Accounting assignment help on: XYZ Company Of Eco Tourism Opportunities
Introduction
XYZ Company is a travel agency which located in the city and catering different type of holidays idea. At the moment, XYZ Company is expanding their operation to eco-tourism opportunities and developing more holiday type to customer.
This financial budgeting report’s relevant stakeholders are:
- General Manager – Amanda Booth
- Sales Manager – Terry White
- Department Managers
- Accountant – Vina, Ocean and me
This report depicts the variance analysis for 20AB to 20AC financial year and it shows the difference among the planned budget and the actual budget. This report indicates four financial ratios to view the financial condition of the company and details few considerable issues that prevail in the expenses of the Company. At last, recommendations have been given in order to solve the issues prevailed throughout the Company.
Gross profit
The following table shows the variance figures of revenue, purchase and gross profit:
| Budget figure | Actual figure | Variance | % and F/U | |
| Revenue – Sales | $437,000 | $418,000 | -$19,000 | -4.3% U |
| G.O.G.S – purchases | $103,500 | $146,000 | -$42,500 | -41% U |
| Gross Profit | $333,500 | $271,700 | -$61,800 | 18% U |
From the table, it is very clear that the actual amount of the revenue is less than from budgeted amount which shows the variance of 19000 and indicates that the Company is not able to increase the revenue as per the estimations. It is also viewed that actual cost of the Company is more than the budgeted one which lead to reduction in the gross profit of the Company. The actual figure of the gross profit of the Company is less than by 61800 in comparison to budgeted one which is due to incurring of more actual cost. Overall, the outcome of the gross profit is not favorable.
Expenses
| Estimated | Actual | Variance | % | F/U | |
| Advertising | $8,740.00 | $16,900.00 | -$8,160.00 | -93% | U |
| Promotion | $8,000.00 | $10,000.00 | -$2,000.00 | -25% | U |
| Printing/stationery | $9,000.00 | $11,500.00 | -$2,500.00 | -27% | U |
| Insurance | $4200.00 | $4300.00 | -$100.00 | -2.3% | U |
| Telephone | $6,400.00 | $8360.00 | -$1,960.00 | -30% | U |
| Rent | $30,000.00 | $30,000.00 | 0 | 0 | F |
| Electricity | $3,500.00 | $3605.00 | -$105.00 | -3% | U |
| Salaries/wages | $200,000.00 | $200,000.00 | 0 | 0 | F |
| Depreciation | $4250.00 | $4250.00 | 0 | 0 | F |
| Discount allowed | $2,200.00 | $4,180.00 | -$1,980.00 | -90% | U |
| Bank fees/charges | $2,200.00 | $2,300.00 | -$100.00 | -4.5% | U |
| Total expenses | $278,490.00 | $295,395.00 | -$16,905.00 | -6% | U |
| Net profit | $55,010 | -$23,695.00 | -$78,705.00 | -143% |
From the table, it is clear that most of the variance results are unfavorable because of advertising, discount allowed and net profit. Firstly, it has been viewed from the table that the actual expenditure incurred on the advertising is double in comparison to the budgeted one. It becomes significant for the department of marketing to minimize the expenses on the advertising and make it same as the budgeted one. Secondly, the discount allowed shows the variance of 90% which ultimately becomes the responsibility of the Sales Department to minimize that figure and make it same as the budgeted one. The printing and stationary shows the variance of 27% whereas promotion shows the variance of 25%. It is examined that Insurance, Electricity, Bank charges, fees charges and total expenses are all unfavorable with small figure variance. On the other side some expenses are favorable like wages, salaries, rent and depreciation which show that the actual amount is similar to the budgeted amount. At last it can be said that the net profit figure is also not favorable because cost of the expenses are too much.
Significant issues and recommendations
There are some significant issues which are found from the expense variance analysis:
- Too much expense incurred on promotion and advertising
- Purchased a new motor vehicle in cash
In order to minimize the expense on advertising and promotions, the department of the marketing must take some action in order to reduce the cost for e.g. the company should find some cheaper advertising company and make the proper evaluation before establishing any advertising (Michaely, Roni & Womack, 1999).
It has been examined that the Company has bought the new motor vehicle in cash which creates too much expense and leads to reduction in revenue and net profit. In order to minimize the figure of the expense, the Company should either not to purchase anything heavy in coming years or pay it in installment and lease the motor vehicle to minimize the cost.
Financial ratios
Current Assets: $ 120,000
Current Liabilities: $ 60,000
Closing Stock: $ 40,000 (included in Assets)
Bank overdraft: $ 10,000 (included in Liabilities)
Quick ratio
The Quick ratio indicates the short term position of the company. The formula is:
Current Assents-Stock 120,000 – 40,000 1.33: 1
Current Liabilities 60,000
Current ratio
The Current ratio indicates the capability of the company that it meets the short term liabilities or not. The formula is following:
Current Assents 120,000 2 2:1
Current Liabilities 60,000
The result of Current ratio is favorable because current assets are double of current liabilities which show that the Company can meet its liabilities on time.
Gross Profit Margin
The gross profit margin shows sales minus purchase and shows the effectiveness of pricing and purchasing and the efficiency of the management to create the sales and make the profit (Bromwich, 2004). The formula is following:
Gross Profit 217,700 0.65 65%
Sales 418,000
The figure of the gross profit is 65%, which shows that 65% of the sales would be addition to the cost and the future saving of the Company.
Net Profit Margin
The net profit margin referred as gross profit minus expenses which reveals that the control expense to generate a profit to fund future expanding and the efficiency of company’s operating (Rosemary, 2010). The formula is following:
Net Profit – 23,595,00 0.056 – 5.6%
Sales 418,000
The result is – 5.6% which shows that the company lost 5.6% of sales and not able to fund the future expansion.
Recommendation
At last, four recommendations have been made to the variance report; Firstly, the company has to ensure the sufficient control of the expenditure to ensure that they have sufficient money to spend.
Secondly, the company should have better inventory management to avoid the loss in the future.
Thirdly, the Company should have well budget planning to minimize too much expense
Lastly, the Company should set the target market to increase the sales of the Company.
For increasing the amount of the sales, XYZ Company require to sales more, enhance their prices of the product and enable online payment and credit care for the users and maintain the average cash payment. The Company is required to minimize the expenses on telephone, discount allowed, printing & stationary for increasing the amount of sales.
Conclusion
At last it can be said that the report has covered the variance among 20AB to 20 AC. The analysis has been done with the help of ratios such as gross profit, net profit margin, Quick ratio and Current ratio and highlights the significant issues along with the recommendations. Two significant issues have been found such as too much expense incurred on promotion and advertising and purchased a new motor vehicle in cash these both issues can be solved by reduction of marketing expenses. If these recommendations could be taken in the right manner then it will benefit the XYZ Company in the future.
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