Learner Guide: FNSACC402 Prepare Operational Budgets FNSACC303 Perform Financial Calculations

LEARNER GUIDE
FNSACC402 Prepare Operational Budgets

FNSACC303 Perform financial calculations
FNSACC402 & FNSACC303 Resources

Version 1 Issued 20/05/2018 Page 1 of 22
Application
This unit describes the skills and knowledge required to prepare and document operational budgets for a variety
of organisations. It applies to individuals who use specialised knowledge and systematic approaches to
undertake strategic financial activity for an organisation.
Elements and Performance Criteria
ELEMENT PERFORMANCE CRITERIA
Elements describe the Performance criteria describe the performance needed to demonstrate
essential outcomes. achievement of the element.
1. Prepare budget 1.1 Confirm budget objectives are consistent with organisational aims, projects
and forecasts
1.2 Clearly define cash, expenditure and revenue items and ensure relevance to
identified objectives of budget
1.3 Conduct discussions and negotiations with stakeholders that budget applies
to in manner that promotes goodwill and ongoing cooperation
2. Set budget timeframe 2.1 Identify and include milestones and performance indicators in budget
2.2 Break down annual budgets into seasonal periods in accordance with
operating trends
3. Document budget 3.1 Present data in format that is easily understood and appropriate to budget
reporting
3.2 Complete and distribute reports within timelines for specified periods and
projects

Foundation Skills
This section describes language, literacy, numeracy and employment skills incorporated in the performance
criteria that are required for competent performance.
Skill Performance Description

Criteria
Reading 1.1, 1.2  Analyses potentially complex information from a range of sources
and relates specific aspects of information to requirements
Writing 1.1, 1.3, 3.1  Accurately records financial information and uses clear language
and logical structure in preparing reports and presentations to
convey information
Oral Communication 1.3  Participates in verbal exchanges using active listening and
questioning to elicit the views and opinions of others and to
confirm requirements
Numeracy 1.1-1.3  Performs mathematical calculations and uses estimating and

forecasting techniques to consolidate and analyse financial data
Interact with others 1.3  Recognises the importance of building rapport during discussions,
collaborations and negotiations
Get the work done 1.1, 2.1, 2.2, 3.1, 3.2  Develops plans to manage and report on routine and non-routine
tasks with logically sequenced steps
 Uses analytical processes to identify appropriate process
milestones and performance indicators
 Uses digital systems and programs to assist with planning,
implementing, monitoring and reporting

Performance Evidence
Evidence of the ability to:
 establish and confirm budgetary milestones and performance indicators
 prepare budgets for a variety of purposes and organisations
 accurately record and document budget reports.
Note: If a specific volume or frequency is not stated, then evidence must be provided at least once.
Knowledge Evidence
To complete the unit requirements safely and effectively, the individual must:
 identify and explain the key principles of budgetary control
 describe a variety of forecasting techniques
 explain the principles of double-entry bookkeeping
 outline the key principles of statistical analysis and measures of variance
 describe the key features of organisational procedures and policy for financial administration.

FNSACC303 Perform financial calculations
Application
This unit describes the skills and knowledge required to use a range of common calculation methods and
techniques for conducting routine financial calculations and transactions. It applies to individuals who use
literacy and numeracy skills to perform common computational tasks as part of an operational job role.
Elements and Performance Criteria
ELEMENT PERFORMANCE CRITERIA
Elements describe the Performance criteria describe the performance needed to demonstrate
essential outcomes. achievement of the element.
1. Obtain data and resources 1.1 Obtain input data and verify as relevant for workplace calculations
for financial calculations 1.2 Determine outcomes of calculations and confirm from task specifications
1.3 Acquire relevant resources and equipment to perform calculations
effectively
1.4 Develop simple spreadsheets where necessary to perform calculations that
may be repeated
2. Select appropriate methods 2.1 Use hand held calculators to perform calculations, and identify and obtain
and carry out financial other equipment that may be required
calculations 2.2 Perform calculations to complete work requirements using appropriate
techniques
2.3 Recheck data used in calculations against task specifications
3. Check calculations and 3.1 Check results to ensure calculations are accurate and meet required
record outcomes outcomes, and recognise and correct common computational errors where
required
3.2 Record calculation results to industry standards and enterprise requirements
3.3 Store or electronically file calculation worksheets according to
organisational policy and procedures, for future use

