BSB61015

BSBFIM601 Manage Finances

ASSESSMENT PACK

Student Name: NISHITA

Student ID:

Executive Summary
BSBFIM601 Manage Finances

Hardwood products is the producer of quality hard wood furniture and manufactures
two  different types of timber products dining tables and buffets and uses three raw
Materials, ash, Redwood and pine 2-packs.
The company has a strong finance and accounting focus and prepares various
budgets before the start of each financial year

Assessment 1

According to the balance sheet and profit & loss statement, the company’s financial situation
is listed as below:

Current ration 2.62

Quick ration 0.5
Debt ration 0.597
Debt-to-equity ratio 1.48
Cross margin 423800
Operating margin 6.71
Net margin 0.0855
ROA 0.462

Analysis:
 The current ratio is a liquidity ratio that measures a company's ability to pay short-
term obligations or those due within one year. It tells investors and analysts how a
company can maximize the current assets on its balance sheet to satisfy
its current debt and other payables. A higher current ratio is always more favourable
than a lower current ratio because it shows the company can more easily make
current debt payments.

 The quick ratio is designed to show investors and creditors how quickly a company
can pay off its short-term debt. It means that the company has o.5 times as many
quick assets as current liabilities. In other words, company could pay off all of his
current liabilities with 2 times of his quick assets.

 The accounts receivable turnover ratio is an efficiency ratio that measures how often
receivables are collected during a period. 

 The debt ratio is shown in decimal format because it calculates total liabilities as a
percentage of total assets. As with many solvency ratios, a lower ratio is more
favourable than a higher ratio. A lower debt ratio usually implies a more stable

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business with the potential of longevity because a company with lower ratio also has
lower overall debt. Each industry has its own benchmarks for debt, but 0.5 is
reasonable ratio.

Total liabilities
Debt Ratio=
Total Assets

 Each industry has different debt to equity ratio benchmarks, as some industries tend
to use more debt financing than others. A debt ratio of 1.48 means that there are half
as many liabilities than there is equity. In other words, the assets of the company are
funded 66% by investors to creditors. This means that investors own 66.6 cents of
every dollar of company assets while creditors only own 33.3 cents on the dollar.
Total liabilities
Debt ¿ Equity Ratio=
Total Equity

 The operating margin ratio, also known as the operating profit margin, is a profitability
ratio that measures what percentage of total revenues is made up by operating
income. In other words, the operating margin ratio demonstrates how much revenues
are left over after all the variable or operating costs have been paid. Conversely, this
ratio shows what proportion of revenues is available to cover non-operating costs like
interest expense.
Operating Income
Operation Margin Ration=
Net Sales

573800/85500=6.71

 The net profit margin ratio, also called net margin, is a profitability metric that
measures what percentage of each dollar earned by a business ends up as profit at
the end of the year. In other words, it shows how much net income a business makes
from each dollar of sales.
Net Profit
Net Profit Margin=
Total Revenue

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85500/1000000=0.0855

 The return on assets ratio, often called the return on total assets, is a profitability ratio
that measures the net income produced by total assets during a period by comparing
net income to the average total assets. In other words, the return on assets ratio or
ROA measures how efficiently a company can manage its assets to produce profits
during a period.
Net Income
Reture on Assets Ratio=
Average Total Assets

85500/185000=0.462

 The return on equity ratio or ROE is a profitability ratio that measures the ability of a
firm to generate profits from its shareholders investments in the company. In other
words, the return on equity ratio shows how much profit each dollar of common
stockholders’ equity generates.
Net Income
Return on Equity Ratio=
Shareholde r ' s Equity

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Assessment 2

Cost of production budget-Hardwood Products (for the quarter ending 30th September
2017)
July August September Total
Dinner $ $ $ $
Table
Raw Material Ash 39,000 40,500 51,000 130,500
Pine-2 2,340 2,430 3,060 7,830
pack
Direct Labour cost 18,720 21,330 25,160 65,210
Manufacturing Overhead 827.5 955 910.5 2,693
Total 60,887.5 65,215 80,130.5 206,233

Buffet
Raw Material Redwood 62,400 63,360 69,120 194,880
Pine-2 7,800 7,920 8,640 24,360
pack
Direct Labour cost 77,350 79,860 94,320 251,530
Manufacturing Overhead 827.50 955 910.5 2,693
Total 148,377.5 152,095 172,990.5 473,463
GRAND TOTAL 209.265 217,310 252,121 679,696

The total production cost for the quarter ending September 2017 is $679,696. This includes
raw material cost, direct labour cost and overheads utilized to produce dinning tables and
buffets.

