Finance: Analysis of Budget Variance and Audit Trails

This article discusses the analysis of budget variance and audit trails in finance. It covers topics such as actual budget, cash flow analysis, MYOB accounting software, and more.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Author Note

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Table of Contents
Answer to Assignment Activity 1..............................................................................................2
Actual budget.........................................................................................................................2
Answer to Assignment Activity 2..............................................................................................3
Assignment to Activity 3...........................................................................................................4
Answer to Assignment Activity 4..............................................................................................4
Answer to Question 1.............................................................................................................5
Answer to Assignment Activity 5..............................................................................................7
Answer to Assignment Activity 6..............................................................................................8
Answer to Assignment Activity 7..............................................................................................8
References and Bibliography...................................................................................................10

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Answer to Assignment Activity 1
Actual budget
Answer to Question 1
The figures reveal that there has been optimum variance in the case of the
employment expenses like the financial component of superannuation, wages and salaries and
other employer expenses. The degree of variance that has been obtained has been majorly in
the case of expenses and the cost of the services that are required for the purpose of business.
Answer to Question 2
The specific areas that are needed to be investigated are the expenditures that have
been incurred by business and the cost of the services that are required for the continuation of
the business services.
Answer to Question 3
The area of sales that has been generating optimum revenue in a constant rate are the
food sales and the catering fees.
The area of sales that requires due attention is the sales in regards to beverage sales.
Answer to Question 4
The expenses that need close analysis for good and bad results are essentially the
expenses that reveal a higher degree of variance. The expenses that reflect a good result are
the expenses related to water that has been incurred by the firm. However, the budget
variance reveals that most of the expenses reflect the results that are not good. These
expenses particularly are the expenses related to superannuation, wages and salaries, other
employer expenses and marketing expenses (Armitage, Webb and Glynn 2016).

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Answer to Question 5
The reason for the obtained results may be as follows;
 The management of the restaurant is unable to decrease the cost of sales and other
expenses (Lueg 2015)
 The management of the restaurant is unable to utilize the promotional strategies for
increasing the total amount of revenue incurred (Lueg 2015)
 The management of the firm has been spending more in financing the employees
rather than focusing on the improvement of the quality of food or services produced
(Lueg 2015)
Answer to Question 6
The concerned person to discuss will be the sales and production department of the
chosen café business.
Answer to Assignment Activity 2
The financial information that has been reflected in the financial statements of the
company indicates that the business has been following a rising trend. The total revenue of
the firm that has been incurred by the café for the financial year of 2016-17. However, the
gross profit has revealed an unfavorable variance of $19,005.19. This means that the
management of the café has not been performing as planned or estimated. However, the
particulars of the financial statement imply that the growth of the firm has been sustainable.
This can be evidently derived from the fact that the total sales of the firm has been increasing
since the financial year of 2013-14. The gross profit incurred by the café business has been
$441,225 for the financial year of 2013-14. The gross profit for the financial year of 2014-15
has been $497,300. The gross profit for the financial year of 2015-16 has been $590,000. The

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gross profit for the financial year of 2016-17 has been $688,370. Thus, this indicates that the
business conducted by the café is quite sustainable. Furthermore, the inflow of cash in all
probabilities, continuous implying that there is no major concern in regards to the financial
performance by the firm.
Assignment to Activity 3
Cash Flow Analysis - GST
Particulars 2016/17
GST Collected
Food sales $ 68,080.40
Beverage sales $ 38,756.70
Catering fees $ 37,140.80
Total GST Collected $ 143,977.90
GST Paid
Cost of Goods Sold $ (75,140.90)
Marketing $ (6,201.60)
Training $ (1,800.00)
Insurance $ (1,020.00)
Eletricity $ (613.40)
Gas $ (616.40)
Water $ (468.50)
Interest Expenses $ (2,654.90)
Total GST Paid $ (88,515.70)
GST Payable $ 55,462.20
Answer to Assignment Activity 4
Particulars Year 13-14 Year 14-15 Year 15-16
Actual
Year 16-17
Total Sales
$
983,248
$
1,063,200
$
1,200,000
$
1,439,779
Gross Profit
$
441,225
$
497,300
$
590,000
$
688,370
Employment expenses
$
117,207
$
123,660
$
590,000
$
160,996
Rent
$
120,000
$
120,000
$
120,000
$
120,000

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Total Expenses
$
328,015
$
345,383
$
396,100
$
442,256
Net Profit
$
90,485
$
122,642
$
155,500
$
201,565
Gross Profit as a % of
Sales 44.87% 46.77% 49.17% 47.81%
Labor Cost as a % of
Sales 11.92% 11.63% 49.17% 11.18%
Rent as a % of Total
Expenses 36.58% 34.74% 30.30% 27.13%
Total Expenses as a % of
Sales 33.36% 32.49% 33.01% 30.72%
Net Profit as a % of Sales 9.20% 11.54% 12.96% 14.00%
Answer to Question 1
BUDGET VARIANCE:
Statement of Financial
Performance
Income
Revised
Budget
Actual
Year 16-17 Variance ($)
Variance
(%)
F or
U
Food sales
$
660,974.66
$
680,804.00
$
19,829.34 3% F
Beverage sales
$
395,476.48
$
387,567.00
$
(7,909.48) -2% U
Catering fees
$
364,125.72
$
371,408.00
$
7,282.28 2% F
Total Income
$
1,420,576.86
$
1,439,779.00
$
19,202.14 1% F
Cost of Sales
$
-
Food purchases
$
458,418.45
$
481,339.00
$
22,920.55 5% U
Beverage purchases
$
254,783.23
$
270,070.00
$
15,286.78 6% U
Total cost of sales
$
713,201.68
$
751,409.00
$
38,207.32 5% U
Gross Profit
$
707,375.19
$
688,370.00
$
(19,005.19) -3% U
Expenses
$
-
Marketing
$
60,800.00
$
62,016.00
$
1,216.00 2% U
Depreciation expense
$
69,840.00
$
69,840.00
$
- 0% F
Insurance $ $ $ 0% F