Foundation Skills
This section describes language, literacy, numeracy and employment skills incorporated in the performance
criteria that are required for competent performance.
Skill Performance Criteria Description
Reading 1.1, 1.2, 3.1  Interprets instructions and carefully analyses information for errors
and discrepancies
Writing 3.2  Accurately records information using correct spelling, grammar and
conventions
Numeracy 1.2, 1.4, 2.2, 2.3  Accurately performs mathematical calculations including addition,
subtraction, multiplication, division, percentages, fractions, decimals
and straight line graphs to undertake financial computations
Navigate the 3.3  Follows organisational protocols, policy and procedures relevant to
world of work own role
Get the work 1.1-1.4, 2.1, 2.2, 3.1-3.3  Plans, organises and implements tasks according to organisational
done requirements
 Uses the main features and functions of digital tools to complete work
tasks
Performance Evidence
Evidence of the of the ability to:
 apply mathematical techniques and methods of calculation
 effectively use office equipment and software to enter data and complete calculations
 check for accuracy of computational results
 record calculation worksheets used for future reference and use.
Knowledge Evidence
To complete the unit requirements safely and effectively, the individual must:
 describe how to complete the following calculations:
 goods and services tax (GST)
 simple interest
 compound interest
 basic loan calculations
 straight line depreciation
 describe typical computational errors and ways to check for errors
 outline tools and sources of information to assist with financial calculations
 describe the key organisational policy and procedures relating to record keeping and filing.

Operational budget confirms what your organisation is doing day to day and month by month. It gives you
guidance regarding the direction in which it is supposed to be going. Thus it forms the basis for planning and
what to do next.
A budget is extremely important for companies that have started up and companies which are growing rapidly.
Budgets can be used to predict cash flows so that companies can foresee the next few months of its
performance.
Some companies can foresee the next few months by using their budgets and thus might be able to allocate
additional resources.
Budgets can be used to capture answers questions such as:

 What can we sell?
 How can we set costs?
 What will be our profit margin?
 How much money or cash will we need to operate the business?
Profit and Loss reports, balance sheets and expenditure reports can be generated including debtors and creditors
reports from accounting information which allow you to see how your business is operating.
It is important that key staff members such as managers, supervisors and team leaders understand budgets so
that they can operate within their budget and be alarmed if they are operating out of budget. Budgets ensure that
we work within the operational plan of the organisation and also are able to meet our targets. It is important that
management seeks input from key staff member’s ads well.
Profit and Loss reports
The profit and loss budget or report is also called a statement of financial performance or a revenue or
expenditure report which summarises activities of a business overall period of time.
Steps in preparing budgets
1. Review the assumptions about the company's business environment that were used as the basis for the
last budget, and update as necessary.
2. Review bottlenecks. Determine the capacity level of the primary bottleneck that is constraining the
company from generating further sales, and define how this will impact any additional company
revenue growth.
3. Determine the most likely amount of funding that will be available during the budget period, which
may limit growth plans.
4. Determine whether any step costs will be incurred during the likely range of business activity in the
upcoming budget period, and define the amount of these costs and at what activity levels they will be
incurred.
5. Copy forward the basic budgeting instructions from the instruction packet used in the preceding year.
Update it by including the year-to-date actual expenses incurred in the current year, and also annualize
this information for the full current year. Add a commentary to the packet, stating step costing
information, bottlenecks, and expected funding limitations for the upcoming budget year.

