Financial Management Report: Budget Analysis and Variance for Houzit

This report provides a comprehensive financial analysis of Houzit's business operations, focusing on budget analysis and variance reporting. It examines different types of budgets, including sales, profit, and cash flow budgets, and assesses their effectiveness in planning and controlling business activities. The report identifies variances between budgeted and actual figures, highlighting areas where performance deviates from expectations. It also delves into statutory tax compliance, financial management software options (MYOB and Sage), and key accounting principles like the matching principle and the concept of account groups. Furthermore, the report discusses the implications of probity, critical dates for the business, and recommended budget items. It concludes with suggestions for modified internal control measures and financial management strategies, including improvements in cash management and debtor management policies. The overall goal is to provide insights into the financial health of Houzit and offer recommendations for enhancing financial performance.

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

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Table of Contents
Assessment Task 1.....................................................................................................................3
Part A.....................................................................................................................................3
Introduction............................................................................................................................3
Different Types of Budgets....................................................................................................3
Analysis of Budgets...............................................................................................................6
Part B......................................................................................................................................8
Statutory Requirement for Tax Compliance..........................................................................8
Compliance Requirements.....................................................................................................9
Financial Management Software............................................................................................9
Principles of Accounting......................................................................................................10
Implication of Probity..........................................................................................................10
Critical Dates for the Business.............................................................................................10
Items recommended for the Budget.....................................................................................11
Modified Internal Control Measures....................................................................................11
Assessment Task 2...................................................................................................................12
Variance Report for the Business.........................................................................................12
Revenue Collected from Debtors.........................................................................................13
Issues Identified...................................................................................................................14
Variance Analysis................................................................................................................14
Recommendations................................................................................................................15

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Financial Management Strategy Issues................................................................................15
Reference..................................................................................................................................16
Assessment Task 1
Part A

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Introduction
The analysis which is conducted is for the business of Houzit for which detailed
review would be conducted so that any variances which take place can be identified along
with the reasons associated with the same. The discussion would be showing different kinds
of budgets which is prepared for effective planning for the business (Brigham & Ehrhardt,
2013). In addition to this financial management practices for the business would be analysed
if the same is efficient or not. The different budget which is prepared is to ensure
transparency and efficiency is maintained in the operations of the business.
Different Types of Budgets

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Analysis of Budgets
The above tables demonstrate different types of budgets which is prepared by Houzit
officials for better presentation of the targets of the business and also for proper planning of
the activities of the business (Barr & McClellan, 2018). The target which is shown in the
budgets is as per the long term goals and objectives of the business. Some of the budgets
which is shown in the above table are profit budgets, sales budgets, GST cash flow Budgets
and Aged Debtors Budgets. The different budgets covered different KRAs for the business
and therefore the same are considered to be important for the purpose of planning thee
activities of the business (Vernimmen et al., 2014). The sales budget is prepared to show the
sales revenue which is generated by the business while the profit budget is prepared to show
the profit which the business is able to generate. The gross profit for the entity is shown to
have declined significantly which can be mainly attributed to the low sales figure which is
achieved by the business. Another reason for the low gross profit margin is due to the rise in
the costs and the same is plainly shown in the profit budget for the business. As there is a
sharp decline in the gross profit margin of the company, the net profits of the entity would
also be impacted. However, the net profit has improved from previous year which shows that
the business has reduced some of the operational costs which has positively contributed to the
net revenue generated by the business. The net profit of the business is shown to be $
2,677,166 for the year 2011/12 which shows tremendous growth in terms of profitability of
the business. One of the long term objectives of the business is to achieve growth from the
operations and the same can be achieved if more and more profits are generated.
The financial management strategies are not appropriate concerning some areas which
needs immediate improvements as the same is hampering the efficiency of the business. One
of the policies needs improvements is the cash management policies which directly are
related to the liquidity status for the business. The business also needs to work on debtor’s

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management policies as it is an important source of generation of revenue. The number of
days which is allowed to the debtors needs to be amended so that there is no lockup situation
of funds. It is to be noted that as the business expands its operations, the number of debtors
would also increase and therefore it is very important for the business to have an efficient
debtor management policy (Finkler, Smith & Calabrese, 2018). One other matter of concern
is that proper records are not maintained by the management which would affect scrutiny
process and further debtor balances are not reconciled on regular basis which can affect the
efficiency of the business. Therefore, such areas of the business need to be improved so that
proper financial management is initiated in the operations of the entity.
In order to prepare the budgets, some assumptions are considered which are essential
for accuracy and forecasting. The sales budget considers that all the units which is produced
by the business during the period is sold off completely which means that there would be no
closing stock. The percentage of credit sales which are estimated for the entity in preparation
of the budget is also clearly presented in the budgets shown above. The percentage of sales
quarter wise is also portrayed so that a level of clarity is maintained in the planning process
of the entity. The fluctuations in sales figures and the respective GST amounts are also shown
in the figure above.
In order to monitor and properly implement the budget which is to be carried out by
the senior officials needs to be efficient. This is important as the same would help to keep a
track of the goals and objective of the business. In order to properly monitor the operations of
the business and ensure that the strategies and plans are being followed, the supervisors of the
business need to be active.

