Budget Variance Report Analysis

This report analyzes a budget variance report for Big Red Bicycle Pty Ltd. for the year ended June 30th. The report details significant variances in revenue, cost of goods sold, and various expenses, resulting in a negative net profit variance. A key finding is the inconsistency in gross profit across quarters, with significant negative variances in three quarters and a positive variance in the third. The analysis identifies several internal issues contributing to the negative variances, including employee loyalty, material wastage, and the impact of communication styles on sales team morale. A contingency plan is proposed to address these issues, focusing on improved employee training and motivation, stricter adherence to company policies, increased employee involvement in decision-making, and sales commission adjustments. The plan also includes strategies to mitigate the impact of anticipated economic downturn and sales volume reduction, such as product diversification and exploring overseas manufacturing options. The overall goal is to improve profitability and meet company targets by addressing internal weaknesses and adapting to external market conditions.

MANAGE BUDGET AND FINANCIAL PLANS

TASK A
Budget variance report for the year ended 30th june:
PARTICULARS CURRENT
DATA
BUDGETED
DATA VARIANCES % OF
VARIANCE
REVENUE
Sales 2900000 3100000 -200000 -6.45%
TOTAL REVENUE 2900000 3100000 -200000 -6.45%
COST OF GOODS
SOLD 380000 400000 20000 5.00%
DIRECT EXPENSES :
COMMISSION 72500 77500 5000 6.45%
DIRECT WAGES 200000 200000 0 0.00%
GROSS PROFIT 2247500 2422500 -175000 -7.22%
EXPENSES
General &
Administrative
Expenses
Travel 22000 20000 -2000 -10.00%
Legal Fees 4500 5000 500 10.00%
Bank charges 700 600 -100 -16.67%
Office supplies 4000 5000 1000 20.00%
Postage & Printing 500 400 -100 -25.00%
Dues & Subscriptions 600 500 -100 -20.00%
Telephone [phone] -12.00%
Repairs & Maintenance 45000 50000 5000 10.00%
Payroll Tax 25000 25000 0 0.00%
Marketing Expenses
Advertising 208000 200000 -8000 -4.00%
Employment Expenses
Superannuation 45000 45000 0 0.00%
Wages & Salaries 500000 500000 0 0.00%
Staff Amentities 23000 20000 -3000 -15.00%
Occupancy Costs
Electricity 38000 40000 2000 5.00%
Insurance 100000 100000 0 0.00%
Rates 100000 100000 0 0.00%
Rent 200000 200000 0 0.00%
Water 35000 30000 -5000 -16.67%
Waste Removal 60000 50000 -10000 -20.00%

TOTAL EXPENSES 1422500 1401500 -21000 -1.50%
NET PROFIT
BEFORE INTEREST
AND TAX
825000 1021000 -196000 -19.20%
INCOME TAX (25%
OF NET INCOME) 206250 255250 49000 19.20%
NET PROFIT AFTER
TAX 618750 765750 -147000 -19.20%
ASSUMPTION : DIRECT WAGES AND COMMISSION HAVE BEEN TREATED AS DIRECT
EXPENSES AND ASSUMED TO BE NOT A PART OF COST OF GOODS SOLD.
NOTE : IT IS TO BE STATED HERE THAT REVENUES & INCOME VARIANCES ARE BEING
SHOWN AS A DEDUCTION OF BUDGETED DATA VALUE FROM ACTUAL DATA VALUE
AS THE CONCEPT OF VARIANCE STATES THAT IT WOULD BE A FAVOURABLE
CONDITION IF MORE REVENUE IS BEING MADE THAN WHAT WAS TARGETED AS PER
THE BUDGET. SIMILARILY,THE EXPENSES VARIANCES HAVE BEEN SHOWN AS A
DEDUCTION OF ACTUAL DATA VALUE FROM BUDGETED DATA VALUE AS IT WOULD
BE A FAVOURABLE CONDITION IF EXPENSES INCURRED IN ACTUALITY IS LESS THAN
WHAT WAS BUDGETED.
Budget variance report for the year ended 30th june (quarter wise)- provided in the excel file.