6. Issue the budget package personally, where possible, and answer any questions from recipients. Also
state the due date for the first draft of the budget package.
7. Obtain the revenue forecast from the sales manager, validate it with the CEO, and then distribute it to
the other department managers. They use the revenue information as the basis for developing their own
budgets.
8. Obtain the budgets from all departments, check for errors, and compare to the bottleneck, funding, and
step costing constraints. Adjust the budgets as necessary.
9. Validate all capital budget requests and forward them to the senior management team with comments
and recommendations.
10. Update the budget model. Input all budget information into the master budget model.
11. Meet with the senior management team to review the budget. Highlight possible constraint issues, and
any limitations caused by funding limitations. Note all comments made by the management team, and
forward this information back to the budget originators, with requests to modify their budgets.
12. Track outstanding budget change requests, and update the budget model with new iterations as they
arrive.
13. Create a bound version of the budget and distribute it to all authorized recipients.
14. Load the budget information into the financial software, so that you can generate budget versus actual
reports.
The number of steps noted here may be excessive for a smaller business, where perhaps just one person is
involved in the process. If so, the number of steps can be greatly compressed, to the point where a preliminary
budget can possibly be prepared in a day or two.
What is a budget
Budget contains estimated income statement for future periods. More complex budgets contain:
 sales forecasts,
 cost of goods sold and expenditures needed to support projected sales,
 estimates of working capital requirements,
 fixed asset purchases,
 cash flow forecast,
 estimate of financing needs.
Most budgets can be created using spreadsheets however some larger companies may use specific software for
budgets.
There are different types of budgets such as
 Flexible budgets
 Rolling budgets

 Static budget
 Continuous budgeting
Flexible budgets
Flexible budgets include formulas that adjust expenses based on changes in actual revenue or other activities. In
simple terms flexible budget uses percentages of revenue for certain expenses rather than usual fixed numbers.
Example of a Flexible Budget
ABC Company has a budget of $10 million in revenues and a $4 million cost of goods sold. Of the $4 million in
budgeted cost of goods sold, $1 million is fixed, and $3 million varies directly with revenue. Thus, the variable
portion of the cost of goods sold is 30% of revenues. Once the budget period has been completed, ABC finds
that sales were actually $9 million. If it used a flexible budget, the fixed portion of the cost of goods sold would
still be $1 million, but the variable portion would drop to $2.7 million, since it is always 30% of revenues. The
result is that a flexible budget yields a budgeted cost of goods sold of $3.7 million at a $9 million revenue level,
rather than the $4 million that would be listed in a static budget.
What is a rolling budget?

A rolling budget is continually updated to add new budget period as t host recent budget period is completed.
Thus, the rolling budget involves the incremental extension of the existing budget model. By doing so, a
business always has a budget that extends one year into the future.
Example of a Rolling Budget

ABC Company has adopted a 12-month planning horizon, and its initial budget is from January to December.
After a month passes, the January period is complete, so it now added a budget for the following January, so
that it still has a 12-month planning horizon that now extends from February of the current year to January of
the next year.
What is a static budget?

A static budget is fixed for the entire period covered by the budget, with no changes based on actual activity.
Thus, even if actual sales volume changes significantly from the expectations documented in the static budget,
the amounts listed in the budget are not changed. Static budget can be used to compare results. Resulting
variance is called static budget. A common result of using a static budget as the basis for a variance analysis is
that the variances can be quite substantial, especially for those budget periods furthest in the future, since it is
difficult to make accurate predictions for more than a few months. These variances are much smaller if a
flexible budget is used instead, since a flexible budget is adjusted to take account of changes in actual sales
volume.
For example

ABC Company creates a static budget in which revenues are forecasted to be $10 million, and the cost of goods
sold to be $4 million. Actual sales are $8 million, which represents an unfavorable static budget variance of $2
million. The actual cost of goods sold is $3.2 million, which is a favorable static budget variance of $800,000. If
the company had used a flexible budget instead, the cost of goods sold would have been set at 40% of sales, and
would accordingly have dropped from $4 million to $3.2 million when actual sales declined. This would have
resulted in both the actual and budgeted cost of goods sold being the same, so that there would be no cost of
goods sold variance at all.
What is continuous budgeting?

