Manage Finances: Analysis, Variance Report, and Recommendations

This article provides an analysis of the budgets of Houzit Pty Ltd, identifies issues, and provides recommendations for improvement. It also includes a variance report and funds collection from debtors.

Running head: MANAGE FINANCES
Manage Finances
Name of the Student:
Name of the University:
Author’s Note:

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MANAGE FINANCES
Table of Contents
Task 1................................................................................................................................2
Part 1..............................................................................................................................2
Analysis of the Budgets..................................................................................................5
Part 2..............................................................................................................................5
Task 2................................................................................................................................7
Variance Report.............................................................................................................7
Funds Collection from Debtors......................................................................................7
Identified Issues.............................................................................................................7
Variance Analysis...........................................................................................................8
Recommendations.........................................................................................................8
Reference..........................................................................................................................9

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Task 1
Part 1

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Particulars 2010/11 Growth % /Amount 2011/12
Revenue:
Sales 15,714,108 25.97% 19,795,297
Cost of Goods Sold 8,799,900 11,283,319
Gross Profit 6,914,208 8,511,978
Gross Profit Margin 44% -1% 43%
Expenses:
Accounting Fees 9,000 1,000 10,000
Interest Expense 90,508 -6,000 84,508
Bank Charges 1,600 0 1,600
Depreciation 170,000 0 170,000
Insurance 12,875 4% 13,390
Store Supplies 3,605 4% 3,749
Advertising 280,000 70,000 350,000
Cleaning 15,656 4% 16,282
Repairs & Maintenance 61,800 4% 64,272
Rent 2,538,950 4% 2,640,508
Telephone 14,420 4% 14,997
Electricity Expense 25,750 4% 26,780
Luxury Car Tax 7,491
Fringe Benefit Tax 28,000 -2,000 26,000
Superannuation 171,495 187,020
Wages & Salaries 1,905,500 172,500 2,078,000
Payroll Tax 90,511 98,705
Worker's Compensation 38,110 41,560
Total Expenses 5,457,780 5,834,863
Net Profit (Before Tax) 1,456,428 2,677,116
Income Tax 436,928 803,135
Net Profit 1,019,500 1,873,981
Net Profit Margin 6.49% 9.47%

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Analysis of the Budgets
As per the different budgets which are prepared by the management of Houzit
Pty ltd provides a vision for the targets of the business. The budgets which are prepared
are sales budget, Profit budget, GST flow Budget and Aged Debtors Budget. The profit
budget of the business shows estimates for 2010/11 and 2011/12. The profits which is
shown for previous year is shown to be significantly lower which is due to the low sales
which the business has achieved during previous year (Sekaran & Bougie, 2016). In
addition to this, the costs which are incurred by the business are significantly higher in
previous year. This is the main reason for lower profits which the business has earned
during the previous year.
As per the analysis of the financial management practices of the business, the
business does not have an effective structure for financial management. The
management has an ineffective cash management structure and even the asset
management structure of the business. The debtor reconciliation is not done on a
monthly basis and therefore the management has an ineffective debtor management
system.
The sales growth rate is assumed which is shown in the sales budget and it is
also assumed that the all the units which are produced by the management will be sold
during the period. The percentage of credit sales is also assumed as shown in the table
above. The implementation of the budget will be under the responsibility of the
operational manager and departmental managers of the business.
Part 2
The different taxes which are applicable to the business of Houzit are income tax
provisions, GST provisions and other types of taxes which are applicable to the
business.
The management of Houzit needs to comply with the requirements of section 111
AA and the division 2 and 3 in order to comply with all rules and regulations of the
business.

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In order to bring about changes in the accounting process of the business, the
management needs to incorporate an efficient accounting information system which can
fulfill all the requirements of the business.
The matching principle states that every expense should match revenue of the
business and the budget is prepared considering the costs which the business will
incurring to earn appropriate revenues of the business. The accounts groups are also
important factors which is to be considered for preparing budgets of the company. A
profit estimate will be show separately in comparison to expenses of the business. The
time period for which the budget is prepared is also an important consideration which is
essential in the preparation of the budget.
The management should follow probity while formulating or revising a budgeting
plan as the same will be ensuring that the budgets which are prepared are showing true
and fair view.
The management needs to include more costs in the budgets so as to ensure
that the budgets are prepared in an efficient manner.
The management of Houzit can improve the internal control of the business by
setting up new structure and process and also by implementing new system software
which will be handling the accounting reporting of the business.

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Task 2
Variance Report
Funds Collection from Debtors

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Identified Issues
The issues which are identified while analyzing the budgets which is prepared by
the business are discussed below in point form:
 There is an overall hike in the costs which is incurred by the business which is
shown in the Budgets considering a level of growth in the sales.
 The recording for discounting amounts are shown as a figure of net in the
invoices and does not provide a clear view.
 The cash register is not consistent with the cash balance in the cash drawers of
the business.
 The reconciliation of debtors balance is not done on regular basis and therefore
does not show correct view.
Variance Analysis
The variances analysis of the business shows difference between actual results
of the business and estimated results which is considered by the business in the
budget. The management has not been able to meet the sales target as set in the
budget in actual performance and therefore the balance which is shown is unfavorable
in nature. The gross profit margin which is achieved by the business is also shown to be
unfavorable in the variance budget (Klychova, Faskhutdinova & Sadrieva, 2014). The
net profit margin of the business also shows an unfavorable balance as per the variance
report of the business.
Recommendations
The recommendations which can be suggested to management of Houzit are dis
cussed below:
 The management needs to improve the costs which are incurred by the business
in order to meet the targets which are set by the business.
 The management needs to make significant improvements in the financial
management practices of the business.

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Reference
Klychova, G. S., Faskhutdinova, М. S., & Sadrieva, E. R. (2014). Budget efficiency for
cost control purposes in management accounting system. Mediterranean journal of
social sciences, 5(24), 79.
Sekaran, U., & Bougie, R. (2016). Research methods for business: A skill building
approach. John Wiley & Sons.