Budget Monitoring and Variance Analysis Report for Finance Module

This report provides a comprehensive analysis of a company's financial performance, focusing on budget variances and financial management strategies. The report includes variance reports, debtor analysis, and identifies key issues such as rising costs, inconsistent cash balances, and issues with debtor settlements. It highlights variances between actual and budgeted estimates, indicating underperformance in planning. The analysis delves into the company's credit policies, revealing increased credit sales and extended collection periods, which could impact liquidity. The report also examines various budget areas including cost, sales, and cash management, identifying specific issues and offering recommendations for improvement, such as enhancing cost control, improving financial management practices, and addressing debtor management and cash flow concerns. The report also includes a role-play scenario demonstrating communication of findings and recommendations to a CEO, emphasizing the need for proactive measures to address financial challenges and improve overall business 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
No table of contents entries found.

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Task 2
Variance Report of the Company
Figure 1: (Table showing Computation of Variances)
Source: (Created by the Author)

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The above table effectively shows the variances which can be identified between
the actual estimates and budgeted estimates. This is a sign of underperformance of the
business in terms of planning process of the business. The variance report is
considered as the same assists the management to take major decisions regarding the
operations of the business and thereby implement strategies which can help in making
improvements in the performance. The variance analysis is one of the most important
tool which is available to the management for the purpose of exercising control over the
operations of the business. This technique appropriately identifies the problems which is
present in the planning process or implementation process of plans of the business. The
analysis is done for the revenue and expenses which is related with the business. This
process is undertaken by the business as the same has a direct impact on the profits
which is generated by the business.
Revenue Collected from Debtors
Figure 2: (Table showing Debtor Analysis)
Source: (Created by the Author)
The analysis of the debtors reveals that the management of Houzit ltd likes to
offer credit period to the debtors so that the business is able to enhance the sales of the
business. The analysis further reveals that the management of the company has made
changes to its financial management policies which is clear from the change in

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collection period of the business. The above table shows that the debtor balance for the
period of 2011/12 is shown to have increased significantly which signifies that the
business has increased credit sales. The collection period for the debtors has also
increased from 2009 estimates which shows that the management is trying to boast the
sales and thereby also enhance the profitability of the business. The management of
Houzit is trying to make amendments in the financial management practices so that the
business is able to enhance the sales of the business.
The increase in the debtor’s collection period can be a matter of concern for the
management as the same will affect the liquidity position and also the efficiency of the
operations of the business. The senior officials of the business need to take steps for
reducing the time period so that the business is able to collect in a quicker manner and
thereby also maintain the overall liquidity position of the business. This would also
improve the overall efficiency of the business.
Issues Identified
The different types of budgets are formulated by the management of the company
so that the business is able to keep a track on all the performance areas of the
business. The budgets are also prepared for the purpose of effective planning of the
activities oof the business and keeping a control over the finances of the business. The
budgets which are main areas of focus for the business involves cost, sales, labour and
material budgets and the same are closely related to productions of the entity. However,
certain issues have been identified in the budgets which needs to be considered by the
management and appropriate steps needs to be taken so that such issues are resolved

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as soon as possible. The following issues are identified during the budget analysis of
the budget:
 It is found from the budget that, there is a percent of increase in the overall cost
incurred by the business. It can be seen from the budget that, there is an
increase in the sale of the business which might be the primary reason for the
rise in the costs of the business. It is to be noted that the same has a direct
impact on the profitability of the business and also hamper the growth
opportunities of the business.
 The discounting amounts are recorded and is shown as net in the invoices. The
amount recorded in the discounting amount does not provide an accurate view
for the business.
 Issues related to cash balance is also identified in the budget (Huang et al.,
2018). It can be seen that, the cash recorded in the budget is inconsistent for the
cash balance at the cash drawers of the business.
 Issues related to debtor’s balance is also identified in the budget. It is found that,
the settlements for debtor’s balance has not been done on a regular basis. The
figure does not show a correct view.
Variance Analysis
Variance Analysis is used to maintain & control the business. It is the difference
of actual and planned results of the business budget. It is a type of quantitative
investigation of the business results (Hallak et al., 2016). From the variance analysis of
the business, it can be seen that, the management of the company has not been able to
meet the target as per the budget allocated. The actual sales performance of the

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business is not favourable with the budget estimated. Therefore, the results are
unfavourable in nature. The gross profit margin and net profit margin of the result were
also according to the budget estimated. The costs of the business are slightly higher
than what was anticipated by the management and this causes certain variances as the
same is clear from the tables represented above.
Recommendations
The following recommendations can be suggested for proper management of the
budget. The management of the company needs to implement these suggestions:
 The management of the company should improve the cost associated with the
business in order to reach towards the estimated targets in the business (Barr et
al., 2018). The costs of the business are closely associated with the profits of the
business and any hike in the costs would lower the profits.
 The management should also make certain improvements in their financial
management practices implemented in the business. This includes
improvements in budgeting and financial control over the business operations.
The financial management strategies which the business is intending to
implement needs to be set appropriately so that maximum results is available for
the business.
Financial Management Strategy Issues
The financial management strategies which can be identified have some flaws
which needs to be resolved for the sake of efficiency and effective management of
financial resources of the business. The debtor management strategy needs to be

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improved as the collection period is too high in terms of number of days. The overall
efficiency of the business needs to be improved so that the resources of the business
can be managed in an effective manner. The discounting policy of the business is also
irregular which affects the revenue and the discounts are also not properly recorded
which provides scope for frauds.
The cash management strategy of the business is also not appropriate which
affects the liquidity position of the business. Therefore, the management of the
company needs to formulate proper strategies so that the cash position of the business
can be maintained effectively.
Role Play
You: Good Morning Sir, May I come in?
CEO: Good Morning, yes come in please.
You: I have brought you the report which you asked yesterday along with the variance
analysis results for the planning budgeted which we had initially prepared.
CEO: Yes thank you, I would like to know an overview of the analysis from the
variances report.
You: Yes sir, well as per the analysis, it is revealed that we have not achieved the
targeted sales and thereby also not achieved the targeted profits which we had initially
planned. Some of the major costs for the business is also very high considering our
expectations.
CEO: That’s unfortunate. What do you think is the reason for such variances
considering our plan was good?

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You: I would be saying that the costs were high which impacted the profits but we were
not able to achieve the desired level of sales which also impacted the profits of the
business.
CEO: Ok then, we need to take proper steps for ensuring that such a situation does not
arises in future period.
Reference
Barr, M. J., & McClellan, G. S. (2018). Budgets and financial management in higher
education. John Wiley & Sons.
Hallak, A., Tamar, A., Munos, R., & Mannor, S. (2016, February). Generalized emphatic
temporal difference learning: Bias-variance analysis. In Thirtieth AAAI
Conference on Artificial Intelligence.
Huang, R., & Ritter, J. R. (2018). Corporate cash shortfalls and financing decisions.
Available at SSRN 2589096.
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.