Continuous budgeting is the process of continually adding one more month to the end of a multi-period budget
as each month goes by. This approach has the advantage of having someone constantly attend to the budget
model and revise budget assumptions for the last incremental period of the budget. The downside of this
approach is that it may not yield a budget that is more achievable than the traditional static budget, since the
budget periods prior to the incremental month just added are not revised.

Example of Actual Results against budgets
The following is an example of a month’s sales. A company sells three products. Example below shows what
you paid for the products and what you sell the products for and how many were sold in the month.
Cost Sale Total sales last month Total costs Gross profit last month
Product
price price on sales
Nos $ Per item On sales
Pens $1.00 $3.50 200 $700.00 $200.00 $2.50 $500.00
Pencils $0.50 $2.50 800 $2,000.00 $400.00 $2.00 $1,600.00
Pencil Holder $2.00 $6.00 500 $3,000.00 $1,000.00 $4.00 $2,000.00
TOTAL 1500 $5,700.00 $1,600.00 $4,100.00
Cost price is what you paid for and sale price is what you are going to sell the product for. The figure for the
month for sales by product is calculated by multiplying the number of sales by the sale price. E.g. there were
200 pens sold at sale price of $3.50 = $700.00.
Total sales are calculated by adding the total sales figures o each product e.g. $700 + $2000 + $3000 = $5,700.
Total cost on sales is calculated by the cost price per item multiplied by the number of sales. E.g. there were
800 pencils sold at $0.50 per item which equals 800 x $0.50 = $400.00.
The gross profit for the month is calculated by subtracting thte cost price from te sale price. E.g. Pencil holder
sell for $6.00 and costs $2.00 to buy which equals $6.00 - $2.00 = $4.00.
The gross profit for the month per product is calculate by either total sales less total costs (for Pencil Holders -
$3,000 - $1,000 = $2,000).
The total cost on sales are calculated by adding all the total costs on sale figures on each product ($700.00 +
$2,000.00 + $3,000.00 = $5,700.00)
The total gross profit is calculated by adding all the total gross profit figures one each product ( $500.00 +
$1,600.00 + $2,000 = $4,100.00)
By reviewing actual product, costs and sales information from a budget you can tell what you should, how many
and what was the gross cost and resulting profit on that product. It is important that the information is put in the
context of actual results versus budgeted or projected outcomes.
It is important for managers and supervisors to review the budget against projected outcomes and see how their
business is performing .

Example of an Operating Budget
All operating budgets for a commercial company follow this structure:
Sale / Turnover
- Variable costs / used goods
= Gross profit
- Fixed costs
- Depreciation
- Interests
= Profit
Accounts in a budget
Below you can find different types of expenses. Maybe your company does not have all the expenses. Then just delete the expense (the account) in your budget.
Maybe you have another expense. Then just put it in the budget. The budget must reflect your company.
The Operating Budget

The budget follows the structure explained above.
Sale / Turnover
 Sale of product / service no. 1
 Sale of product / service no. 2
 Sale of product /service no. … Estimate sale for each major product /service
Variable costs
 Materials - raw materials and finished products which you use for production or sale
 Salary - only for workers in production
 Transport costs - and any costs related to transport of the raw materials and finished products
Fixed costs
 Wages - for staff in shops and offices
 Rent - for buildings
 Electricity, heat, water
 Renovation and maintenance of buildings
 Cleaning
 Car service/mileage allowance
 Travel costs

 Stationary telephone
 Postage and charges
 Mobile phone
 Internet-connection
 Website subscription/hosting and upgrading
 Marketing/advertisement/advertising
 Meeting expenses
 Insurances
 Computer equipment
 Computer network
 Leasing-expenses
 Minor purchases
 Maintenance
 Accountant
 Lawyer
 Other consultancy
 Unexpected costs (5% of costs)
Interest
 Interest on bank loan
 Interest on overdraft facility
 Other interest
Write-off/depreciation
 Plant/buildings
 Machinery
 Other things

