Financial Management Assignment: Flexible Budgeting and Variance

This financial management assignment analyzes the financial viability of an Oxfam food program, involving flexible budgeting for varying levels of beneficiaries. The solution presents calculations for a base scenario and a 25% increase in beneficiaries, highlighting the project's financial losses. It explores the impact of different month lengths (30 and 31 days) on the deficit. Further analysis includes a trial-and-error approach to determine the minimum number of feeds required to avoid losses. The assignment also covers a case study of a medical consultation business, comparing different fee structures and calculating the optimal pricing strategy to maximize profit. A flexible budget variance analysis is performed, identifying variances between budgeted and actual performance, and explaining the reasons behind these differences, focusing on revenue and cost variations. The solution emphasizes the importance of identifying variances for effective financial planning and cost control.

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Financial management

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Table of Contents
Question 1........................................................................................................................................3
a)..................................................................................................................................................3
b)..................................................................................................................................................3
c)..................................................................................................................................................4
Question 2........................................................................................................................................5
a)..................................................................................................................................................5
b)..................................................................................................................................................7
c)..................................................................................................................................................7
d)..................................................................................................................................................8
References........................................................................................................................................9

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Question 1
a)
Particulars Original level 25% increase
No of days in a month 30 30
People fed per day 16000 20000
Total people 480000 600000
Receipt from government 3120000 3900000
Receipt from foundation 100000 100000
Total Receipt 3220000 4000000
Expenses:
Direct cost of food 2880000 3600000
Salary to Director of operations 5000 5000
Salary to security guard 3500 3500
Salary to truck supervisor 3000 3000
Salary of chief executive 8000 8000
Cost for health and insurance benefits 4875 4875
Truck charges 4800000 6000000
Total expenses 7704375 9624375
Net profit/(loss) -4484375 -5624375
The calculations have been carried in the table for the making of the flexible budget and in that
the existing level and an increased proposal is considered. It can be seen that the loss is being
made in both the cases and so it can be said that the project will not be financially viable and
shall not be undertaken. With the increase in the number of feed, the deficit in the accounts is
also increasing and so it not a profitable measure to carry with the project. There is a change in
the amount of the deficit due to the variation in the variable costs and revenues which are
associated with that. The trucks which will be required will be more now and that will be
increasing the charges that are paid to them.
b)
Particulars Original 25% increase

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level
No of days in a month 31 31
People fed per day 16000 20000
Total people 496000 620000
Receipt from government 3224000 4030000
Receipt from foundation 100000 100000
Total Receipt 3324000 4130000
Expenses:
Direct cost of food 2976000 3720000
Salary to Director of operations 5000 5000
Salary to security guard 3500 3500
Salary to truck supervisor 3000 3000
Salary of chief executive 8000 8000
Cost for health and insurance benefits 4875 4875
Truck charges 4960000 6200000
Total expenses 7960375 9944375
Net profit/(loss) -4636375 -5814375
In the months with 31 days, there is an increase in the deficit which was already faced. This is
due to the increase in the number which will be involved and to whom the feed will be provided.
By that, the income from the foundation will remain the same but the expenses which are semi-
variable in relation to the truck charges will be affected and they are increasing. With the rise in
the cost, there is a corresponding increase in the loss that is made.
c)
The budget is being formulated in which all the aspects are taken into consideration but the loss
is being measured. There is no method which is prescribed by which the loss can be reduced and
it can be made beneficial. The other factors which will also be involved in the process have not
been considered and the amount of all the expenses is included by which the overall expenses are
increasing. There are various reductions which have been faced in relation to the amount which
is received from the foundation and also the charges which are being paid by the government on
every feed. By this there is more loss which will be faced or the total number of feeds will have
to be reduced (Jones, Moura and Domingos, 2014). The calculations are to be made for the
determination of people who can be fed. There is a negative contribution as the amount which is