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Part B
Statutory Requirement for Tax Compliance
One of the main regulation which is applicable to most of the Australian concerns is a
percentage of tax is applicable on the profits which is generated by the business. In addition
to this, the business is also subjected to other forms of taxes which are applicable in Australia
such as payroll tax, fringe benefit tax, luxury car tax and superannuation. As per the case
study, the management of the company complies with superannuation provisions and
contributes 9% on the total wages to superannuation fund of the employees. The business
would qualify for payroll taxes if the wages exceed $ 850,000 and the rate which is
applicable is at 4.75% of the total wages. The business would also be subjected to Fringe
benefit taxes if such fringe benefits are allowed to its employees. The different form of taxes
which is paid by the business during the period is computed in the table which is shown
below:
Compliance Requirements
It is very important for the management to adhere to regulations which is stated in
Corporation Act 2001 so that proper legal provisions are maintained in the operations of the
business. The management of the company needs to comply with section 111AA and division
2 and division 3 for the purpose of appropriate compliance which is related to relevant
regulations. The regulations which are applicable on the business also needs to be address
and followed in an effective manner for the business.

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Financial Management Software
The senior officials of the business are planning to make changes to the financial
management practices of the business and thereby bring about operational change in the
operations of the business. The accuracy process of recording of revenue and expenses is
important and the same needs to be managed by the senior officials of the business. In order
to bring about more efficiency in the reporting process of financial information, financial
software can be implemented (Zietlow et al., 2018). One of the options which is available to
the senior management is MYOB software which can effectively help in recording financial
transactions in an effective manner. One other software which is available to the senior
officials of the business is Sage software which also is an efficient tool which can help the
business to maintain proper accounting records. Both the software which is mentioned above
can assist the senior officials to maintain efficiency and improvement the financial reporting
structure of the entity. If comparison is made between the suggested software above, MYOB
would be a better option as it is suitable to the business requirements of Houzit and it can
analyse information as well as generate reports.
Principles of Accounting
a. The matching principle is considered to be very important from the perspective of
accounting as the same requires the revenue generated should be equivalent to the
expenses incurred by the business (Kaplan & Atkinson, 2015). It is due to this
principle that the balance sheet of a company matches and this principle should be
considered while preparing the financial reports for the business.
b. Account Groups refers to different accounts which are important for the preparation
of financial records for the business. The concept of account groups is also important
when a management is preparing financial statement of a business.

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c. The concept timeline states that the budget or financial report which is prepared by
the business should be set within a time frame so that the performance can be
measured in an effective manner. The concept of timeline is also important when a
business wants to set short term as well as long term goals for the entity.
Implication of Probity
The principle of probity states that a professional should behave with honesty,
sincerity and integrity while executing the duties of the entity. The principle of probity is to
be followed so that the budgets which is prepared by the management is showing true and fair
view of the financial position of the business. The budgets which are prepared by the business
should show accurate capability of the business to perform the operations of the business.
Critical Dates for the Business
The critical dates which need to be considered for the business of Houzit include the
quarterly target dates on which the performance of the business is to be monitored. The same
would also monitor the timeline within which the project which is initiated by the business
can be completed. These dates are important for analysing the efficiency and implementation
process of the operational plan of the business.
Items recommended for the Budget
The management of the company needs to properly identify more costs in the budget
and the same should be based on day to day operations of the business. The management also
needs to identify the source of different costs which can be direct nature or indirect nature.
This also involves proper classification of the costs which would make the budget more
transparent.

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Modified Internal Control Measures
The internal control procedures of the entity need to be improved so that the entire
operations can be optimized. One of the steps which can be taken by the senior management
of the company is introduction of financial management procedures and implementation of
new accounting software so that the financial reporting process can be made more efficient.
This is expected to bring about significant improvement in the reporting framework of the
business. In addition to this, changes are also required to be made in financial management
practices such as cash management policies, debtor management policies so that efficiency
and transparency is maintained in the operational process of the business.