Operating budget
1 10 11
Pro tem / 201- til / 201- month 2 month 3 month 4 month 5 month 6 month 7 month 8 month 9 month month month 12 month

Turnover
Sale of product no. 1
Total
Variable Costs
Materials
Salary
Transport costs
Other things
Variable Costs
Gross Profit (GP): (Turnover - Variable Costs)
Contribution Ratio (Gross Profit in %)
Regular costs
Wages
Rent
Electricity, heat, water
Renovation and maintenance
Cleaning
Car service/mileage allowance
Travel costs
Stationary telephone
Postage and charges
Network
Mobile phone
Internet-connection

Operating budget
1 10 11
Pro tem / 201- til / 201- month 2 month 3 month 4 month 5 month 6 month 7 month 8 month 9 month month month 12 month
Web site subscription/hosting e.g. upgrading
Marketing/advertisement/advertising
Meeting expenses
Technical literature
Insurances
Subscriptions
Course expenses
Computer equipment
Leasing-expenses
Minor purchases
Maintenance
Accountant
Lawyer
Other consultancy
Unsuspected costs 5% of costs
Total Regular Costs
Result before Interest and Write-off
Interest
Interest on bank loan
Interest on overdraft facility
Other interest
Total Interest
Write-off / Depreciation
Plant and machinery
Other things
Total Write-off
Regular Costs - Interest and Write-off:
Net turnover (GP - Reg. Costs - Interest and
Write-off

Cash Flow Budget
The cash flow budget tells if you have sufficient money to pay your bills at the end of the month.
A cash flow budget is a chronological overview of expected income and expenses over a given period of time.
The cash flow budget looks much like the operating budget. It has many of the same categories.
Cash in hand
The cash flow budget focuses on the cash (money) that actually has to be taken out of the cash box or the bank -
cash to pay salary or debtors. It also focuses on cash that is actually received from customers - cash you can see
in the cash box or in a bank statement.
Capital requirement
A cash flow budget shows a company´s monthly capital requirement. Some months there might be lack of cash
to keep the business in operation. If the cash flow budget shows a lack of money at the end of a month you have
to find the money which is needed. It can be found in different ways:
 You can borrow more money from the bank

 You can make your debtors pay earlier
 You can delay the payment to your suppliers
 You can cut down expenses
 You can postpone a larger investment
 You can stop withdrawing money to yourself
 You can introduce "cash on delivery"
 You can combine all of the possibilities
You might need help to cash flow budget

The establishing and operating budget are fairly easy to make for “non-accountants”. The cash flow budget is a
bit more difficult. There are more unknown figures to calculate and evaluate. This demands a clear view of the
budgets. However, it is still basically common sense so you can do it.

A cash flow budget is quite difficult to
make. Seek help to secure the figures are
correct
CASH FLOW BUDGET
12
month
Pro term / 201x til / 201x January February March April May June July August September October November December total
Cash in hand or in bank - 1st day in
month
In-going payment incl. VAT, Sales tax ..
Cash sale
Sale on credit
Interest
Other
Total In-going payment
Out-going payment incl. VAT, Sales tax..
Creditor
VAT or Sales Tax to pay
Withdraw cash for private use
Other
Regular cost
Wages
Rent
Electricity, heat, water
Renovation and maintenance
Cleaning
Car service/mileage allowance
Travel costs
Stationary telephone
Postage and charges
Network
Mobile phone
Internet-connection
Web site subscription/hosting eg. upgrading
Marketing/advertisement/advertising
Meeting expenses

Technical literature
Insurances
Subscriptions
Course expenses
Computer equipment
Leasing-expenses
Minor purchases
Maintenance
Accountant
Lawyer
Other
Other
Total out-going payment
Change in available cash
Cash in cash box
Cash in bank or similar
Amount left in overdraft facility
Minus cash the 1st day in the month
Available cash last day in month

Calculate turnover and necessary sales

This document shows a rough estimate over a company’s operating budget.
It also givesoverview of how many items/hours you must sell in order to meet your operating budget.
Enter the following figures:

