this new business.

Additional funding for the new business (above sales income) is in the form of capital injection on a month to month basis required until the business has built up cash flow reserves. Show capital injection of funds to cover cash flow as follows:

· First month of trading - capital injection $ 15,000

· Second month of trading - capital injection $ 10,000

· Subsequent months of trading until January - capital injection $ 5,000

· From February onwards the business should have enough reserve cash flow.

This cash flow budget should be shown as month by month values for a twelve months period from July. As per the table in Task 2 the expenses need to be allocated in the month they are due or if an annual expense, split equally between all twelve months.

You will need to submit this budget formatted as either a Word table or Excel spreadsheet.

A cash flow forecast template document is provided on the OLS in the unit's learning materials pages to assist you.

TASK 4 - Monitor and manage budgets - 20 marks

It is now January and the office has been trading for 6 months. It is apparent that there are variances between budgeted sales and actual sales for the month of December. Using the figures below, consider the actual performances versus the budget to complete tasks a & b.

a. Prepare a management 'performance report' to summarise the results (as per examples in the learning materials and practice activities). 10 marks

A typical performance report can be represented as shown:

	Budget	Actual	Variance	Possible Causes
International Sales
Domestic Sales
TOTAL

Fig 1.3: Performance report for the month of December

b. Create an action plan on how you will manage the budget and improve budget performance. To explore ways to improve the budget's performance you need to examine all income and expenses. Expenses for the new office are already quite tight, however there may be 'variable' expenses that you could look at reducing - indicate what these may be. From our report we have identified major variances in the sales and income. Draw up an Action plan that describes how you may be able to manage the variances in the office's income and explore how you can increase income. 10 marks

Places To Go Travel - Huntington Action Plan
What I want to achieve and why (Outcome)	How I will go about it (Action)	Who I need to involve/ consult (People)	What resources do I need (Physical resources)	When - finish by date

Action plan

TASK 5 – Reporting and keeping records - 20 marks

Question 1

What type of report would you use to communicate annual financial outcomes to management?

Question 2

Which financial statements would you include in your report?

Question 3

For travel businesses, which external organisations do you need to supply detailed financial statements?

Question 4

What is the accounting equation referred to in the preparation of a Statement of Financial Position?

Question 5

What is the accounting calculation referred to in the preparation of a Statement of Financial Performance?

Question 6

What information should a business analyse to access the financial health of a business

Question 7

Explain GST and how the GST impacts on budgeting for a travel business?

Question 8

Explain the difference between Gross Profit and Net Profit?

Question 9

How long should financial records be kept for?

Question 10

Detail some of the advantages of good record keeping?

Assessment checklist

I have:

· Completed all the activities

· Attempted all the questions in this assessment and checked my answers before submitting it

· Saved a copy of the assessment