BSBFIM601–Manage Finance Assessment 3 – Monitor and Review Budgets Essay Example

  • Category:
  • Document type:
    Case Study
  • Level:
    High School
  • Page:
  • Words:

BSBFIM601–Manage Finance   Assessment 3 – Monitor and Review Budgets


BSBFIM601–Manage Finance

Assessment 3 – Monitor and Review Budgets


Budget monitoring and review process is essential in ensuring that the actual performance of the company is benchmarked with a predetermined outcome. The monitoring and review process requires one to concentrate on crucial issues to avoid overlooking variables that have a significant effect on overall company performance or take more time on less important issues. Therefore, our team concentrated on examining sales; it consists of cash and credit sales. The company increased its intensity on an advertisement thus, monitoring and review are essential to ensure that the strategy employed is cost effective. The ad should be dropped or improved if it yields little or no results in the first quarter of the year.

Also, our team looked carefully at the cost of sale which affects the level of gross profit and result to lower net profit. The increase in sales must lead to an increase in gross profit thus the budget and review will look into efficiency in production in case of an increase in sales and decrease in gross profit simultaneously. The areas of concern include monitoring and examination of machinery efficiency, human resource or raw materials.

Lastly, the budget monitoring and review team will look into expenses since it is a major determinant of company’s profitability level. The significant expenses include interest on long-term loans, wages, salaries and workers compensation expenses. The team must get in-depth analysis for the reason for unfavorable variance and importance of expenditures to determine ways on how to reduce or drop the expense.

The team analyzed the variation of the budgeted and actual profit and loss account and filled the results below;



First Quarter ended March-2011

Profit and Loss


Variance ($)

Variance (%)



cost of goods sold



Gross profit



Gross profit (%)


Accounting fees

Interest expense


Bank charges



Store supplies





Repair and maintenance




Electricity expense

Luxury car tax


Fringe benefits tax



Wages and salaries


Payroll tax



Workers compensation

Total expenses



Net profit (before tax)


Income tax

Net profit (After Tax)


  1. Variance

According to the table above, we are able to determine the variance that arises from the deviation between the predetermined and actual values. The variation can be favorable or unfavorable depending on the nature. For the income, it is favorable when actual result is higher than budgeted and unfavorable when actual result is lower than predetermined. For the expenses, it is favorable when budgeted expense is higher than actual and unfavorable when budgeted expense is lower than actual.

The sales and cost of goods sold were unfavorable, which lowered the company gross profit. The expenses that recorded favorable results include Accounting fee, bank charges, depreciation, insurance, advertisement, rent, fringe benefits tax, superannuation, wages and salaries, payroll tax and workers compensation. On the other hand, items that recorded unfavorable outcomes entails Interest expense, store supplies, cleaning, repairs and maintenance, telephone, luxury car tax and income tax. The income before tax and income after tax shows favorable variance. The performance of the variance is analyzed below;

  1. Performance

The company performed relatively well despite the challenges faced in the first quarter due to the public and school holiday. The low demand resulted in lowering sales level than the budgeted amount thus causing unfavorable variance of 1% the in sale and 3% in gross profit. Also, low sales can be attributed to low spending on an advertisement since the company saved 25% of the total amount allocated for advertisement in the first quarter. Therefore, deviation in sales might have been attributed to low demand arising from holiday or decrease in emphasis on the advertisement.

Consequently, bank charges and superannuation recorded favorable variance of 5%, together with advertisement savings (25%) which shielded the company from recording negative profit. The fall in sales and rise in the cost of goods sold forces the company to improve its profitability by cutting on the expenses. The strategy of cutting expenses was productive since most items recorded favorable variance compared to items that recorded unfavorable variance.

The increase of international pressure in the financial market has led to increase in the interest rate thus forcing the bank to increase their lending rates. The pressure is felt by the company in first quarter the actual interest rate went up by 33% of the budgeted amount. Also, luxury car tax pulled down the profitability of the company since it recorded the highest negative deviation of 49%. The deviation resulted to spending of money that was not allocated for the expense thus forcing the company to forgo other expenditures.

Despite the challenges faced by the company in the first quarter, it recorded impressive savings on overall expenses of 3%. Also, it recorded high favorable variance on net profit after and before tax of 83%. The target was exceeded due to the savings made from reducing the expenses. Though there is still more room to reduce wages and salaries to match or be lower than industry benchmark of 11%, the first quarter recorded 12.18% which is slightly high than the industry benchmark.

  1. Recommendation

The company should adopt the following recommendation to improve on its profitability despite the unfavorable economic facing the industry;

  • The company needs to slightly increase its advertisement to reach new markets and potential customers.

  • Reduce spending on luxury cars since it recorded the highest unfavorable expense of 49%.

  • Reduce the use of loans by opting to another alternative such as equity. Also, the company can incorporate derivative financial instrument on the loans. The instruments entail futures, swaps or options contracts.

  • Improve on machinery, human resource, and raw material efficiency to reduce on the cost of goods sold since it recorded unfavorable variance.

Adoption of above strategies in the remaining quarters will result in impressive return given other factors held constant.

  1. Evaluation

The company performed favorably well despite the recession facing the retail business. The management decision to reduce on advertisement cost, bank charges, superannuation and other favorable expenses was a great move since it ensured that the company recorded high profitability than budgeted. The management failed in three areas that are increasing the spending on luxury cars, failing to shield itself from fluctuation of interest rate and market diversification for its products.


Atkinson, A. (1997). Management accounting. Upper Saddle River, N.J.: Prentice Hall.

Drury, C. (1992). Management and cost accounting. London: Chapman & Hall.

Epstein, M., & Lee, J. (2011). Advances in management accounting. Bingley, UK: Emerald.

Horngren, C. (1978). Introduction to management accounting =. Englewood Cliffs, N.J.: Prentice-Hall.

Horngren, C. (1999). Management and cost accounting. London: Prentice Hall Europe.