FNSACC412 - Operational Budgets: Assessment and Variance Analysis

This assignment solution for FNSACC412, Prepare Operational Budgets, addresses various aspects of financial planning and analysis. It begins with a written section explaining the importance of budgeting, the stages of strategic planning, and different types of forecast budgets like operating, cash flow, and profit and loss budgets. The assignment then delves into a practical exercise where the student, acting as an Accounts Assistant for Stone News, prepares annual and semi-annual profit and loss budgets based on provided financial data. The solution includes the preparation of a variance analysis comparing budgeted and actual profit and loss statements, as well as a revised profit and loss budget reflecting changes in costs. The final section touches upon the significance of cash flow management in a small business context, demonstrating a comprehensive understanding of budgeting principles and their application in a real-world scenario.

FNSACC412 Final Assessment © Copyright 2018 Applied Education
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FNSACC412 Prepare Operational Budgets
Name of Participant: Click here to enter text. Date: Select Date
Element of Competency
1. Prepare budget
2. Set budget timeframe
3. Document budget
Assessment Conditions
Assessment must be conducted in a safe environment where evidence gathered
demonstrates consistent performance of typical activities experienced in the accounting
field of work and include access to:
 A range of common office equipment, technology, software and consumables
Requirements:
 Prepare Operational Budgets User Guide
 Microsoft Excel and Word
 Stone News Budgets Excel template
 USB Stick to copy your files onto for a backup

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PART A: Written (Question and Answer)
(a) Explain the importance of budgeting to the ongoing success of a company/business.
Budgeting is especially significant for entrepreneurs, who frequently work on a shoestring spending
plan. Being even a smidgen off on cost projections or profit can devastatingly affect a little activity.
To guarantee that the budgeting is done precisely, it might be advantageous to procure an in-house or
outside bookkeeper, or a business supervisor who has skill in business fund. This individual can help
set up a bookkeeping framework, track consumptions and produce reports that help entrepreneurs
settle on determined and educated choices about business activities. Therefore from the overall
analysis it can be said that the budgeting helps in taking the strategic business decisions, provides the
company a vision on which the company must reach and it also helps in enhancing the growth of the
firm. These existing firms have the dual advantage in preparation of the budgets in comparison to the
new companies.
(b) List the four (4) stages of the strategic planning cycle and outline how each
stage affects the budgeting operations of a company.

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1. Plan- A operational plan is an practical plan and document that outlines main
activites and other targets for the organisation for a period of time. It avails
framework to regulate the day to day operations. This undertakes to track the
expenditure and estimate the sales accordingly to meet the targets and the
financial commitments. A plan is an basis on which it will help the organisaition
to use the resources properly. A budget will include control measures for
finance, ensuring the fund the current commitments, enabling more confident
decisions based on financial statements and meeting the objectives. The three
main drivers for the businesses are costs, sales, and the working capital. The
company is planning to allocate the cost as per the ABC costing system. What
are the essentials included in annual reports are reported below-
2. Changes in the market, customers and the elvel of competition
3. Operational changes
4. Details of investment to be made in future years
5. Align- This is done by the corporate organizations in order to understand
whether the strategy that has been formulated by the preparatory of the budget is
in alignment with the goals and the vision of the company and will it suit the
company or not. The budgets are not adopted automatically rather an in-depth
analysis is required which is fulfilled with the help of the strategy formulation
stage. From that point, the companies can start organizing your goals and detail
singular systems to address every one. This is additionally a significant time to
recognize what inner assets or potentially subsidizing you may have available to
you, just as what assets you may need to spending plan. Aligning means the
implementing the cost and expenditures to re-establish the long term planning. It
includes new financial year`s budget that will include balance sheet and profit
and loss account.

