Soon after the end of the first quarter, Jim Schneider the CEO of Houzit, asked you to follow up with Celina Patel, Houzit's accountant, to see how the actual results compared with the budget you had prepared three months ago. You explained that you had a meeting with Celina that afternoon to get the results and that you would report back as soon as you had done some analysis. The key questions that the board was most interested to have answered from the budgets and the variance reports were: ● 'To what extent do the reports support the view of the board that Houzit is financially viable?' ● 'Will we be able to maintain our gross profit margins in the predicted downturn?' Jim and you both agreed that it had been a tough quarter with the economy still in recession and the impact this was having on the retail sector. Banks are raising interest rates in line with the increased upward international pressure and Houzit has a significant part of their loan funds on a variable interest rate which changes directly with market conditions. Jim was pleased that the sales seem to be holding up reasonably well as first quarter results are generally impacted by factors relating to public and school holidays but he was concerned about the discounts that had to be given to generate these sales. 'That's going to hurt us at some point' Jim said. 'Just a pity we could not get into some national magazines this quarter to promote the store offers. I'm sure that would have helped us exceed the budgets you set. I guess we will just have to spend that advertising money in the next quarter' Jim said. 'I still think we are running our wages and salaries a bit high. The industry benchmark for wages and salaries is close to 11% of sales' Jim went on to explain, 'One of our contingency plans in a slowing economy is to reduce our exposure to debt by applying our profits to the repayment of the long term debt. This will help reduce the interest burden on the business and take some pressure off the diminishing profits. It would also be of interest to determine the impact that our debtors has on the cash flow of the business from 2010/11.' You are a beneficiary of the company's profit bonus scheme that is based on the profitability of the company's financial reports which you are required to prepare. You also prepare the departmental reports that form the basis of the performance review of the managers. You are the manager of the finance/administration and prepare this department's report as well. You met that afternoon with Celina and she provided you with the following report on the actual results for the quarter ended 30 September 2011. Houzit Pty Ltd Actual Results Qtr 1 Revenue Sales 3,371,200 – Cost Of Goods Sold 1,955,296 Gross Profit 1,415,904 Gross Profit % 42% Expenses – Accounting Fees 2,500 – Interest Expense 28,150 – Bank Charges 380 – Depreciation 42,500 – Insurance 3,348 – Store Supplies 790 – Advertising 150,000 – Cleaning 3,325 – Repairs & Maintenance 16,150 – Rent 660,127 – Telephone 3,100 – Electricity Expense 5,245 – Luxury Car Tax 12,000 – Fringe Benefits Tax 7,000 – Superannuation 37,404 – Wages & Salaries 410,500 – Payroll Tax 19,741 – Workers' Compensation 8,312 Total Expenses 1,410,572 Net Profit (before tax) 5,333 Income Tax 1,600 Net Profit 3,733 GST cash flow – Actual Cash flow analysis – GST Qtr 1 GST Collected 337,120 Less GST Paid 279,988 GST Payable 57,132 Aged debtors – Actual AGED DEBTORS BUDGET Qtr 1 Sales 3,371,200 % Debtors Sales 22% Total Debtors 741,664 Current 585,915 30 days 111,250 60 days 37,083 90 days 7,417 Total Debtors 741,664 Budget variance report template According to the organisational policy and procedures, the following format is to be used when preparing a budget variance report. Houzit Pty Ltd Variance to Budget xxx Quarter ended mmm-yyyy Actual Results Budget-Qx Actual-Qx $ Variance % Variance F or U Sales x,xxx x,xxx x,xxx x% F or U – Cost Of Goods Sold x,xxx x,xxx x,xxx x% F or U Gross Profit Calculation Calculation Calculation x% F or U Gross Profit % % % % x% F or U Expenses – Accounting Fees x,xxx x,xxx x,xxx x% F or U – Interest Expense x,xxx x,xxx x,xxx x% F or U – Bank Charges x,xxx x,xxx x,xxx x% F or U – Depreciation x,xxx x,xxx x,xxx x% F or U – Insurance x,xxx x,xxx x,xxx x% F or U – Store Supplies x,xxx x,xxx x,xxx x% F or U – Advertising x,xxx x,xxx x,xxx x% F or U – Cleaning x,xxx x,xxx x,xxx x% F or U – Repairs & Maintenance x,xxx x,xxx x,xxx x% F or U – Rent x,xxx x,xxx x,xxx x% F or U – Telephone x,xxx x,xxx x,xxx x% F or U – Electricity Expense x,xxx x,xxx x,xxx x% F or U – Luxury Car Tax x,xxx x,xxx x,xxx x% F or U – Fringe Benefits Tax x,xxx x,xxx x,xxx x% F or U – Superannuation x,xxx x,xxx x,xxx x% F or U – Wages & Salaries x,xxx x,xxx x,xxx x% F or U – Payroll Tax x,xxx x,xxx x,xxx x% F or U – Workers' Compensation x,xxx x,xxx x,xxx x% F or U Total Expenses Calculation Calculation x,xxx x% F or U Net Profit (Before Tax) Calculation Calculation x,xxx x% F or U Income Tax Calculation Calculation x,xxx x% F or U Net Profit Calculation Calculation x,xxx x% F or U Note: F = Favourable, U = Unfavourable Debtor ageing ratio template 2009/102010/112011/12 Trade Debtors Sales Debtor Days Anticipate that the trade debtors for the 2011/12 financial period maintain the same growth as that which took place between 2009/10 to 2010/11.