Cash budget: service industry Dr Healer is the manager of a medical clinic and is concerned about the cash flow shortages which arose somewhat unexpectedly recently in the practice
Details of Assessment
Term and Year , 2017 Time allowed 1.5 hours
Assessment No 2 Assessment Weighting 30%
Assessment Type Assignment (Written)
Due Date Week No. 7 Room TBA
Details of Subject
Qualification BSB51915 Diploma of Leadership and Management
Subject Name Financial Management
Details of Unit(s) of competency
Unit Code (s) and Names BSBFIM501 Manage Budgets and Financial Plans
Details of Student
Student Name
College Student ID
Student Declaration: I declare that the work submitted is my own, and has not been copied or plagiarised from any person or source. Signature: ___________________________
Date: _______/________/_______________
Details of Assessor
Assessor’s Name
Assessment Outcome
Results
0 Satisfactory 0 Not Satisfactory
Marks / 30
FEEDBACK TO STUDENT
Progressive feedback to students, identifying gaps in competency and comments on positive improvements:
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Student Declaration: I declare that I have been assessed in this unit, and I have been advised of my result. I also am aware of my appeal rights and reassessment procedure.
Signature: ____________________________
Date: ____/_____/_____ Assessor Declaration: I declare that I have conducted a fair, valid, reliable and flexible assessment with this student, and I have provided appropriate feedback
0 Student did not attend the feedback session.
Feedback provided on assessment.
Signature: ____________________________
Date: ____/_____/_____
Purpose of the Assessment
The purpose of this assessment is to assess the student in the following learning outcomes: Satisfactory
(S) Not yet Satisfactory
(NS)
Plan financial management approaches
Implement financial management approaches
Monitor and control finances
Review and evaluate financial management processes
Assessment/evidence gathering conditions
Each assessment component is recorded as either Satisfactory (S) or Not Satisfactory (NS). A student can only achieve competence when all assessment components listed under Purpose of the assessment section are Satisfactory. Your trainer will give you feedback after the completion of each assessment. A student who is assessed as NS (Not Satisfactory) is eligible for re-assessment.
Resources required for this Assessment
• Upon completion, submit the assessment to your trainer along with assessment coversheet
• Refer to the subject notes on E-Learning prior to responding to the tasks/questions
• Any additional material will be provided by Trainer
Instructions for Students
Please read the following instructions carefully
• This assessment has to be completed 0 In class 1 At home
• The assessment is to be completed according to the instructions given by your assessor.
• Feedback on each task will be provided to enable you to determine how your work could be improved. You will be provided with feedback on your work within 2 weeks of the assessment due date. All other feedbacks will be provided by the end of the term.
• Should you not answer the questions correctly, you will be given feedback on the results and your gaps in knowledge. You will be given another opportunity to demonstrate your knowledge and skills to be deemed competent for this unit of competency.
• If you are not sure about any aspects of this assessment, please ask for clarification from your assessor.
• Please refer to the College re-assessment and re-sit policy for more information.
Task 1: Cash budget: service industry
Dr Healer is the manager of a medical clinic and is concerned about the cash flow shortages which arose somewhat unexpectedly recently in the practice. At 30 June the bank account showed an overdraft of $50 000. Dr Healer believes that the cash flow problems stem from lack of attention to outstanding patient accounts and the purchase of expensive medical supplies in large quantities at irregular intervals.
The good doctor has asked you to help design a spreadsheet to investigate the cash flow problems. You discover the following data:
Revenue:
May $120 000 (actual)
June $145 000 (actual)
July $50 000 (budget)
August $150 000 (budget)
September $140 000 (budget)
Past experience shows that 40% of the consultation revenue is collected in the month of the visit, 30% in the following month, 20% in the second month after the visit, and 10% was never collected. From July new credit policies are expected to result in a collection pattern of 60%, 20%, 10% and 10% respectively.
The cost of medical supplies was $40 000 in June and is budgeted for $60 000 in August. Half of the suppliers’ accounts are paid in the month incurred and half in the following month. Salaries of $40 000 per month and other costs of $25 000 per month are paid in the month incurred.
