Budgeting & Reporting Assignment

Part A

When running a business a financial view on the company’s financial performance is a necessity not only for management but also stakeholders and other investors. A way that the company can provide a view inside their company’s finances is to have good accounting system that correctly calculates and budgets revenues, services, and expenses. There are several financial metrics that are used by accountants and managers to evaluate company’s performance. The Income Statement is a financial metric used in determining the profitability of a company during the period specified.

Within an Income State are several categories that can be used with the basic being Revenues which includes sales of goods or sales of services rendered. Revenues lists income generating from sales, operating, or other sources of money earned over the given period. Revenues show the inflows of a company’s financial assets. Expenses are outflows of the company like the cost of selling, delivering, producing goods and services, or operating cost. In the case of the accounting firm costs of goods or services will be used when factoring in the cost of hiring outside help. Expenses can also cover the sum of the beginning inventory, the net purchases, and all other buying related to the company’s products. The last part of an Income statement is the Profit or Loss, this part of the Income Statement shows revenue minus all the costs and expenses. This bottom line will show the company, and investors how much to invest or to hold for future investments.

When planning out the budget and future profit for a company, accountants will set out a budgeted view in order for financial planning. A Budgeted Income is used for planning for the feasibility of financial calculations. It is useful when making comparisons over periods and for future references. The budgeted income statement is also used when comparing to the actual income statement in order to make the necessary changes to services, operating costs, and reducing expenses. For this law firm a budgeted income statement will help to determine if the type of consultation services being offered is generating a sizeable profit in order to be successful for the given period.

For the following Budgeted Income Statement numbers are taken from the given specialties that the law firm operates in. Specialty for this given Budgeted Income Statement is Commercial Consultations, the Commercial Scheme Clients that pays annual fees, and all the costs and expenses that the law firm accrued over the period of May 31, 2011 to May 31, 2012.

This is the Budgeted Income Statement for XYZ Law Firm for the Period of May 31, 2011 to May 31, 2012

The following financial statement is the Actual Income Statement for XYZ Law Firm provided with the information from the period beginning May 31, 2011 to May 31, 2012.

Budgeted Income Statement

The following financial statement is the Actual Income Statement for the Competitor Law Firm provided with the information from the period beginning May 31, 2011 to May 31, 2012.

Actual Income Statement

Competitor’s Actual Income Statement

Financial Performances of the Competing Companies

In comparing the two competing law firms there is several differences that show each financial performance. Factors included are the overall client fees. XYZ Law Firm specializes in precisely three work categories, Property. Commercial, and Litigation consultations.  They relied on a budgeted income statement that factored in any outlandish costs for the Property Consultation fees are £75 per session, Commercial Consultation fees are £150, and Litigation Consultation are, £250 per session.  In total for regular clients that had for Property 17,080 chargeable consultations, 12,000 for Commercial, and 1,920 for Litigation, although the highest in cost the lowest in actual clients. From all the total consultations over the year the resulting revenues tattled up to £3,561,000.  A good figure for a small business law firm with only a few lawyers employed.  The law firm offered a special to their priority to Commercial and Property clients, that let them signed up for an annual package for a number of non-chargeable consultations for only £1500 for Property clients, and an annual fee of £6000 a year for Commercial Clients. The scheme netted a sizable income of £2,100,000 added to the revenue received the budgeted profit of £5,661,000 for the total income. For the budgeted expenses, they factored in the premium insurance of £250,000, the salaries of the lawyers employed in total of £1,300,000. The total budgeted expenses totaled to £4,550,000, in total budgeted net income was £1,111,000, a positive number for the law firm.

When all the actual numbers were calculated for the firm, the number of consultations for the three categories rose with Property consultations at 20,200, Commercial consultations, 13,200, and Litigation consultations 2400 with a total revenue of £4,095,000. The number of clients that signed up for the scheme budgeted are used in the actual income statement as well. For all the income received it totaled to be £6,195,000 for the period.

The total expenses for the law firm summed up to £4,721,000. These expenses included factoring in the hired subcontractors to do consultation work with Commercial consultations at 320 and charged £450 per session it netted £144,000. For Property subcontractor work they charged £500 and had 600 consultations adding up to £300,000 for a total cost of £444,000. Other expenses added included their premium insurance that they pay for their lawyers, the lawyer’s salary, and other operating expenses that equaled £2,600,000. There was also a charge for remedial consultations that were not budgeted but cost the law firm £27,000. Much of the expenses could calculate from office, travel, and other miscellaneous expenses that help the law firm be a success. Overall the financial performance of the law firm for the year was profitable however the total costs and expenses were more than the actual revenue, if the company didn’t have the scheme it offered to clients the total net income would be in the red. Places for improvement include getting more Advisory Scheme clients, more consultations for Litigation since it charges the highest, and lowering operating expenses.