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6. Execution- The most significant piece of actualizing a system clearly defines the
objective and the purpose of the budgets and why they are being required by the
organization. The whole organization ought to be locked in and made mindful
of the organization's long haul vision. Every corporate organization watches on
the fact, how their operational activities affect the process of the budgeting in
the organization. The strategy implementation is the stage where the budgets are
implemented in the organization and made available to each department, so that
they can function accordingly.
7. Review- Under the scenario of the strategy evaluation the budgets are being
evaluated in the basis of the performance analysis or the variance analysis. At
this stage the company compares the data of the firm with the budgeted figures
to figure out where the organization is standing with respect to the destination it
had to reach. The variance analysis clearly indicates whether the sales have been
increased or not or whether the expenses took a toll on the organization or not.
(c) Briefly describe three (3) common forecast budgets used by businesses

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1. Operating Budget- A operating budget comprises of expenses and revenues for
an period of time through which a company plans the operations. It is prepared
in advance as a plan that a business will have to achieve.
2. Cash Flow Budget- It is an estmation of cash outflows and inflows for the
business. The budget has been used to access whether the organisaiton will have
significant impact on identifying the sufficient cash so that business can operate.
3. Profit and loss budget- A P&L budget is an appropriate accounting tool which
has been used to estimate future income, revenues, and expenses. It is made to
measure the profitability. It uses the future transaction of the P&L budget to
think of the income estimates. It is planned and based on historical records for
the past income statements.
(d) Explain what is meant by the term ‘Milestone Analysis’
Milestone Trend-Analysis also known as (MTA) is a best and clear instrument for the
supervision of the undertaking progress. An essential for the work of MTA is a
reasonable calendar plan, the meaning of a proper number of significant achievements
just as the customary lead of an undertaking meeting, where the timetable
understandings and with it the genuine preparing condition of the work bundles is
inspected.
(e) Select which budget items would be included in the following budgets :
Cash
Budget
P&L
Budget
Balance
Sheet
Cash Sales
Credit Sales

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Office Rent
Depreciation
Asset Purchases

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Part B: Practical Exercises/Evidence
 Assessment Details
You have been appointed as the Accounts Assistant for Stone News, a small family owned
newsagency located in a small suburban shopping precinct. Part of your responsibility is the
creation and analysis of various financial budgets. Your Assessor will act as the business
owner, Jan Stone, for the purpose of this assessment.
An extract from the Policies and Procedures of Stone News is printed below.
Stone News - Accounting Policies and Procedures (Extract)
1 Accounting System
The business keeps an Accrual set of books and is registered for GST, paid quarterly.
2 Budgets and Forecasts Policy
Budgets are produced each year by the Accounts Assistant in December for the following
year, and submitted to the business owner, Jan Stone, for review.
An annual Profit & Loss budget should be prepared for the calendar year (January to
December). The budget should then be split into 6-monthly budgets as follows
- January to June, and
- July to December
The budget should include forecasts of revenue and expenses. Expenses should be
allocated evenly throughout the year.
The budget should be compared to actual results at the end of June, and if the variance is
greater than 10%, the July to December budget should be revised accordingly.
Variance percentage is calculated as follows:
Actual Amount - Budgeted
Amount x 100
Budget Amount
If the business owner or Accounts Assistant becomes aware of any significant changes to
expenses throughout the year, the budget should be revised for the remainder of the year. A
significant change is defined as a 10% increase or decrease in expenses.
All budgets should be prepared using the Stone News Budgets template in Excel.