The raw material cost is calculated based on the following cost:

Ash: $150/m
Redwood: $60/m
Pine 2-pack: $30/pack

Cost of Goods Sold (CoGS) Budget

Formula: beginning inventory + inventory purchases and expenses- ending inventory= cost
of sales, also known as cost of goods sold.

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CoGS= (Opening inventory of finished goods + Opening raw material inventory + Production
cost) – (Closing inventory of finished goods- Closing raw material inventory).

Cost of Goods Sold Budget- Hardwood Products (for the quarter ending 30th
September 2017)
Dining Table ($) Buffet ($) Total ($)
Opening inventory 30,000 72,000 102,000
of finished goods
+ opening raw 1,020 1,560 2,580
material inventory
+ Production cost 206,233 473,463 679,696
－Closing 59,160 112,224 171,384-
inventory of
finished goods
－Closing raw 1,980 2,580 4,560
material inventory
CoGS 176,113 432,219 608,332

The Opening and closing inventory of finished good are calculated based on the following:
Opening July inventory of finished goods will be:
Dining Table: 12 @$2500
Buffets: 60 @ $1200
Closing Sept inventory of finished goods is estimated to be:
Dining Tables: 24 @$2465
Buffets: 96 @ $1169

The opening and closing raw material inventory are calculated based on the following:
Opening July raw materials inventory will be:
Ash: 6m @ $150/m
Redwood: 24m @ $60/m
Pine 2-pack: 8 packs @ $30/pack

Estimated closing September raw materials inventory is expected to be:

Ash: 12 m @ $150/m
Redwood: 40m @ $60/m
Pine 2-pack: 12 packs @ $30/pack

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Assessment task3
The selling price is determined based on a mark-up of 40% over Cost of Goods Sold.

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Dining Table Buffet

CoGS ($) 176,113 432,219
Sales forecast 1st quarter 75 370
(units)
Cost/unit ($) 2,348 1,168
Selling price/unit after 40% 3,287 1,635
markup ($)

Sales budget for Hardwood Products from July to September 2017

July August September Total
Dining Table
Sale forecast 20 30 25 75
Unit Selling 3,287 3,287 3,287
Price ($)
Budgeted Sales 65,740 98,610 82,175 246,525
($)

Cash Budget for Hardwood products from July to September 2017

($) July August September Total
Beginning cash 121,000
Budgeted Sales 229,240 343,860 278,375 851,475
Sources of cash
Cash Sale 183,392 275,088 222,700 681,180
Credit Sale from 15,000 34,386 51,579 98,945
last month (14,700) (33,698) (50,547)
(Discount－2%)
Credit sale from 2 1,050 5,000 11,462 17,512
months prior
Total cash 199,142 313,786 284,709 797,637

Cash Budget is based on the following policies:

The Budgeted sale for May is 21,000; June is 100,000.
The Beginning cash in July is 121,000
+ cash sales 80% in month of sale
+ credit sales 15% with cash received in the month after sale
+ credit sales 5% with cash received in the second month after sale. Further, A 2%discount
is allowed to debtors paying in the month after sale to encourage them to pay promptly.

