Riverside Coffee Financial Analysis

This assignment analyzes Riverside Coffee's financial health after acquiring a new shop in Southbank. It examines key financial indicators like net profit, cost of sales, and total expenses, comparing budgeted figures with actual results. The analysis also highlights the impact of the acquisition on profitability and discusses potential risks and future performance management strategies.

ACCOUNTING
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TABLE OF CONTENTS
Introduction .....................................................................................................................................3
PART A...........................................................................................................................................3
PART B............................................................................................................................................4
PART C............................................................................................................................................8
PART D.........................................................................................................................................10
Conclusion ....................................................................................................................................14
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ILLUSTRATION INDEX
Illustration 1: Graph presenting budgeted gross profit and actual gross profit for 2015.................4
Illustration 2: Graph presenting budgeted total expenses and actual total expenses for 2015........5
INDEX OF TABLES
Table 1: Variance calculation of 2015.............................................................................................5
Table 2: Variance calculation of 2015.............................................................................................7
Table 3: Riverside Coffee Budget for the year 2016 ......................................................................9
Table 4: New budget for 2016 ......................................................................................................11
Table 5: Combined Budget ...........................................................................................................13
3

INTRODUCTION
Accounting is referred to as the measurement, processing as well as communication of
the financial information regarding economic entities (Bonin, 2013). In the present study,
accounting has been discussed in the context of Riverside Coffee PTY Limited. The reports
include preparation of the operational budget. Further, it includes managing budgets and
forecasts.
PART A
a)
Several improvements can be made to the layout and format of budget 2015. This can be
related with categorizing the personnel expenses amount under the heads salaries and wages as
well as superannuation for both actual and budgeted. The protection of the file can be done by
storing it with security or putting certain password so that important information cannot be
leaked (Ismail and King, 2014). Further, backup of the file can be created for the sake of getting
it safely stored.
b)
The appropriate storage protocol for the file including naming of the new file that is
Budget for 2016 is important. With this, decision making would be done within the organization
(Henderson and et. al., 2015). The file can be saved with the name that is 2016 budget so that it
can be safely stored and can be founded whenever required.
c)
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PART B
e)
Table 1: Variance calculation of 2015
Variance calculation of 2015
2015
Budgeted
2015
Actual Variance % change
Favourable (F)
or
Unfavourable
(U)
REVENUE
Sales - Coffee Shop 666,000 669530 3530 0.53% F
Sales - Wholesale Coffee 263,000 260200 -2800 -1.06% U
929,000 929730 730 0.08% F
COST OF SALES
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Jul - Sep Oct - Dec Jan - Mar Apr - Jun
140000
145000
150000
155000
160000
165000
170000
175000
GROSS PROFIT (Budgeted)
GROSS PROFIT (Actual)
Illustration 1: Graph presenting budgeted gross profit and actual gross profit for 2015
Jul - Sep
Oct - Dec
Jan - Mar