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Task 1
Jan Stone has provided you with the following forecast information for Stone News for 20xx:
Income
January $ 35,000
February $ 34,000
March $ 33,500
April $ 34,500
May $ 29,000
June $ 26,000
July $ 27,000
August $ 28,000
September $ 32,000
October $ 33,000
November $ 34,000
December $ 34,000
Cost of Sales $100,000
Expenses
Sales Staff $ 75,000
Office Staff $ 20,000
Shop Rent $ 80,000
Phone & Internet $ 6,000
Advertising $ 4,000
Insurance $ 5,000
Sundry $ 10,000
Additional Information
Income tax rate is 30%
Amounts are exclusive of GST
Using the above information, you are required to prepare the following budgets:
a) Annual Profit & Loss budget for 20xx.
b) Profit & Loss budgets for January to June, and July to December.
c) According to the organisation’s policy document, when are these budgets required to
be prepared?
These biudgets are required to be prepared either before the start of the financial year or
in the middle of the financial year. If the organozation prepares the budget at the start of
the financial year than the company is aware of the where it wants to reach.
The financial statements are prepared at the end of the year but thr budgets can be
prepared on the quarterly, half yearly or the year;y basis as this would help the
organization understand the tarnsactions at the deeper level.
d) According to the organisation’s policy document when how often should the budgets
be monitored and updated, if required?

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The budgets shall be monitored on the quarterly basis. The period of the three months
is the sufficient period to decide the future growth of the firm. Also the budget wouls
help in deterimng the variance if any have occurred or any addition of the trnasacitons
that have been encountered in the period of the three months. The qusrterly report will
be easy for th company and they will have ample time to improve themselves before the
formation of the yearly report that is required to be distributed to the shareholders.

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Task 2
You have prepared the Profit & Loss report (actual) for Stone News for the six months to June
20xx as follows:
Actual Profit and Loss Statement
January to June 20xx
$ $
Income:
Sales 192,000
Less Cost of Sales 52,500 139,500
Less Expenses:
Sales Staff 37,000
Office Staff 10,000
Shop Rent 40,000
Phone & Internet 2,800
Advertising 2,000
Insurance 2,500
Sundry 5,200 99,500
Net Profit before Tax $ 40,000
Tax @ 30% 12,000
Net Profit after Tax $ 28,000

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You are required to:
a) Complete a variance analysis comparing the January to June budget to the actual P&L
and calculate the variance percentage.
You have also been advised by your supplier that inventory (cost of sales) costs will be
increasing by 20% from 1 July 20xx.
b) According to the organisation’s policy document are you required to revise the P&L
budget for the remainder of the year? Explain the reasons for your answer.
The revised profit and loss statement has been prepared as the cost of the saled from the
month of the July have increased by 20%. The profit have been changed from the past
results and therefore the profit and loss has been changed eventually.
c) Prepare a revised P&L budget for July to December 20xx.

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Task 3
Jan has heard that cash flow management is important to the success of a small business.
She has asked you to provide her with some information on whether the budget process might
be able to help the business maintain an effective cash flow. You are required to:
(a) Explain to Jan the role the budgeting process plays in the effective management of
the business, and outline the benefits of budgeting.
Budgeting is a noteworthy zone of the board bookkeeping and gets a great deal of enthusiasm from
specialists who primarily focus their examinations on the structure of spending plans and the way
toward setting spending plans. Concerning the utilization by and by, a study of ranking directors in 219
traded on an open market firms demonstrated that "75 present idea of the budgetary procedure as an
administrative as opposed to a bookkeeping capacity". Be that as it may, the impacts of spending
plans and spending forms on administrative execution and exertion are as yet not clear.
Benefits of the budgeting
Budgeting process has the sound level of the administration to learn about the issues identifying with
the convenient usage. It creates a feeling of alertness amongst the organizations and eventually deals
with the strategic decision making.
It controls the administration identifying with the arranging and detailing of strategies.
Planning and the budgeting process give methods for controlling salary and use of a business. It gives
an arrangement for spending.
It characterizes the targets of an association in numerical terms for a particular period.
At times the budgets are utilized to assess the strategies and objectives of an association. In addition,
such approaches and objectives are tried with the assistance of budgetary control.
It includes the administration at all dimensions to take part in the objectives setting and also helps and
assist in coordinating both capital and income assets in a productive manner.
It causes the administration to comprehend and co-ordinate different utilitarian exercises.