RTO PROVIDER CODE: 91151 CRICOS CODE: 02668F

Course: BSB50120 Diploma of Business (Operations)

Unit Code and Name: BSBFIN501 Manage budgets and financial plans
Trainer/Assessor : TBA
Assessment No: 3-Group Work (Role Play/ Presentation)
Due date: Week 6 (Extension upon trainer’s approval only)

Context and Purpose of the assessment:

This assessment will assess your skills and knowledge in the area of identifying
strategic change needs in relation to ‘BSBFIN501 Manage budgets and financial
plans’ unit of competence. The following table maps the assessment activity against
elements and performance criteria of the Unit:

Questions Performance criteria

Case study 1(A), 1.1, 1.2, 1.3, 1.4 2.1, 2.2, 3.1,3.2
(B)

Case study II 2.3, 2.4, 3.3, 3.4, 4.1, 4.2.

 The assessment tasks for the unit assume that you will work in the Financial and
management accounting departments. Questions used in this assessment reflect
a understanding of budgets, estimations, forecasting techniques, required for
budgeting. The student must have access to a Computer, Printer and Microsoft
Office Suite Applications (2003 or 2007) for doing the assessment for this unit.

 Attempt all the questions. If you are not sure about any aspect of this
assessment, please ask for clarification from your assessor. If the assessment is
not satisfactory, the trainer will allow one more attempt to the assessment item.

 The responses to assessment questions should be in your own words and

examples from workplace should be used wherever possible.

 This assessment is a group work (maximum 3 students per group is permitted)

 Each member must submit their work with separate cover pageand PowerPoint
slides.

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Case study 1:

(A) Oracle and company is to commence business as a retail store, specializing in

wooden furniture, on 1st April. The store is operated by its owners, Mary and Simon
Oracle supported by casual staff.
The Sales budget for Oracle and company for April to July shows:

April 51,600
May 45,600
June 49,200
July 46,800

Oracle and company has a mark-up of 100% on cost. Management has a policy that
beginning inventory is to be 120% of cost of sales for each month.
You are required to prepare the purchases budget and the Cost of goods sold
budget for three months ending 30 June for Oracle & Co (Excel sheet)

(B) Expense details for Oracle and company are listed below. This information will be
used to illustrate the marketing expenses budget, the administration expenses budget
and the financial expenses budget for the three months ending 30 June. You are
required to prepare expense budget (Use Microsoft Excel) for the quarter.

Casual salesperson’s wages $28,800 pa apportioned equally each month

Sales commissions 5% of sales
Advertising 2% of sales
Stationery $720 pa apportioned equally each month
Telephone $1,440 pa apportioned equally each month
Superannuation 9% of total payroll
Worker’s compensation insurance 8% of total payroll
Rent $25,920 pa apportioned equally each month
Accountancy fees $2,160 pa apportioned equally each month.
Depreciation (straight line method)
Motor vehicle 20% pa on cost of $54,000
Shop fittings 15% pa on cost of $36,000
Office furniture & equipment 15% pa on cost of $19,200
_____________________________________________________________
Interest on loan
April $720
May $704
June $688
Bank charges $576 pa apportioned equally each month.

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Case study II:

Davis Service Group is a large public limited company employing around 17,000
people. Its shares are quoted on the London Stock Exchange. Davis operates across 15
countries and has sales turnover of over £1 billion. To meet its needs, the company has
developed a robust and detailed budgeting and planning process involving its
managers. Budgeting provides an essential forecasting, control and feedback system
on which effective management depends. This process translates competitive strategy
into reality. Budgeting involves making detailed financial plans for every aspect of the
business, identifying risks and ensuring that managers are committed to the outcomes
that they have agreed. Despite the severe recession of 2008-09, Davis continued to be
a profitable company. This has been the result of careful budgeting. Davis uses budgets
to plan the future use of its resources, either in the short or long term.

This case study shows how the development and use of budgets contribute to Davis
Service Group meeting its objectives.

Davis Service Group is careful to set budgets in consultation and not to impose them on
the different parts of the business. In this way, managers at all levels feel involved in the
process and are more likely to feel motivated to achieve the targets in their budgets.
Managers use sensitivity analysis to review different scenarios. They ask questions and
consider the impacts of various alternatives (the “what-ifs”). For example:

The economic outlook - What is the overall economic trend for the UK and Europe? For
example, increased redundancies during a recession would mean less demand for work
wear. A sharp rise in the value of the euro against the British pound would make
earning from Davis” European business more valuable to the company

Competition - What is the likely strategy of key competitors? Is there a risk of any new
entrant to the market or an existing competitor leaving the market?

Customers - How are customer needs likely to change? Will demand from the hospital
sector grow more than that from hotels and restaurants?

Staff - Is the company recruiting sufficient staff? Are salaries high enough to keep vital
knowledge and experience within the Group or does Davis need to recruit additional
expertise?

Suppliers What is happening in supplier markets? For example, what will be the effect
of Far East imports on prices of work wear? What is the impact of increases or
reductions in utility prices (energy and water)? How will exchange rates affect costs?

Davis Service Group often constructs two or three possible scenarios so it can analyze
the effects of favorable and less favorable outcomes on the business. Managers are
responsible for their budget variances and would need to report on outcomes and

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propose action to their own manager. A key task of managers is to watch for variances
that are unexpected, either in their size or timing, and take action accordingly.
Managers generally focus their energy on these 'exceptions'. Adverse variances prompt
investigation into what has gone wrong. They may suggest:

 unrealistic budgeting; budget data may need to be revised or flexed

 a failure with part of the process (e.g. missed targets by sales force); this needs
immediate management attention
 a change in the external environment (e.g. a new competitor); this might require
a counter-attack with an increased marketing budget

Budgets use resources so they are closely linked with key performance indicators
(KPIs). KPIs help to evaluate the overall performance of the business. Davis Service
Group's KPIs include measurement of:

 organic revenue growth (i.e. sales growth excluding acquisitions)

 operational throughput (e.g. tonnage of linen processed)
 management retention rate (i.e. keeping experienced staff in the company)
 health and safety records (e.g. major incident injury rate)
 Environmental performance (e.g. water and energy consumption).

As with the budget, action is prompted through variance from the KPI. For example, if a
plant's environmental performance has worsened, does it require additional investment
in equipment? If health and safety incidents have increased, do employees need more
training?

You are required to make groups (not more than three in a group) read and analyze
the above case scenario, make a presentation with the help of power point slides
covering following questions:

Part A:

1. Why was Davis & Co. not affected by the recession of 2008-09? Give reasons
2. What kind of approach does the company adopt for preparing budgets? Explain
3. Mention the different assumptions / criteria considered by the managers while
forecasting the budget estimates?
4. Which are the two different scenarios which indicate that the company prepares
flexible budgets based on different assumptions?

Part B:

1. What do adverse variances indicate to the management? Cite examples

2. Who is responsible for budget variances and how are the unfavorable variances
investigated and the corrective actions taken?

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3. What do you understand by KPI’s? How does Davis Service Group set KPI’s for
measuring budget performances? Illustrate.

Part C:

Consider your work in finance team and you have been requested to present a brief
report to management committee on role of budgeting (use points from Part A and B)
and its importance on the business performance to Davis Service Group (each group
member must share the presentation work).

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