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Assessment Task 4
Sales budget for Hardwood Products from July to September 2017
July August September Total
Dining Table
Sale forecast 20 30 25 75
Unit Selling 3,287 3,287 3,287
Price ($)
Budgeted Sales 65,740 98,610 82,175 246,525
($)

Buffet

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Sales forecast 100 150 120 370

Unit Selling 1,635 1,635 1,635
Price ($)
Budgeted Sales 163,500 245,250 196,200 604,950
($)
GRAND TOTAL 229,240 343,860 278,375 851,475
($)

Cash Budget for Hardwood products from July to September 2017

($) July August September Total
Beginning cash 121,000
Budgeted Sales 229,240 343,860 278,375 851,475
Sources of cash
Cash Sale 183,392 275,088 222,700 681,180
Credit Sale from 15,000 34,386 51,579 98,945
last month (14,700) (33,698) (50,547)
(Discount－2%)
Credit sale from 2 1,050 5,000 11,462 17,512
months prior
Total cash 199,142 313,786 284,709 797,637

Cash Budget is based on the following policies:

The Budgeted sale for May is 21,000; June is 100,000.
The Beginning cash in July is 121,000
+ cash sales 80% in month of sale
+ credit sales 15% with cash received in the month after sale
+ credit sales 5% with cash received in the second month after sale. Further, A 2%discount
is allowed to debtors paying in the month after sale to encourage them to pay promptly.

Cost of Production Budget – Hardwood Products (for the quarter ending 30 th

September 2017)
July August September Total
Dinner $ $ $ $
Table
Raw Material Ash 39,000 40,500 51,000 130,500
Pine-2 2,340 2,430 3,060 7,830
pack
Direct Labour cost 18,720 21,330 25,160 65,210
Manufacturing Overhead 827.5 955 910.5 2,693
Total 60,887.5 65,215 80,130.5 206,233

Buffet

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Raw Material Redwood 62,400 63,360 69,120 194,880

Pine-2 7,800 7,920 8,640 24,360
pack
Direct Labour cost 77,350 79,860 94,320 251,530
Manufacturing Overhead 827.50 955 910.5 2,693
Total 148,377.5 152,095 172,990.5 473,463
GRAND TOTAL 209.265 217,310 252,121 679,696

The total production cost for the quarter ending September 2017 is $679,696. This includes
raw material cost, direct labour cost and overheads utilized to produce dinning tables and
buffets.

The raw material cost is calculated based on the following cost:

Ash: $150/m
Redwood: $60/m
Pine 2-pack: $30/pack

Cost of Goods Sold Budget- Hardwood Products (for the quarter ending 30th
September 2017)
Dining Table ($) Buffet ($) Total ($)
Opening inventory 30,000 72,000 102,000
of finished goods
+ opening raw 1,020 1,560 2,580
material inventory
+ Production cost 206,233 473,463 679,696
－Closing 59,160 112,224 171,384
inventory of
finished goods
－Closing raw 1,980 2,580 4,560
material inventory
CoGS 176,113 432,219 608,332

The Opening and closing inventory of finished goods are calculated based on the following:
Opening July inventory of finished goods will be:
Dining Table: 12 @$2500
Buffets: 60 @ $1200
Closing Sept inventory of finished goods is estimated to be:
Dining Tables: 24 @$2465
Buffets: 96 @ $1169

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The opening and closing raw material inventory are calculated based on the following:
Opening July raw materials inventory will be:
Ash: 6m @ $150/m
Redwood: 24m @ $60/m
Pine 2-pack: 8 packs @ $30/pack

Estimated closing September raw materials inventory is expected to be:

Ash: 12 m @ $150/m
Redwood: 40m @ $60/m
Pine 2-pack: 12 packs @ $30/pack

Operating Expenses Budget for Hardwood Products for the period of July-September
July August September Total
Fixed costs ($)
Selling
Depreciation on 330 330 330
sales truck
Telephone (Sales 120 120 120
dept.)
Salaries (Sales 2,500 2,500 2,500
dept.)
Administration
Depreciation on 150 150 150
office equip
Insurance (Office) 80 80 80
Salaries (Office) 2,500 2,500 2,500
Telephone 30 30 30
(Office)
Total 5,710 5,710 5,710 17,130

Variable Costs
($)
Selling
Advertising 100 120 125
Telephone 500 600 625
Wages 1000 1,200 1,250
Administration
telephone 325 390 406
Total 1,925 2,310 2406 6,641

Discounts
Budgeted Sales 229,240 343,860 278,375

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($)
Credit Sales from 15,000 34,386 51,579
previous month
Credit Sales from 1,050 5,000 11,462
2 months prior
2% (debtors 300 688 1,032
paying month
after the sale)
1% of bad debts 11 7 115
(of debtors paying
in the second
month after the
sale)
Total 311 695 1,147 2,153
GRAND TOTAL 7,946 8,715 9,263 25,924

The variable costs for August and September are calculated based on the assumption that:
The variable cost rises by 20% in August and 25% in September to July each year.