Demand for profit per year/your salary: $_____,______.___
Your fixed cost per year: $_____,______.___
Salary to employees per year: $_____,______.___
Sales price per sold unit: $_____,______.___
Purchase/transaction price per sold unit: $_____,______.___

With the entered figures your operating budget will look like this:
Operating budget for one year in your company

Turnover/sales: $_____,______.___
- Used goods/transaction costs $_____,______.___
= Gross profit: $_____,______.___
- Salary to employees $_____,______.___
- Fixed costs $_____,______.___
= Profit/revenue (your salary) $_____,______.___
Necessary sales to meet the budget:

Sales per year: _______________ Units
Sales per month: _______________ Units (11 months)
Sales per week: _______________ Units ( 47 weeks)
Sales per day: _______________ Units (300 days)
You now have to asses:

1) Do the typed figures appear realistic?
2) If the figures appear to be realistic, will you be able to sell the required units ?
If you cannot sell the required units you must:

1) Have less demands for your profit
2) Lower your fixed costs and salary to employees
3) Sell more units
4) Raise your gross profit (create a bigger difference between Turnover and Used goods)
Template to calculate contribution margin

in $ i%

kr. - 100 Type sales price per sold unit (ex. VAT)
kr. - 0 - Purchase/transaction price per sold unit
kr. - 0% = Contribution margin

REFERENCES
http://www.accountingtools.com/questions-and-answers/what-are-the-steps-in-preparing-a-budget.html
http://www.accountingtools.com/questions-and-answers/what-is-a-flexible-budget.html
http://www.accountingtools.com/questions-and-answers/what-is-a-static-budget.html
http://www.accountingtools.com/questions-and-answers/what-is-a-static-budget.html
http://www.accountingtools.com/questions-and-answers/what-is-continuous-budgeting.html
http://www.dynamicbusinessplan.com/examples-operating-budget
http://www.dynamicbusinessplan.com/cash-flow-budget
http://www.dynamicbusinessplan.com/download-business-plan


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LEARNER GUIDE

FNSACC402 Prepare Operational Budgets

FNSACC402 & FNSACC303 Resources

Elements and Performance Criteria

ELEMENT PERFORMANCE CRITERIA

FNSACC402 & FNSACC303 Resources

Skill Performance Description

Numeracy 1.1-1.3  Performs mathematical calculations and uses estimating and

FNSACC402 & FNSACC303 Resources

FNSACC402 & FNSACC303 Resources

Elements and Performance Criteria

ELEMENT PERFORMANCE CRITERIA

FNSACC402 & FNSACC303 Resources

Skill Performance Criteria Description

FNSACC402 & FNSACC303 Resources

Budgets can be used to capture answers questions such as:

Profit and Loss reports

Steps in preparing budgets

FNSACC402 & FNSACC303 Resources

There are different types of budgets such as

FNSACC402 & FNSACC303 Resources

Example of a Flexible Budget

What is a rolling budget?

Example of a Rolling Budget

What is a static budget?

FNSACC402 & FNSACC303 Resources

What is continuous budgeting?

FNSACC402 & FNSACC303 Resources

FNSACC402 & FNSACC303 Resources

The Operating Budget

FNSACC402 & FNSACC303 Resources

FNSACC402 & FNSACC303 Resources

FNSACC402 & FNSACC303 Resources

FNSACC402 & FNSACC303 Resources

 You can borrow more money from the bank

You might need help to cash flow budget

FNSACC402 & FNSACC303 Resources

FNSACC402 & FNSACC303 Resources

Calculate turnover and necessary sales

Enter the following figures:

FNSACC402 & FNSACC303 Resources

Operating budget for one year in your company

Necessary sales to meet the budget:

You now have to asses:

If you cannot sell the required units you must:

Template to calculate contribution margin

FNSACC402 & FNSACC303 Resources

FNSACC402 & FNSACC303 Resources

FNSACC402 & FNSACC303 Resources

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