TASK B
CONTINGENCY PLAN & ITS IMPLEMENTATION.
Being the Senior Accountant of Big Red Bicycle Pty Ltd., as per the analysis of budget variance
report, the following conclusions have been drawn :
1. There is an irregularity in the company as the gross profit ratio is negative in three
quarters while it is positive in third quarter (Berman, Knight and Case, 2013).
2. The net profit variance is more than the half in the first quarter but shows a reduction of
31.88% which is still negative and suddenly shows a good % in third quarter, i.e.,52.92%
but drastically decreases in the fourth quarter shoeing a negative variance % of 49.84%.
Though the income and expenses cannot be accurately determined while preparing budgets,
however, it shows an approximate values and 10% fall or excess is acceptable. However, such
variations in net profit shows that the problem exists in the internal environment of the company
as positive results are being observed in the third quarter but high negative percentages in other
quarters along with the fact that variances in expenses are not more than 5% whether positive or
negative (Bragg, 2014).
After a clear analysis of the internal environment, following observations, that acts as the major
problems for such negative results, were made :
 The major problems lies with the employees working under the company. The employees
aren't loyal enough to their jobs leading to unnecessary idle time as well as distraction
from their commitment as done in the contract (Brigham and Ehrhardt, 2017).
 The employees responsible for looking after the basic raw materials & necessities just
overlooked the wastage of water, materials, electricity, etc.
 The sale team members were happy about the incentive programs and worked hard in the
third quarter. However, due to threatening tone of emails lose their morale and became
casual about their jobs and the results of such lost interest could be reflected well in the
fourth quarter when compared with the third quarter (Gitman and Zutter, 2012).
 The training orientations were useful to some but made no difference as such to the entire
personnel.
 The 50% of fixed direct wages were of the short term contracts employees where the
contracts have already expired & the employees no longer exists.
 The employees weren't really active and it may be because they didn't feel good about the
company's policies and therefore, felt being not a part of business decisions but just mere
workers who are to just follow the instructions of the top management.
The above stated problems are clearly related to the personnel of the company because of which
the company is facing such problems. Employees are the most important assets of the company
as without a proper team, no business can prosper. Therefore, a revised contingency plan and a

contingency implementation plan is required to be formulated. The contingency plan consists of
the activities/strategies to be adopted so as to minimize the risk and reduce the variations as well
as steps towards the targeted goals. The targets of the company could be well specified along
with the steps to be implemented so as to fulfill such targets :
 As the economic conditions are going to deteriorate, the sales volume are expected to fall
down by 20%. The company can accept a maximum of 10% variations in profits and
therefore, a quarterly variation report is to be made to analyze the expenses and income
and shortfall of profit variations over 10% so as to formulate required actions to be taken.
 The implementation of effective training & orientation classes so as to boost the
confidence and morale values of the employees and instill a feeling of dedication towards
their jobs. For this, certain incentives programs are to be established too so as to reward
the true efforts and motivate the other employees. Such training classes would be
mandatory for the entire personnel to attend as a new approach would be adopted to
conduct training processes (Garrison, Noreen and Brewer, 2012).
 Where the management will take such positive steps to encourage the staffing team, on
the same hand, it would also implement certain strict actions as stated below :
 It would make warning calls & emails to employees that they may not take their fixed
wages for granted and therefore, act resentful as and when they wish. Such behaviour
would lead to losing of the job at one shot.
 The employees are not going to be allowed overtime period as such policies makes them
casual and thereby, not completing the targets on time. Therefore, the company's ultimate
demand from employees is hard-work, loyalty & deduction towards the company's goals
as that would be benefitting them only later on (Hoyle, Schaefer and Doupnik, 2015).
 The management would also be asking for employees suggestions and observation
reports on a time-to-time basis so as to give them a feeling of belongingness and also,
what lower management faces is often overlooked unintentionally by the top
management (Ehrhardt and Brigham, 2011). Therefore, it would be a good practice to
analyze the issues and the internal environment as a whole.
 The company would be announcing an increment in commission from 2% to 2.5% so as
to encourage sale team members to make more sales in the market as already, the
company is expecting a downfall of 20% in its sales volume. Therefore, to control the
downfall, it has to encourage its sales members.
 To compensate for the poor performance of one product, the company is also targeting
towards diversifying its range of products so as to improve the performance of the
company. Also, the company is thinking of considering the manufacturing overseas so as
to take an advantage of reduced costs (Cafferky, 2014).
The key to success is the team members working behind to achieve such goals. Therfore, the
company, targeting towards success has to first start from itself, i.e.,its internal environment
whether it is effective in nature or not and then, jump onto the external markets. The variances in

profits could be well visualized from the budget reports and the market conditions, together calls
for an urgent requirement of a contingency plan to be implemented so as to save the company
from suffering such adverse effects and obligations in the future period of time. The company is
set to implement the above stated plans and is looking forward to improve its results and make
enough profits as per their set targets.

REFERENCES:
Berman, K., Knight, J. and Case, J. (2013). Financial intelligence. 1st ed. Boston, Mass.:
Harvard Business Review Press.
Bragg, S. (2014). Corporate cash management. 1st ed. Centennial: Accounting Tools.
Brigham, E. and Ehrhardt, M. (2017). Financial management. 1st ed. Boston, MA, USA:
Cengage Learning.
Cafferky, M. (2014). Breakeven analysis. 1st ed. New York: Business Expert Press
Ehrhardt, M. and Brigham, E. (2011). Financial management. 1st ed. Mason: South-Western
Cengage Learning.
Garrison, R., Noreen, E. and Brewer, P. (2012). Managerial accounting. 1st ed. New York,
N.Y.: McGraw-Hill/Irwin.
Gitman, L. and Zutter, C. (2012). Principles of managerial finance. 1st ed. England: Pearson
Education Limited.
Hoyle, J., Schaefer, T. and Doupnik, T. (2015). Advanced accounting. 1st ed. New York, NY:
McGraw-Hill Education.