Appendix 1 - Case study

Case Study

After looking at your report preparation skills, your manager has decided to give you a bit more challenging task and given you the project of preparing various reports and financial analysis of a business called Iceman Pty Ltd.

Iceman Pty Ltd is an online retailer of men suits. The company is headquartered in Melbourne, Australia. It buys its products from various suppliers in Australia.

For preparing budgets, the business uses a sales forecasting model based on prior sales, expected changes in demand and economic factors affecting the industry. Currently the business is forecasting a 5% increase in sales for next year over current year sales. Next year, it is expecting to sell men's suit for $250 each. As this business is seasonal in nature, sales have huge fluctuations. The actual sales for 2023-24 are as below:

Actual sales in the year 2023-24

Quarters	Number of Men suits
Jul - Sep 2023	9400
Oct - Dec 2023	12900
Jan - Mar 2024	13900
Apr - Jun 2024	9600

Iceman Pty Ltd buys its suits at an average price of $160 each which includes freight. It tries to maintain at least 10% of the next quarter's expected sales in inventory at the end of each quarter and will have 900 suits as closing stock in the last quarter of 2024-25. The business doesn't want to take the risk of running out of suits for customers or shipping delays, so it always keeps this minimum amount of stock.

The business has the following other forecasted expenses for the year 2024-25:

Shipping costs	5% on sales
Supplies	1% on sales
Rent	$30,000 per month
Insurance	$6,000 per month
Other salaries	$105,000 per month
Advertising	$18,000 per month
Bank charges	$1,000 per month
Electricity and internet charges	$3,400 per month
Legal costs	$3,000 per month
Depreciation on assets	$10,000 per month

All sales of the business are cash sales. All expenses except commission, are paid in the month they are incurred. Commissions are paid in the following quarter.

It is planning to have a desired balance of $60,000 at the end of every quarter. The business has a long-term loan of $540,000 as on 1 July 2024. It will pay $10,000 every month towards repayment of that loan.

Iceman Pty Ltd will handle the cash in the following manner for the year 2024-25:

• If the projected cash balance of any quarter is less than the desired cash balance of $60,000, then the business will use its bank overdraft facility and will pay it off as and when the closing balance of any quarter will be more than $60,000.
• If the projected cash balance of any quarter will be more than the desired cash balance of $60,000, then the business will pay first any money outstanding as the bank overdraft and remainder will be invested in 'Fixed Deposit' to manage any cashflow issues because of high fluctuations in cash due to seasonality factor of the business.

Balance Sheet as on 30 June 2024

Current Assets
Cash	$ 65,000.00
Stock	$ 157,920.00	$ 222,920.00
Non-current Assets
Investment in FD	$ -
Property, Plant & Equipment after accumulated depreciation	$ 800,000.00	$ 800,000.00
Total Assets		$ 1,022,920.00
Current Liabilities
Short term loan	$ -	$ -
Non-current Liabilities
Long term loan	$ 540,000.00	$ 540,000.00
Total Liabilities		$ 540,000.00
Net Assets			$ 482,920.00
Owner's Equity
Capital	$ 120,000.00
Retained Earnings	$ 362,920.00		$ 482,920.00

The business wants to analyse the operations of the business by comparing the budget with actual results. It intends to improve budgetary control of the business by setting clear financial goals, creating a realistic budget, keeping the actual results in line with the planning and key performance indicators set by management and to take corrective measures if any significant variances arise. The main objective is to increase revenue so that it can generate enough cash to invest in its new project of introducing women suits in its current portfolio. To achieve this, it aims to have a net profit of more than $400,000 in the year 2024-25. Budgets are prepared by an external accounting firm called Complete Business Services Pty Ltd based on the information provided by all the departmental managers of the business.

The business encourages accurate reporting that promotes accurate resource allocation and maximising profits. To achieve this, Iceman has a policy of giving a fixed salary to the managers to avoid any potential conflicts between planning and control phases.

The business finalised the actual balances for the year ending 30 June 2025 and it has provided the following information:

Actual sales in the year 2024-25

Quarters	Sales $
Jul - Sep	$2,540,000
Oct - Dec	$3,110,000
Jan - Mar	$3,265,000
Apr - Jun	$2650,000

Actual COGS in the year 2024-25

Quarters	COGS $
Jul - Sep	$1,500,000
Oct - Dec	$2,085,000
Jan - Mar	$2,220,000
Apr - Jun	$1,610,000

Actual other expenses in the year 2024-25

Shipping costs	5.2% on sales
Supplies	1.5% on sales
Rent	$30,000 per month
Insurance	$6,000 per month
Other salaries	$105,000 per month
Advertising	$18,000 per month
Bank charges	$1,200 per month
Electricity and internet charges	$3,500 per month
Legal costs	$3,500 per month
Depreciation on assets	$10,000 per month
Sales salaries	$85000 per month
Commission	5.5% on sales over $3,000,000

Required:

All workings must be completed in accordance with organisational policy and procedures.For the purposes of this case study GST and income tax can be ignored.

Part A

Task 1

Adam, President and CEO of Ice Pty Ltd, has asked you and your team to prepare the following budgets by establishing budgetary milestones and performance indicators. Make sure that they are prepared in a clear format appropriate to budget reporting.

Be mindful of converting the monthly figures into quarterly or yearly according to the requirements. It is important that you comply with industry-standard accounting principles and practices:

1. Sales budget for each quarter and for the year ending 30 June2025 in units and dollars.
2. Purchase Budget for each quarter and for the year ending 30 June 2025 in units and dollars.
3. COGS budget for each quarter and for the year ending 30 June 2025
4. Expenses budget for each quarter and for the year ending 30 June 2025
5. Budgeted income statement for each quarter and for the year ending 30 June 2025
   1. Actual sales for each quarter and for the year ending 30 June 2025 in dollars.

Task 2

At the end of period ending June 2025, Adam asked you to calculate the following:

1. Actual cost of goods sold for each quarter and for the year ending 30 June 2025
2. Actual expenses for each quarter and for the year ending 30 June 2025
3. Actual Income statement for each quarter and for the year ending 30 June 2025

Part B

Task 1

Now Adam, wants you and your team to prepare the following budgets by establishing budgetary milestones and performance indicators. Make sure that they are prepared in a clear format appropriate to budget reporting.

Be mindful of converting the monthly figures into quarterly or yearly according to the requirements. It is important that you comply with industry-standard accounting principles and practices:

1. Cash budget/cash flow statement for each quarter and for the year ending 30 June 2025
2. Budgeted Balance sheet for the year ending 30 June 2025

Task 2

You have been asked to keep track of the variance for Iceman Pty Ltd. Prepare 'Annual Performance Report' for Ice Pty Ltd after establishing processes to monitor the budgeted outcome:

1. Calculate variances against budget for the year ending 30 June 2025 by comparing 'annual budgeted income statement' with 'annual actual income statement'.
2. Analyse budget variances according to organisational procedures and specify if the variances are "favourable" or "unfavourable".