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10,200.00 10,200.00 -
Other Expenses
$
850.00
$
876.00
$
26.00 3% U
Employment expenses
$
-
$
-
Superannuation
$
13,190.37
$
13,404.90
$
214.53 2% U
Wages and salaries
$
138,846.00
$
141,104.20
$
2,258.20 2% U
Other employer expenses
$
6,423.00
$
6,487.00
$
64.00 1% U
Total employment
expenses
$
158,459.37
$
160,996.10
$
2,536.73 2% U
Rent
$
120,000.00
$
120,000.00
$
- 0% F
Telephone
$
1,345.00
$
1,345.00
$
- 0% F
Services
$
-
$
-
Electricity
$
6,013.92
$
6,134.00
$
120.08 2% U
Gas
$
6,043.40
$
6,164.00
$
120.60 2% U
Water
$
4,722.80
$
4,685.00
$
(37.79) -1% F
Total Expenses
$
438,274.49
$
442,256.10
$
3,981.61 1% U
Operating Profit
$
269,100.70
$
246,113.90
$
(22,986.80) -9% U
Other Expenses
$
-
Interest Expense
$
26,549.00
$
26,549.00
$
- 0% F
Training
$
18,000.00
$
18,000.00
$
- 0% F
Total other expenses
$
44,549.00
$
44,549.00
$
- 0% F
Net Profit /(Loss)
$
224,551.70
$
201,564.90
$
(22,986.80) -10% U
The primary causes for variance to key performance indicators of total sales, gross
profit % and net profit value can be summarized as follows:

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 The gross profit a percentage of sales has decreased in the financial year of 2016-17
due to the failure of the management to curb the costs related to the business
operations
 The individual items that represent the highest degree of variance in the report are the
wages and salaries, superannuation, depreciation expense. The primary reason for
such a variance has been that the management of the café has been focusing more on
financing the employees or staff of the café rather than focusing on improving the
promotional and sales strategy
 The items in the variance report that represent a higher degree of variance in terms of
percentage are beverage purchases, food purchases and net profit. These financial
components have been representing a higher degree of variance. This indicates that
the firm has not been performing in accordance to the estimated standards. This can
be mitigated by the reduction in the cost in regards to production.
Answer to Assignment Activity 5
The audit trails refer to the establishment or the implementation of a particular system
that traces the transactions back to their generation point in relation to the items that have
been incurred in a particular accounting cycle.
The particular issue that has been presented in the question is that the development of
the particular audit trails that can be implemented for maintaining the internal controls. The
audit trails can be listed down as follows:
 The discounts that are given to the customers should be further classified by the
separation of the invoice amount and the discounted amount. This can be achieved by
the implementation of a suitable accounting software

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 The cash registers should be reconciled. This can be achieved by the particular
function of segregation of duties of the employees
 The issue related to the service invoices can be resolved by the appointment of a
particular employee who can carry out the proceedings in regards to the checking of
the completion of the assigned task
 The communication between the shop floor and the head office can also be increased
by developing a secured channel that can be utilized by maintaining the required
privacy standards
 The reconciliation of debtors can also be carried out by the segregation of the duties
 The installation of a suitable accounting software can resolve the problem of pre-
numbering the cash receipts
Answer to Assignment Activity 6
The departments that are needed to be considered for the successful implementation
of the budget are the sales department and the human resource department. The successful
implementation of the budget will require curbing down the wages and salaries of the
employees and implementing strategies that will effectively reduce the cost of sales and
business related operations.
Answer to Assignment Activity 7
The accounting software that can be successfully adopted in the business is MYOB
(Sponem and Lambert 2016). The essential features of MYOB are as follows:
 The accounting software facilitates the computation of the GST and BAS
 The management of the payroll
 Inventory management
 Management of the multiple currencies

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 Accurate time billing
 Access by multiple users

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References and Bibliography
Armitage, H.M., Webb, A. and Glynn, J., 2016. The use of management accounting
techniques by small and medium‐sized enterprises: a field study of Canadian and Australian
practice. Accounting Perspectives, 15(1), pp.31-69.
ElKelish, W.W. and Rickards, R.C., 2018. Organisational culture's impact on management
accounting and control practices in the United Arab Emirates. International Journal of
Accounting, Auditing and Performance Evaluation, 14(1), pp.24-46.
Klychova, G.S., Faskhutdinova, М.S. and Sadrieva, E.R., 2014. Budget efficiency for cost
control purposes in management accounting system. Mediterranean journal of social
sciences, 5(24), p.79.
Lueg, R. and Malmmose, M., 2014. Customer accounting with budgets and activity-based
costing: a case study in electronic commerce.
Lueg, R., 2015. Product customization: A case study on choosing the right costing system.
McLellan, J.D., 2014. Management Accounting Theory and Practice: Measuring the Gap in
United States Businesses. Journal of Accounting, Business & Management, 21(1).
Pavlatos, O. and Kostakis, H., 2015. Management accounting practices before and during
economic crisis: Evidence from Greece. Advances in accounting, 31(1), pp.150-164.
Sponem, S. and Lambert, C., 2016. Exploring differences in budget characteristics, roles and
satisfaction: A configurational approach. Management Accounting Research, 30, pp.47-61.