Manage Finance Assignment 2022

Houzit Pty Ltd

Me: Good Morning Mr Jim
CEO: Good Morning Mr Sam
Me: How are you doing? Hope you remember why we are here today.
CEO: I am absolutely fine. Yes of course I remember. Tell me regarding the updates and your
findings. Hope you are ready with all the data.
Me: yes I am. Let’s continue with the same
CEO: yes sure
Me: according to our last meeting you asked for variance report, issues and financial
performance of Houzit. Let’s move on to the variance report first.
CEO: Ok, please tell me about whatever you have found
Me: 1st thing I have identified that the budget for the 1st quarter based on which the
comparison has been carried out with the actual outcome. I have found that the current
management is carrying out the budgeting approach in correct manner except for some
expenses like luxury car tax expenses, interest expenses and bank charges. These can be
improved through efficient management of the resources and will help in efficient budget
preparation that will minimize the variance amount among the actual expenses and budgeted
expenses.
CEO: is the variance you are talking about are very big? What about other incomes and
expenses?
Me: well, though the variances I am talking about are quite significant, these can be improved
through proper management and efficient budget preparation. However, the biggest concern
is that instead of favourable sales variance the entity has unfavourable variance in net profit

and the major reason for the same is high rate of discount. For increasing the sales demand
the firm is offering high discount to its customers which is consuming all the profits. Another
concern is the feasibility of gross margin. Customer’s spending power will be lowered as the
entire nation is suffering from inflation and retail sector is most visible victim of the same. In
addition, to increase the sales discounts are offered at high rate that in turn minimize the
profits. Moreover, rising rate of interest will adversely impact the cash flows of the entity.
CEO: do you think the sales target is too high and for achieving the same the firm is taking
shelter of offering discounts to the customer?
Me: looking into the market trend, I do not think that the sales target was high rather it is our
inefficiency that we could not achieve the sales normally and has to offer high discounts for
achieving the same. Further, other reasons of loss in the business weer price of raw material
purchased by the entity also increased as the price went up owing to recession. Further, rising
rate of interest adversely impacted the cash flows. In addition, reason behind the
unfavourable store supplies variance was resource cost increase. Hence, all these factors led
to significant variance for budget as compared to actual.
CEO: tell me soothing about its performance apart from the variances
Me: Irrespective of increase in sales bottom line profit has been reduced owing to high
discounts that is offered by the entity is eating up the profits. Moreover, for the slow
economic growth payments made to the employees are considerably high as compared to the
11% industry average. Further, the firm had to spent higher amount towards advertising for
increasing the demand. However, despite of all these facts the entity was able to earn positive
earnings. Hence, though the entity was able to earn gross profit of 42%, it was lower than the
budgeted gross profit of 46%. Further, it could not earn any positive margin to provide return
to the shareholders and did not have adequate earning for paying off the interests due on