The Competitor Law Firm is neck and neck with the XYZ Law Firm. In comparing performance there are variances and there are places that can be improved for better competition in the market. Looking at clients and consultation fees. As with the previous law firm, they specialize the same three work categories, for Property consultations that they charge £60, for Commercial consultations £150, and Litigation consultation they charge, £200. With consultation fees around the same amounts of the other law firm, the number of consultations were slightly less with Property at 12,500 for £750,000, Commercial at 10,200 for £1,530,000, and Litigation at 2,125 for £425,000. This netted the competing law firm £2,705,000 in revenue. Still a good sizable revenue but £2M less than the XYZ law firm.

In looking at their client scheme, it favored the previous law firm with a similar package for Property and Commercial clients to pay a set annual fee of £1200 for Property, and Commercial £5000 for a set amount of consultation fees without being charged. The number of Property Scheme Clients were 900 and commercial were 300 compared to the previous law firm of a total of 800, the competitor’s law firm had more but charged less. The income the law firm received from the fees were £2,580,000 with totaled to £5,285,000 about £900,000 less than XYZ law firm.

The costs and expenses summed up to £3,726,000. These expenses included hiring subcontractors as well to do consultation work with only 40 consultations charged for £350 for both categories of Commercial and Property, this cost the company £14,000. The cost of these services didn’t distract much from the expenses or the net income. The other expenses included their premium insurance that they pay for their lawyers at £1,560,000 for their salary, which was more than the previous law firm with the same amount of lawyers. The insurance paid was £50,000 less and operating expenses were £2,032,000. They also had remedial consultations that cost the company £20,250. Much of the expenses could calculate from office, travel, and other miscellaneous expenses that help the law firm be a success. Overall the financial performance of the law firm for the year compared to the previous law firm was £80,000 more in total net income. Although the total income was more than XYZ law firm the total expenses were almost £1M less. If the competitor’s company only had more consultations and charged more for their client scheme the overall revenue and net income would be much higher.

Part B

In evaluating the performance of the production manager for the manufacturing company it is clear that he hasn’t performed well at delegated tasks and instructions. The production manager role is to supervise all the workers in the manufacturing facility in order to determine is production is running efficiently. The role of the production manager also includes determining the number in manufacturing to be produced and sold. They have the task of inspecting the quality of the products and scheduling the maintenance of the machinery. The production manager followed the instruction of the production director in wanting to reduce the costs of products sourcing out the raw materials to a new supplier. Not only reduce the costs but to also used a cheaper or lower grade of labour.

From the November 2012 report the production manager reported that in order for the new lower grade of labour to be properly implemented additional training needed to be done to get the employees better suited. It is one of the roles of the production manager to hire and train new and old employees in order for them to be equipped in handling the materials and equipment. Time spent on training the employees resulted in lower production times which means a lower revenues for the entire company. It was detailed in reports from November that the return on defective products were 20 percent more than that of October, and the budget reflected the decrease in production. Compared to production in December it is clear that the time spent on proper training of the employees was not warranted but more time needs to spent. The budgeted units sold were 19,000 and the actual units sold were 1800 There was an increase in labor hours and the unit prices sold at a price that at $65. Overall the performance of the production manager was positive but it didn’t produce the desired results of the production director.

When budgeting and planning for the company, the income statements are used in budgeted the sales, materials, and the labor worked. Variances in accounting help to determine the difference between the budgeted and the actual calculations. Usually when calculating the variances in the Income Statements the results are categorized into two categories favorable which is caused by actual results being better than the budgeted results, and unfavorable when the actual results are worse than the budgeted results.

In the case of the Manufacturing Company the following Variances Materials, Labor, and Sales are as followed for December 2012.

The actual quantity of materials produced were 19,200 units. The materials 2 kg/$4.9 of raw materials at $9.8. The budgeted price of the material was $10.

10-9.8=.2 x 19,200=$3840 the variance is favorable.

Actual hours worked 61,500 hours for $11 an hour, Budgeted for 62,000 hours for $12 an hour.

(12-11)=$1 x 61500=$61,500 variance is favorable.

Actual quantity sold were 18,000 units for $65 a unit. Budgeted were 19,000 units produced at a budgeted price of $68.

$68-$65=$3 x 18,000=$24,000 the variance is favorable