Apr - Jun
105000 110000 115000 120000 125000 130000
TOTAL EXPENSES
(Budgeted)
TOTAL EXPENSES (Actual)

Cost of Sales - Coffee Shop 183,150 195090 11940 6.52% U
Cost of Sales - Wholesale
Coffee 94,680 88990 -5690 -6.01% F
277,830 284080 6250 2.25% U
GROSS PROFIT 651,170 645650 -5520 -0.85% U
PERSONNEL EXPENSES
Salaries and Wages 266,000 276930 10930 4.11% U
Superannuation 21,000 24180 3180 15.14% U
287,000 301110 14110 4.92% U
OCCUPANCY EXPENSES
Rent 50,655 50666 10.95 0.02% U
Electricity 38,000 40645 2645 6.96% U
Depreciation - Equipment 24,000 24000 0.00% -
Other Overheads 10,000 11995 1995 19.95% U
122,655 127306 4650.95 3.79% U
MARKETING AND
EXPENSES
Advertising 20,000 24510 4510 22.55% U
Agent's Commission 15,780 12755 -3025 -19.17% F
35,780 37265 1485 4.15% U
FINANCIAL EXPENSES
Bad Debts 2,000 2970 970 48.50% U
Interest Expense 16,450 16815 365 2.22% U
18,450 19785 1335 7.24% U
TOTAL EXPENSES 463,885 485466 21580.95 4.65% U
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NET PROFIT BEFORE
DIRECTOR'S FEES 187,285 160184
-
27100.95 -14.47% U
DIRECTOR'S FEES 160,000 151000 -9000 -5.63% F
NET PROFIT 27,285 9184
-
18100.95 -66.34% U
f)
Table 2: Variance calculation of 2015
Variance calculation of 2015
2015
Budgeted 2015 Actual Variance % change
Favourable
(F) or
Unfavourable
(UF)
REVENUE
Sales - Coffee Shop 666,000 669530 3530 0.53% F
Sales - Wholesale
Coffee 263,000 260200 -2800 -1.06% U
929,000 929730 730 0.08% F
COST OF SALES
Cost of Sales - Coffee
Shop 183,150 195090 11940 6.52% U
Cost of Sales -
Wholesale Coffee 94,680 88990 -5690 -6.01% F
277,830 284080 6250 2.25% U
GROSS PROFIT 651,170 645650 -5520 -0.85% U
PERSONNEL
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EXPENSES
Salaries and Wages 266,000 276930 10930 4.11% U
Cafe permanent staff
wages 72,000 74300 2300 3.19% U
Cafe casual staff
wages 154,000 155680 1680 1.09% U
Other staff wages 40,000 46950 6950 17.38% U
Superannuation 21,000 24180 3180 15.14% U
Cafe permanent staff
super 6,800 7100 300 4.41% U
Cafe casual staff
super 10,400 12630 2230 21.44% U
Other staff super 3,800 4450 650 17.11% U
287,000 301110 14110 4.92% U
OCCUPANCY
EXPENSES
Rent 50,655 50666 10.95 0.02% U
Electricity 38,000 40645 2645 6.96% U
Depreciation -
Equipment 24,000 24000 0.00% -
Other Overheads 10,000 11995 1995 19.95% U
122,655 127306 4650.95 3.79% U
MARKETING AND
EXPENSES
Advertising 20,000 24510 4510 22.55% U
Agent's Commission 15,780 12755 -3025 -19.17% F
35,780 37265 1485 4.15% U
FINANCIAL
EXPENSES
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Bad Debts 2,000 2970 970 48.50% U
Interest Expense 16,450 16815 365 2.22% U
18,450 19785 1335 7.24% U
TOTAL EXPENSES 463,885 485466 21580.95 4.65% U
NET PROFIT
BEFORE
DIRECTOR'S FEES 187,285 160184 -27100.95 -14.47% U
DIRECTOR'S FEES 160,000 151000 -9000 -5.63% F
NET PROFIT 27,285 9184 -18100.95 -66.34% U
g)
(i) From the analysis of variance, it has been gained that favorable outcomes have emerged in
case of sales of coffee shop as the actual result is greater than the budgeted one. On the other
hand, the revenue from wholesale coffee reflects the negative variance. This implies actual
outcomes are lesser than the budgeted ones (Hoskin, Fizzell and Cherry, 2014). Thus, firm is
required to bring improvement in its selling strategies towards the wholesale coffee. The gross
profit of the firm also reflects negative variance of 5520. Thus, it is important that Riverside
Coffee PTY Limited needs to keep a track on its cost of sales.
(ii)
 The gross profit of the company has negative variance. This implies that budgeted value
is more than the actual value. Thus in order to monitor, this cost of sales can be tracked.
Further, increase in sales of wholesale coffee can also assist in improving the situation.
 The superannuation cost is higher in actual performance in comparison with the
budgeted. This can be due to increase in number of personnel. For this, firm can next year
create a slab of salary for which superannuation would be created. (Onda, LoBuglio and
Bartram, 2012).
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 The changes that can be recommended include decreasing the cost of sales and increasing
revenue so that overall business profits can increase.
