BSBFIM601: Houzit Pty Ltd Finance Role Play - Performance Review

This assignment details a finance role play scenario involving a meeting between a finance professional and the CEO of Houzit Pty Ltd. The student, in the role of the finance professional, analyzes the company's financial performance, focusing on variances from the budget, particularly in sales, discounts, and operational costs. The analysis reveals issues such as unfavorable sales variances due to high discounts, rising interest rates, and increased raw material costs. The student also identifies areas for improvement in internal controls, including audit trails, regular reconciliation of financial records, and restricted access to financial data. Furthermore, the student suggests several measures to enhance financial viability, such as reducing credit periods, implementing performance-based incentives for wage payments, and utilizing MYOB accounting software. The student recommends training programs, scrutiny of business operations, and adherence to budgets to improve the company's financial performance and achieve its targets.

Houzit Pty Ltd

Me: Good Morning Mr Jim
CEO: Good Morning Mr Sam
Me: How are you doing? Hope you remember why we are here today.
CEO: I am absolutely fine. Yes of course I remember. Tell me regarding the updates and your
findings. Hope you are ready with all the data.
Me: yes I am. Let’s continue with the same
CEO: yes sure
Me: according to our last meeting you asked for variance report, issues and financial
performance of Houzit. Let’s move on to the variance report first.
CEO: Ok, please tell me about whatever you have found
Me: 1st thing I have identified that the budget for the 1st quarter based on which the
comparison has been carried out with the actual outcome. I have found that the current
management is carrying out the budgeting approach in correct manner except for some
expenses like luxury car tax expenses, interest expenses and bank charges. These can be
improved through efficient management of the resources and will help in efficient budget
preparation that will minimize the variance amount among the actual expenses and budgeted
expenses.
CEO: is the variance you are talking about are very big? What about other incomes and
expenses?
Me: well, though the variances I am talking about are quite significant, these can be improved
through proper management and efficient budget preparation. However, the biggest concern
is that instead of favourable sales variance the entity has unfavourable variance in net profit

and the major reason for the same is high rate of discount. For increasing the sales demand
the firm is offering high discount to its customers which is consuming all the profits. Another
concern is the feasibility of gross margin. Customer’s spending power will be lowered as the
entire nation is suffering from inflation and retail sector is most visible victim of the same. In
addition, to increase the sales discounts are offered at high rate that in turn minimize the
profits. Moreover, rising rate of interest will adversely impact the cash flows of the entity.
CEO: do you think the sales target is too high and for achieving the same the firm is taking
shelter of offering discounts to the customer?
Me: looking into the market trend, I do not think that the sales target was high rather it is our
inefficiency that we could not achieve the sales normally and has to offer high discounts for
achieving the same. Further, other reasons of loss in the business weer price of raw material
purchased by the entity also increased as the price went up owing to recession. Further, rising
rate of interest adversely impacted the cash flows. In addition, reason behind the
unfavourable store supplies variance was resource cost increase. Hence, all these factors led
to significant variance for budget as compared to actual.
CEO: tell me soothing about its performance apart from the variances
Me: Irrespective of increase in sales bottom line profit has been reduced owing to high
discounts that is offered by the entity is eating up the profits. Moreover, for the slow
economic growth payments made to the employees are considerably high as compared to the
11% industry average. Further, the firm had to spent higher amount towards advertising for
increasing the demand. However, despite of all these facts the entity was able to earn positive
earnings. Hence, though the entity was able to earn gross profit of 42%, it was lower than the
budgeted gross profit of 46%. Further, it could not earn any positive margin to provide return
to the shareholders and did not have adequate earning for paying off the interests due on

borrowings. If this continues for long very soon the company will reach to the stage of
insolvency.
CEO: what measures you suggest to enhance the internal control?
Me: The entity can use audit trail that will be able to trace transaction related items reported
by the firm. For maintaining internal control financial records shall be reconciled on regular
periodic basis that will bring down errors, frauds and misstatements, financial data shall be
accessible to authorised persons only and inventories must be physically verified to minimize
the fraud. Apart from that, dates and numbers for transaction shall be put properly to have
easy access.
CEO: from your presentation I can make out one thing that major concern area is the sales
department as it is affecting the bottom lines of performances. Do you have any say apart
from this regarding operational cost?
Me: operational costs have been managed properly by respective departments and hence, the
business was able to maintain the costs at appropriate level and meet the target set by the
management. However, owing to high discounts the business could not achieve the budgeted
rate of gross profit though it was achievable. In addition I have found that some of the
indirect expenses were more than the budget. However, these can be overlooked as I assume
that the forecasting was not appropriate and in next budget these gaps can be minimized. One
more thing I would like to highlight that projection of net profit in the budget is not consistent
with the entity’s actual performance. Therefore, we are also falling short of the targets as
compared to net profits of the business.

Me: these are the areas I was working on and come up with certain alternatives those the
management of the entity shall implement so that the situation can be improved in next
quarter.
CEO: what are other measures that you have identified from analysing and assure the rest
whether we are satisfied with the counter measures?
Me: I found that Houzit is offering large credit period which needs to be reduced to enhance
the liquidity position. It must keep track of the transaction in context of issuing invoice
through using the automated system for managing credit. In addition, the wage payment shall
be revised and instead they can introduce performance basis incentives. Further, for tracking
required data and processing the financial management efficiently it must implement MYOB
accounting software. Houzit shall analyse the performance taking into consideration both
previous and current budget that will enable it to understand the trends of expenses. In case it
plans to introduce any new product budget shall be revised until real figures are available in
context of sales and production. Apart from that, for working on any short term project,
budget shall be revised to meet short term goals.
CEO: any other measures you would like to suggest?
Me: 1st I would like to suggest that the management shall formulate proper program for
training that can help employees to achieve the required efficiency level and developing the
skill. Once, the same is done, sales team’s performance will automatically improve and in
turn will provide the higher productivity. I am also in the view that proper scrutiny must be
carried out in the business working. I would further like to suggest that you may introduce
scrutiny on monthly or weekly basis that will assure that it is maintaining proper track for the
targets. Moreover, management shall assure that the budget that the company is preparing are
followed appropriately which in turn will reduce the business costs. Hence, after

implementing these services I believe that the business will be able in meeting targets that has
been budgeted.
CEO: thank you Mr Sam. I believe the points and suggestions you have provided are valid
and will assist the business to achieve the targets. Kindly submit your report that you have
prepared, so that I can take necessary actions.