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earned is less than that of the expenses which are made on a variable basis. Due to that trial and
error approach is being followed and the results are obtained by that which are presented below;
Particulars Original level Option
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Option 2 Option 3
No of days in the month 30 30 30 30
People fed per day 16000 500 200 160
Total people 480000 15000 6000 4800
Receipt from government 2640000 82500 33000 26400
Receipt from foundation 75000 75000 75000 75000
Total Receipt 2715000 157500 108000 101400
Expenses:
Direct cost of food 2880000 90000 36000 28800
Salary to Director of operations 5000 5000 5000 5000
Salary to security guard 3500 3500 3500 3500
Salary to truck supervisor 3000 3000 3000 3000
Salary of chief executive 8000 8000 8000 8000
Cost for health and insurance benefits 4875 4875 4875 4875
Truck charges 4800000 150000 60000 48000
Total expenses 7704375 264375 120375 101175
Net profit/(loss) -4989375 -106875 -12375 225
It can be noted that at all the levels there is the loss which is made and so in order to cover all the
costs in an effective manner without making any loss there will be 160 feeds which will be
provided per day. At this level, no loss will be made.
Question 2
a)
Existing plan
Particulars Child Adult Family Total
Ratio 50% 20% 30%
Number of
consultations
11000 4400 6600 22000
Consultation Fees 5 8 12
Variable cost 3 4 10
Contribution per patient 2 4 2

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Total contribution 22000 17600 13200 52800
Salary 40000
Rent 10000
Cleaning charges 5000
General maintenance 10000
Total fixed cost 65000
Profit/(loss) -12200
Option 1
Particulars Child Adult Family Total
Ratio 50% 20% 30%
Number of consultations 10000 4000 6000 20000
Consultation Fees 6 10 14
Variable cost 3 4 10
Contribution per patient 3 6 4
Total contribution 30000 24000 24000 78000
Salary 40000
Rent 10000
Cleaning charges 5000
General maintenance 10000
Total fixed cost 65000
Profit/(loss) 13000
Option 2
Particulars Child Adult Family Total
Ratio 50% 20% 30%
Number of consultations 9000 3600 5400 18000
Consultation Fees 7 12 15
Variable cost 3 4 10
Contribution per patient 4 8 5
Total contribution 36000 28800 27000 91800
Salary 40000
Rent 10000
Cleaning charges 5000
General maintenance 10000
Total fixed cost 65000
Profit/(loss) 26800

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b)
The fees that have been provided in option 2 will be selected as that is the one by which there is
maximum profit which is being made. The business will be making the most benefits by this
option and so this is recommended.
c)
Particulars Budgeted
rate
Flexible budget Actual Variance F/UF
Number of consultation 15000 15000
Revenue
Child (10%) 7 52500 10500 42000 UF
Adult (30%) 12 36000 54000 -18000 F
Family (60%) 15 67500 135000 -67500 F
Total Revenue 156000 199500 -43500 F
Variable cost:
Child 3 22500 4500 18000 F
Adult 4 12000 18000 -6000 UF
Family 10 45000 90000 -45000 UF
Total variable cost 79500 112500 -33000 UF
Other costs
Salary 40000 50000 -10000 UF
Cleaning 5000 8000 -3000 UF
Maintenance 10000 15000 -5000 UF
Rent 10000 12000 -2000 UF
Total cost 144500 197500 -53000 UF
Profit 11500 2000 9500 UF
The calculations show that there are various variances which are present among the budget and
the actual performance. The main reason for the occurrence of the variation is the change in the
ratio of consultations. The breakup which was considered in the budget was different from the
one considered in actual calculations and the same resulted in variance.
d)
Variances are required to be identified so that all the areas in which changes are to be made can
be identified. It can be noted that there is a variance in all the categories whether they are

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revenue or cost (Pilleboue et al., 2015). The revenue has increased by 43500 and that is the good
factor for the business as earning is rising. With that, the total cost is also increasing by 53000
and that is not in the interest of the business. There will be need to make the proper plan in which
the limit for all the expenses is set and the operations shall be perfumed accordingly. The amount
spent on maintenance is rising rapidly and so there will be need to establish a check on this so
that irrelevant expenses can be eliminated and the same will also be performed with other
expenses.

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References
Jones, H., Moura, F. and Domingos, T. (2014) Transport infrastructure project evaluation using
cost-benefit analysis. Procedia-Social and Behavioral Sciences, 111, pp.400-409.
Pilleboue, A., Singh, G., Coeurjolly, D., Kazhdan, M. and Ostromoukhov, V. (2015) Variance
analysis for Monte Carlo integration. ACM Transactions on Graphics (TOG), 34(4), p.124.