Discounts are calculated based on the assumption that a 2% discount is allowed to debtors
paying in the month after sale to encourage them to pay promptly. Of those debtors who pay
in the second month after sale, 1% has traditionally been bad debts.

Master Operating Budget-Hardwood (Financial year of July 2017-June 2018)

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Budgeted 851,475 936,623 953,652 987,711 3,729,461
Sales
Raw 357,570 386,176 410,070 450,436 1,611,252
material
costs
Direct 316,740 316,740 316,740 316,740 1,266,960
Labour
costs
Factory 5,386 6,463 7,756 9,307 28,912
overheads
Discounts 2,153 2,153 2,153 2,153 8,612

The Master Operating Budget for the WHOLE FINANCIAL YEAR -July 2017 to June 2018
based on the following assumptions:
 Sales are likely to increase by 10% in quarter 2, 12% in quarter 3 and 16% quarter 4

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(over quarter 1)
 Raw material costs are going to be increased by 8% across all raw materials each
quarter
 Direct labour costs will remain constant throughout the year
 Factory overheads are likely to increase by 20% each quarter
 Discount levels will remain constant throughout the year

Income Statement for Hardwood Products for the Financial Year of July 2017-June
2018
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Sales 851,475 936,623 953,652 987,711 3,729,461
-CoGS 608,332 669,165 681,332 705,665 2,664,494
Gross 243,143 267,458 272,320 282,046 1,064,967
profit

-Expenses
Fixed 17,130 17,130 17,130 17,130 68,520
Variable 6,641 6,972 7,320 7,686 28,619
Discounts 2,153 2,153 2,153 2,153 8,612
Total 25,924 26,255 26,603 26,969 105,751
Expenses

Net profit 217,219 241,203 245,717 255,077 959,216

 CoGS is assumed to increase by 10% in quarter 2, 12% in quarter 3 and 16% quarter 4
(over quarter 1)
 Expenses are calculated with assumption that fixed expenses remain constant
throughout 4 quarters; variable expenses have a 5% increase over each quarter;
Discount levels will remain constant throughout the year
 Gross Profit=Total Sales－Cost of Goods Sold
 Net Profit=Gross Profit－Total Expenses

Report

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Budget Objectives
Hardwood products aim to use the master operating budget to facilitate the planning and
control within their company, so that they can better manage the financial aspects of their
business and perhaps plan for a new product expansion in the future. Besides that, it also
allows Hardwood products to evaluate the performance of the company in this financial year.

Budget Components
The operating budget shows the income-generating activities of the firm, including revenues
and expenses.

This operating budget is composed of eight supporting budget planning schedules. They are
interrelated and come together to develop a budgeted income statement based on the
operating budget.

The budgets that roll up into the master budget include:

 Direct labour budget
The labour cost for the production of buffet was higher than that to produce the dinner table.

 Direct materials budget

This refers to the raw materials the company uses in its production process, which in this
case is Ash, Redwood, and Pine 2-pack.
Redwood was used predominantly in the production of buffet tables.

 Ending finished goods budget

This shows an ending inventory they want to meet every month or quarter so that they don't
stock out.

 Manufacturing overhead budget

The overhead budget includes both fixed and variable overhead costs.
This included power and light, repairs, indirect labour, and departmental equipments.

 Production budget
The production cost included raw material cost, overhead cost and direct labour cost.
The production cost for buffets was double of that of the dinner table.