PART C
h)
Table 3: Riverside Coffee Budget for the year 2016
Riverside Coffee Budget for the year 2016
Jul - Sep Oct - Dec
Jan -
Mar Apr - Jun TOTAL
REVENUE
Sales - Coffee Shop 166,868 178,235 171,696 181,147 697,946
Sales - Wholesale Coffee 44,616 60,926 62,735 68,440 236,717
211,484 239,161 234,431 249,587 934,663
COST OF SALES
Cost of Sales - Coffee Shop 39,047 60,302 61,075 64,499 224,923
Cost of Sales - Wholesale
Coffee 11,243 16,603 17,515 19,004 64,364
50,290 76,905 78,590 83,502 289,287
GROSS PROFIT 161,194 162,256 155,841 166,085 645,376
PERSONNEL EXPENSES
Salaries and Wages 66,750 71,850 70,140 68,190 276,930
Superannuation 5,400 6,250 6,185 6,345 24,180
72,150 78,100 76,325 74,535 301,110
OCCUPANCY EXPENSES
Rent 7,201 7,685 7,603 7,868 30,357
Electricity 10,627 10,627 10,627 10,627 42,509
Depreciation - Equipment 6,000 8,000 8,000 8,000 30,000
Other Overheads 3,485 3,120 2,605 2,785 11,995
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27,313 29,433 28,835 29,280 114,860
MARKETING AND
EXPENSES
Advertising 7,500 7,500 7,500 7,500 30,000
Agent's Commission 2,008 2,742 2,823 3,080 10,652
9,508 10,242 10,323 10,580 40,652
FINANCIAL EXPENSES
Bad Debts - - - 2,970 2,970
Interest Expense 10,200 10,200 10,200 10,200 40,800
10,200 10,200 10,200 13,170 43,770
TOTAL EXPENSES 119,171 127,974 125,683 127,565 500,393
NET PROFIT BEFORE
DIRECTOR'S FEES 42,023 34,282 30,158 38,520 144,983
DIRECTOR'S FEES 38,000 38,000 35,000 40,000 151,000
NET PROFIT 4,023 -3,718 -4,842 -1,480 -6,017
i) The interpretation of the client’s instruction is that as the sales of the company have increased
in 2015 so it is being expected that sales for future would also increase. Further, the cost of sales
has also increased because of the increasing sales. The enhancement has been seen in the
electricity expense because the level of production has increased.
ROLE PLAY SCRIPT
Point: 1 and point 2
Client: Hello.
Financial consultant: Hello Sir. How can I help you?
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Client: Earlier we expect to collect 80% of our wholesale debtors in the same quarter, 18% in the
following quarter and we write off 2% as a bad debt. We want to improve this and expect that if
we allow a 3% discount for payment in advance, our collections will improve to 90% received in
the same quarter and, 9% in the following quarter with only 1% becoming a bad debt.
Financial consultant: Sir, this can increase the financial position of the company and
improvement will be there in the amount that is written off as bad debt. Thus loss to the firm
would reduce as well.
Client: Thank you. Could you please let me know How can be treat both discount allowed and
bad debts under financial budget?
Financial consultant: Sir, both discount allowed and bad debts are expenses to the firm. Thus
they will be deducted from cash inflow or it can be stated that they are presented at the side of
payments in cash budget.
Client: Thank you....
Client: I have an another question. How we treat both discount allowed and bad debts under
financial reports?
Financial consultant: Sir, as both discount allowed and bad debts are considered loss to the firm
thus they are reflected in the profit and loss account under expense side. This has greater impact
on the profitability of the company as well.
Client: Thank you for letting me know about all such concept. Your advice is of greater help for
me.
Financial consultant: Your welcome sir.