Required:
1. Prepare a cash budget for the 3 months, July to September to examine the cash flows projections (Use the spreadsheet template to prepare the cash budget).
2. You are aware that there are some suppliers’ payment due in July and August. What relevant personnel you are required to discuss/negotiate the possible cash shortfall?
3. What possible contingency plan you can implement to avoid the forecasted cash flow shortfall?
Task 2: Alternative debt collection policies
As the manager of Corby and Danes Ltd, you are concerned about the current collection policy from credit customers. The current policy is that all sales are to be made on credit, with the expectation that 70% of all accounts receivable are collected in the month immediately following the sale: 20% in the second month, 8% in the third month, and the balance written off as bad.
The actual sales for the four months January to April were as follows:
January $40 000; February $50 000; March $60 000; April $60 000
The forecast sales for the next four months are:
May $70 000; June $80 000; July $80 000; August $80 000
You need a report that will show how much cash you can expect to collect each month from accounts receivable for the period February to August. You also like to know what the cash flow patterns would be if either of the two policies below were to be adopted from now (ie from May) on.
Policy 1: 80% of the accounts receivable to be collected in the month following the sale, 10% in the second month, 8% in the third month and the balance written off as bad.
Policy 2: 50% of the accounts receivable to be collected in the month following the sale, 40% in the second month, 9% in the third month and the balance written off as bad. This policy will change the sales forecast as follows:
May $80 000; June $90 000; July $100 000; August $100 000
Required:
1. Show what the existing report on cash collection from accounts receivable looks like.
(Use the spreadsheet template to prepare the cash budget).
2. Show how the additional reports revealing the cash flow situation under the two proposed policies would look (Use the spreadsheet template to prepare the cash budget).
3. After analysing the data which policy you would recommend to improve the collection process for the month of May, June and July?
Current policy:
Collections from accounts receivable
Feb Mar Apr May June July Aug
$ $ $ $ $ $ $
From sales in:
Jan ($40 000)
Feb. ($50 000)
Mar. ($60 000)
Apr. ($60 000)
May ($70 000)
June ($80 000)
July ($80 000)
Policy 1:
Collections from accounts receivable
Feb Mar Apr May June July Aug
$ $ $ $ $ $ $
From sales in:
Jan ($40 000)
Feb. ($50 000)
Mar. ($60 000)
Apr. ($60 000)
May ($70 000)
June ($80 000)
July ($80 000)
Policy 2:
Collections from accounts receivable
Feb Mar Apr May June July Aug
$ 4 $ $ $ $ $
From sales in:
Jan ($40 000)
Feb. ($50 000)
Mar. ($60 000)
Apr. ($60 000)
May ($80 000)
June ($90 000)
July ($100 000)
Note: Changes due to new policies take place only from May.
Task 3: Analysis of Collection Schedule, Cash flow statement and implementing financial management process
T Boyes & Co., a manufacturing company, need to produce a cash flow budget as part of an
overdraft application with their bank. The following are some of Stock’s budgeted figures:
Credit sales
$ Purchases
$ Wages
$
November 50 000 36 900 4 100
December 40000 32000 4000
January 24000 42 600 3900
February 35 000 50 300 3 500
March 27 000 56200 3 400
Budgeted cash at bank on 1 January is $7590.
Though credit terms of sale are payment by the end of the month following the month of supply, Stock & Co. can expect 80% of the sales to be paid on the due date, with the remaining (20%) being paid during the following month. Creditors are paid during the month following the month of supply. Wages are paid in the month they are owed.
Required:
1. Utilising the following tables for format, prepare a cash budget for the quarter 1 January to 31 March 20XX.(Use the spreadsheet template to prepare the cash budget).
2. Managers of what divisions of T Boyes& Co. manufacturer are required to be disseminated about the forecasted financial plans? List the name of the divisions.
3. What contingency plan can be implemented to rectify the errors and achieve required financial objectives (Getting approval of the overdraft approval)?
4. What organisational protocols should be followed for reporting if loss is inevitable?
5. What support can be provided to the team members to ensure that proper management of finances is in action?
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