384 Accounting: Business Reporting for Decision Making
to the national broadcaster. With fewer resources, ABC management had to make decisions as to how
best to allocate funds between the different divisions — for example, should they direct funds from
broadcasting activities to the ABC Stores? This example highlights the need for both strategic planning
and budgeting in such decision making, as management have to determine how to make best use of the
available resources so that the focus is on those activities that will allow the business to remain viable
into the future. Moreover, it reminds us of the link between the decision made and its future impact on
the budgeting process.
The remainder of this chapter focuses on issues associated with the preparation, use and influence of
budgets.
REALITY CHECKABC Shops to be closed, jobs to go as retailer moves online
ABC Shops around the country will be phased out and closed as the national broadcaster moves to
an online retail model. The ABC currently has 50 stores around the country and 78 ABC Centres in
other retail outlets as part of its bricks and mortar portfolio. ABC Shops largely rely on the sale of CDs,
DVDs and some books. That content is now migrating to digital downloads. Last year, the ABC Shops
were operating at a loss, and experts have advised it will not be possible for the ABC to run the stores
profitably in the future. The ABC will continue to deliver the ABC Shop online, and will look to find
partnerships with other retailers to include ABC branded sections in their stores. The move by the ABC
comes as ‘digital disruption’ continues to rock the retail environment as consumers spend their money
through subscription services, downloads and purchase goods online. The accelerating switch to online
purchases means the ABC’s costs of maintaining its current retail network has become unviable and
that it is no longer possible to sustain its network of stores. ‘Customers are now getting that content
through digital downloads and so all our advice is that the shops are now not making money,’ the ABC’s
managing director Mark Scott told AM. ‘They’ve made a lot of money over the years [but] they’re not
making money now. ‘It’s very hard to project them making significant money in the future and we can’t
cross subsidise a retail business by taking money out of broadcasting and investing it to prop up a retail
business anymore.’
Source: ‘ABC Shops to be closed, jobs to go as retailer moves online’ 2015, ABC News, 23 July, http://www.abc.net.au/
news/2015-07-23/abc-shops-to-be-phased-out-and-closed/6641476.DECISION-MAKING EXAMPLELinking short-term and long-term decision making
SITUATION JB Hi-Fi Ltd has traditionally been known as the place to go for music, movies, TVs and
computers. In 2015 it expanded its product offerings to home appliances. What factors may have led
to this decision, and what information would have been collected?
DECISION The decision to venture into home appliances would have been a strategic decision on the
part of JB Hi-Fi Ltd management. Possible motives would have been to:
• increase profits by entering into new markets
• complement the current electronics focus
• leverage off the strong brand name and current customer base.
However, this plan had to be operationalised, and strategic budgets would have been prepared to
determine if financially it was the right decision for JB Hi-Fi Ltd. Information would have been collected
about the potential level of sales, cost of purchasing appliances, appropriate mark-up for determining
the sales price, and the level of operating costs associated with rent, staffing and other factors. The
development of budgets for the new venture would have enabled JB Hi-Fi Ltd management to assess
whether the venture would increase wealth for the entity. While this information would have helped with the
original decision, it will also serve as a key input into the annual budgets and target setting in the future.