PART D
k)
Table 4: New budget for 2016
New budget for 2016
Jul - Sep Oct - Dec Jan - Mar Apr - Jun TOTAL
REVENUE
Sales - Coffee Shop 130,000 131,950 133,929 135,938 531,817
Sales - Wholesale Coffee
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130,000 131,950 133,929 135,938 531,817
COST OF SALES
Cost of Sales - Coffee Shop 40,950 46,114 46,806 47,508 181,378
Cost of Sales - Wholesale
Coffee
40,950 46,114 46,806 47,508 181,378
GROSS PROFIT 89,050 85,836 87,123 88,430 350,439
PERSONNEL EXPENSES
Salaries and Wages 12,500 12,500 12,500 12,500 50,000
12,500 12,500 12,500 12,500 50,000
OCCUPANCY EXPENSES
Rent 9,000 9,000 9,000 9,000 36,000
Electricity 7,000 7,140 7,283 7,428 28,851
Depreciation - Equipment 5,000 5,000 5,000 5,000 20,000
Other Overheads 2,000 2,000 2,000 2,000 8,000
23,000 23,140 23,283 23,428 92,851
MARKETING AND
EXPENSES
Advertising 2,500 2,500 2,500 2,500 10,000
Initial re branding and fit out 3,750 3,750 3,750 3,750 15,000
6,250 6,250 6,250 6,250 25,000
FINANCIAL EXPENSES
Bad Debts - - - 2,970 2,970
Interest Expense 5,000 5,000 5,000 5,000 20,000
5,000 5,000 5,000 7,970 22,970
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TOTAL EXPENSES 46,750 46,890 47,033 50,148 190,821
NET PROFIT BEFORE
DIRECTOR'S FEES 42,300 38,946 40,090 38,282 159,618
DIRECTOR'S FEES 7,500 7,500 7,500 7,500 30,000
NET PROFIT 34,800 31,446 32,590 30,782 129,618
l)
Table 5: Combined Budget
Combined Budget
Riverside coffee
New budget (After
acquiring South Bank
shop) Total
REVENUE
Sales - Coffee Shop 697946 531817 1229764
Sales - Wholesale Coffee 236717 - 236717
934663 531817 1466481
COST OF SALES
Cost of Sales - Coffee Shop 224923 181378 406301
Cost of Sales - Wholesale Coffee 64364 - 64364
289287 181378 470666
GROSS PROFIT 645376 350439 995815
PERSONNEL EXPENSES
Salaries and Wages 276930 50000 326930
Superannuation 24180 50000 74180
301110 - 301110
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OCCUPANCY EXPENSES
Rent 30357 36000 66357
Electricity 42509 28851 71360
Depreciation - Equipment 30000 20000 50000
Other Overheads 11995 8000 19995
114860 92851 207712
MARKETING AND
EXPENSES
Advertising 30000 10000 40000
Agent's Commission 10652 15000 25652
40652 25000 65652
FINANCIAL EXPENSES
Bad Debts 2970 2970 5940
Interest Expense 40800 20000 60800
43770 22970 66740
TOTAL EXPENSES 500393 190821 691214
NET PROFIT BEFORE
DIRECTOR'S FEES 144983 159618 304601
DIRECTOR'S FEES 151000 30000 181000
NET PROFIT -6017 129618 123601
m)
I. With the acquisition of the Southbank shop, the net profit of the company that is Riverside
Coffee has increased to a greater extent. Further, it is reflecting a positive balance.
II. No additional bank overdraft is required as the net profit with the company is higher after
acquiring the new shop.
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III. The new venture to a greater extent has affected the net profit of existing business as under
this, the cost of sales and other expenses were lower that has enhanced the profitability of
Riverside Coffee.
IV. The major risk is that the sales of company are lower in Coffee shop that can affect the long
term sustainability of the business. This reflects that firm needs to invest more towards
advertisements so that it can build its sound image in the market (Financial information and
decision making, 2016).
CONCLUSION
It can be concluded from the study that role of accounting is important in reviewing the
financial status of the firm. Further, with budgeting the forecasting for future can be done so that
performance can be managed in accordance with it.
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REFERENCES
Journals and Books
Bonin, H., 2013. Generational accounting: theory and application. Springer Science & Business
Media.
Henderson, S. and et. al., 2015. Issues in financial accounting. Pearson Higher Education AU.
Hoskin, R. E., Fizzell, M. R. and Cherry, D. C., 2014. Financial accounting: a user perspective.
Wiley Global Education.
Ismail, N. A. and King, M., 2014. Factors influencing the alignment of accounting information
systems in small and medium sized Malaysian manufacturing firms. Journal of Information
Systems and Small Business. 1(1-2). pp.1-20.
Onda, K., LoBuglio, J. and Bartram, J., 2012. Global access to safe water: accounting for water
quality and the resulting impact on MDG progress. International journal of environmental
research and public health. 9(3). pp.880-894.
Online
Financial information and decision making. 2016. [Online]. Available through:
<http://businesscasestudies.co.uk/business-theory/strategy/financial-information-and-
decision-making.html#axzz33eh4nB00>. [Accessed on 31st August, 2016].
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