Variance Analysis for Bunyip Investments: Sales Budget, GST Liability, Profit Budget, and Debtor Aging Summary

This report performs variance analysis for Bunyip Investments, examining the sales budget, GST liability, profit budget, and debtor aging summary. It identifies issues such as inaccurate predictions, wrong estimations in expenses, and variance in GST amounts. Recommendations are provided for improving the budgeting process.

BSBFIM601 Manage Finances

Contents
Examination of sales budget, GST liability, profit budget, and debtor aging summary............3
Sales budget and profit budget...............................................................................................3
GST liability...........................................................................................................................4
Debtor aging report analysis...................................................................................................5
Performance review...................................................................................................................6
Recommendations......................................................................................................................7
Evaluation..................................................................................................................................7
References..................................................................................................................................8

Variance analysis is one of the most important aspects of the budgeting process as it helps in
identifying the variances between the actual performance of the company and budgeted
performance. This management accounting tool helps business organizations to understand
the accuracy and relevance of the budgeting process undertaken by them. This process also
helps the business organization to ensure that the budgeting process undertaken by the
organization in the future is more effective and accurate as compared to previous years. It can
be said that variance analysis will help business managers to improve the accuracy of
management accounting processes which will definitely help in the indirect cost of operation
(Collier, 2015). The primary objective of this report will be performed variance analysis for
Bunyip Investments.
Examination of sales budget, GST liability, profit budget, and debtor aging summary
Sales budget and profit budget
One of the most important budgets prepared by any business organization is its sales budget.
This is due to the fact that the majority of expenses and revenue sources are recorded in the
sales budget. It will help the business organization to provide a basic overview of business
operations and business activities. According to the sales budget prepared by the organization
and comparing it with the actual performance of the company it can be said that overall
profitability of the organization is significantly lower as compared to predictions made by the
organization. Overall profitability of the organization is 22.45% lower as compared to
predictions made by the management. The variance between predictions and actual
performance of the company is significantly higher which clearly indicates that management
of the organization is not able to accurately predict the demand for product and services
market. It can also be said that management has not been operating at their full potential
which is the primary reason for decreased profitability. In addition that estimations made with
respect to choose that management are not understanding the rules and regulations and other
taxation policies (Kaplan and Atkinson, 2015). Overall revenue generated by the organization
is 5.10% lower as compared to its prediction which shows inaccurate prediction in relation to
the market.
Footnote-
Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.

Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Issues
Wrong estimations in relation to sales is a primary reason for the variance in profitability and
sales budget of this organization. It is very essential for an organization to understand the
market and nature of the business operation. Some of the other variations in expenses that
have resulted in unfavourable results in profit budget are as follows-
Interest expenses- interest expenses paid by the organization are 12% higher as compared to
projects made by the organization. Estimation of interest expenses should be more accurate as
the rate of interest charged by lenders is generally pre-determined in the contract.
Advertisement expenses- Overall advertisement expenses are 31.25% lower as compared to
budgets made by the organization. It can be said that is this expensive favourable but
management of the organization should analyse whether a decrease in marketing expenses
has any impact on decrease revenue of the organization. The primary focus of marketing
expenses to ensure that the revenue of the organization is increased by promoting goods and
services. In this scenario, overall marketing expenses have to decrease whereas the revenue
of the organization has also decreased. There is a high probability that there is a direct
relationship between these two components of profit budget.
Luxury car tax- Actual luxury car tax paid by the organization is 10% higher as compared to
budgets made by the organization at the starting of the financial year. The wrong estimation
with respect to tax paid or payable by the organization shows that management is not using
appropriate managerial tools for completing the process of budgeting (Mihăilă, 2014). This is
due to the fact that tax rates applicable are generally fixed by the organization and its wrong
estimation foresight expenses are not justifiable.
Footnote-
Mihăilă, M., 2014. Managerial accounting and decision making, in energy industry.
Procedia-Social and Behavioural Sciences, 109, pp.1199-1202.