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 Sales budget
the sales budget is based on the sales forecast for both products (Dining table and buffet)
the sales for buffet was forecasted to sell more than the dinner tables.
The selling price for dinner tables is triple that of the buffet, but with the high sales forecast
for buffets, the budgeted sales for buffets in the financial year is double that of dinner tables.

 Operating expenses budget

The selling and administrative expense budget deal with nonmanufacturing costs such as
freight or supplies.
This includes fixed and variable costs in which the fixed cost is higher than the variable cost.

 Income statement
The budgeted income statement is the result of the schedules above. It shows the gross and
net profit of the company.
Hardwood company is predicted to have a gross profit of 1,064,967, and a net profit
of959,604 by the end of financial year 2016/17.
It is predicted that the company will have a steady increase in sales and profit throughout
each quarter.

Assumptions used in various budgets

Cash Budget
 The Budgeted sale for May is 2100 June is 10,000
 The Beginning cash in July is 121,000
Cash sales 80% in month of sale
Credit sales 15% with cash received in the month after sale
Credit sales 5% with cash received in the second month after sale Further, A 2%
discount is allowed to debtors paying in the month after sale to encourage them to pay
promptly.

Production Budget
The manufacturing overhead cost was assumed to be split equally between the two products
(buffet and dining table).

Operating Expenses Budget

The variable costs for August and September are calculated based on the assumption that:
the variable cost rises by 20% in August and 25% in September to July each year.

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Discounts are calculated based on the assumption that a 2% discount is allowed to debtors
paying in the month after sale to encourage them to pay promptly. Of those debtors who pay
in the second month after sale, 1% have traditionally been bad debts

The Master Operating Budget for the whole financial year - July 2017 to June2018
Sales are likely to increase by 10% in quarter 2, 12% in quarter 3 and 16%quarter 4 (over
quarter 1)
Raw material costs are going to be increased by8 % across all raw materials each
quarter
Direct labour costs will remain constant throughout the year
Factory overheads are likely to increase by 20% each quarter
Discount levels will remain constant throughout the year

Income Statement
*CoGS is assumed to increase by 10% in quarter 2, 12% in quarter 3 and 16%quarter 4
(over quarter 1)

*Expenses are calculated with the assumption that fixed expenses remain constant
throughout 4 quarters; variable expenses have a 5% increase over each quarter;
Discounts remain constant throughout the year.

Communicating the budget to the company

It is important to communicate regularly with all the responsible designates so that the
resulting company budget reflects a cohesive plan for the coming year. This can be done by:
1. Having regular status meetings

2. Prompt distribution of the most up-to-date data and stringent reviews produce the most
accurate financial statements.

3. Establishing a Schedule for the budgeting process ensures that checkpoints

throughout the process get met.

4. Identifying People from Each Department to Participate The first step of the planning
process typically involves identifying who coordinates the final budget and which personnel
contribute their organization's details.

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5. Establishing Roles and Responsibilities

6. Ensuring a Return on Investment. Successful leaders establish goals that are specific,
measurable, attainable, realistic and time constrained (SMART). Each use of the company's
money must demonstrate a return on investment or the effort is wasted.

7. Validating Assumptions. Each department must conduct research to validate

current pricing with suppliers, business partners and customers.

Key Milestones and Performance Indicators

Key performance indicators (KPIs) should be prepared on a regular consistent basis

and compared with prior periods. These include:

Stock turnover

Debtors turnover

Current ratio

Debt/ Equity

Interest coverage

Return on Investment

Gross profit margin

Breakeven sales

These metrics are also useful for testing the validity of the budget model against actual
results in the past.

Variance reporting is used to maintain a tight level of control over a business. A variance is
considered to be the difference between an actual cost and a standard cost.

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This variance or the over-budgeted amount can be calculated with this formula. First,
subtract the budgeted amount from the actual expense. If this expense was over budget,
then the result will be positive. Next, divide that number by the original budgeted amount and
then multiply the result by 100 to get the percentage overbudget. If your expenses were
lower than your budgeted amount, then this number will be negative, describing the
percentage under budget.

Financial data is attached below

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