Overall expenses- on an overall analysis of variance report, it can be said that total actual
expenses incurred by the organization are lower as compared to budgeted expenses. This
financial result would be preferred in the scenario where the overall revenue of the
organization has also increased or not changed in a particular accounting period. In the given
scenario overall revenue of the organization has also decreased with the decrease in total
expenses. Management of the organization is required to analyse whether decreased in
expenses such as marketing expenses has any impact on overall revenue generation
capabilities of the organization or not.
GST liability
Estimations made by management in relation to GST amount is also not accurate. Following
rules and regulations in relation to government taxation policies are very essential. Any of
these regulations can result in a significant financial and operational penalty on the company.
There is a variance of 1.94% between estimations made by the organization in relation to
GST collected and budgeted GST collected. In addition to that management of the company
has also made the wrong estimation of 0.37 percent in relation to GST paid by the
organization.
Issues
It can be said that variance in actual and estimations made by the company in relation to GST
amount is not very significant. This level of accuracy should be maintained by the
organization in preparation of GST budget for the next financial year. This variance between
the actual and budgeted GST payable will not significantly impact the profitability of the
company (Brewer, Garrison and Noreen, 2015). For further improvements in making
estimations in relation to GST payable, management of the organization is required to hire or
consult experts in the field of goods and service tax. Management and also provide training to
current employees of the organization to improve their knowledge in relation to rules and
regulations of goods and service tax.
Footnote-
Brewer, P.C., Garrison, R.H. and Noreen, E.W., 2015. Introduction to managerial
accounting. McGraw-Hill Education.

Debtor aging report analysis
The main objective of preparing a debtor aging report is to ensure the effectiveness and
efficiency of credit policies adopted by the organization for providing credit to the customer.
It is very important for an organization to make sure that timely payments are received from
the customer as delay in payment will result in loss of interest cost on such delayed
payments. According to the debtor aging report Bunyip Investments, it can be said that 22%
of the total revenue generated by the organization is in the form of credit sales. It can be said
that it is a good policy of the organization to maintain the majority of the sales in cash as it
will help in maintaining an effective and efficient liquidity position of the company. Out of
total debtors at the end of a quarter 1, 81% of the debtors are expected to make payments
within the next 30 days.
Issues
On the other hand, management is also expecting that 12% of the debtors will make a
payment between 30 and 60 days of sale. 5% of the debtors will make a payment between 60
days and 90 days whereas 1% of debtors are expected to make payments after 90 days. It can
be said that this credit policy of the organization is very effective as a significant number of
deltas will make payments for their credit sales within a period of 30 days (Weygandt et.al,
2018). In addition to that 99% of the deltas are expected to make payments within 90 days of
credit sale which will be very effective for the cash position of the company. It can be said
that management has implemented effective and efficient election policies from their credit
customers and it will help in maintaining a strong liquidity position in the market.
Performance review
It is important for an organization to identify key performance indicators for analysing
financial position profitability of an organization. Following are some of the key performance
indicators that will help in identifying the financial position of Bunyip Investments Pty Ltd.
Footnote-
Weygandt, J.J., Kieso, D.E., Kimmel, P.D. and Aly, I.M., 2018. Managerial Accounting:
Tools for Business Decision-making. John Wiley & Sons Canada, Limited.

Total revenue- total revenue generated by the organization in the past three financial years
has improved. There is a growth rate of 8% increase in revenue in each of the financial years
under consideration. Constant growth in revenue is effective but the management of the
organization is expected to increase revenue over the period as overall customers are
expected to increase over a period of time (Robinson et.al, 2015).
The total cost of operation- It is expected that over the period of time management of the
organization will be able to reduce its cost of operation. Cost of operation will definitely
increase with an increase in revenue but a proportional increase in expenses should not be
higher as compared to a proportional increase in revenue. In the given scenario management
of the organization is able to maintain an effective cost structure in all the financial years
under consideration. Especially in the year 2018-19 where growth in total expenses is only
2% as compared to previous financial year whereas the increase in revenue is 8%.
Net profitability- Net profit and gross profit generated by the organization are also improving
over the period of time which is a positive indicator for the financial performance of a
company (Brigham et.al, 2016).
Footnote-
Brigham, E.F., Ehrhardt, M.C., Nason, R.R. and Gessaroli, J., 2016. Financial Management:
Theory and Practice, Canadian Edition. Nelson Education.
Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial
statement analysis. John Wiley & Sons.

Recommendations
Following are some of the recommendations that should be followed by management of
Bunyip Investments Pty Ltd for improving their budgeting process-
 First of all, management is required to understand the importance of the budgeting
process and provide sufficient financial and human resources for preparation of
budgets at the starting of the financial year.
 Management is also required to provide training and knowledge in relation to
managerial accounting to employees which will help in improving their accuracy
level.
 Management should prepare budgets in a particular accounting period by analysing
the errors and mistakes identified from variance report of previous financial years.
 Assumptions and destinations made in relation to revenue generation capabilities of
the organization should be realistic and in accordance with the market (Nobes, 2014).
Therefore it is important to conduct market analysis before making presentations.
Evaluation
It can be said that the overall profitability and financial performance of the organization is
better as compared to the previous 4 financial years. The primary focus of the management
should be on improving the quality of a budgeting process in order to produce a more
accurate and relevant result. While preparing budgets in the future management of the
organization to focus on market condition and revenue generation capabilities of the business.
Footnote-
Nobes, C., 2014. International classification of financial reporting. Routledge.