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Management accounting & decision making - Essay Example

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Task 1 Cash Budget   Months Particulars April May June July August September Revenue 27,000 41,850 67,500 111,600 125,550 81,000 Cash Purchases 5,400.0 8,370.0 13,500.0 22,320.0 25,110.0 16,200.0               Cash Sales 8,100 12,555 20,250 33,480 37,665 24,300 Cash from credit sales - - 18,900.0 29,295.0 47,250.0 78,120.0 Cash Purchases (1,080.0) (1,674.0) (2,700.0) (4,464.0) (5,022.0) (3,240.0) Credit Purchases - (4,320.0) (6,696.0) (10,800.0) (17,856.0) (20,088.0) Labor Cost (5,400) (8,370) (13,500) (22,320) (25,110) (16,200) Overhead Cost - (6,750) (10,463) (16,875) (27,900) (31,388)               Net Cash 1,620 (8,559) 5,792 8,316 9,027 31,505 Opening Cash 125,000 126,620 …
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Management accounting & decision making
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Management accounting & decision making

Download file to see previous pages... As at September 30, 20X0 Property, Plant and Equipment 1,840,000 Less: Depreciation (133,167) Net Book Value 1,706,833 Inventory 9,000 Receivables 144,585 Cash 172,700 Total Assets 2,033,118 Owner's Capital 2,000,000 Profit for the year (92) Creditors 12,960 Overhead cost payable 20,250 Total capital and liabilities 2,033,118 The above statement presents the cash budget, income statement and the statement of financial position for the six months ended September 30. In the forecasting of the cash budget, the effect of inflation has been ignored. During the six months period the inflation is expected to rise and it will impact all the variables of the projections. In addition, it has been assumed, in the cash flow forecast, that the credit sales will be settled at the end of two months. Same assumption has been applied in the cost of purchases which is being assumed to be settled at the end of the next month in which the sales were made. It has also been assumed that purchases, in order to maintain the inventory level to ? 10,000, are included in the total cost of purchase. In the income statement, it has been assumed that China glass and cutlery, bed linen and towel and miscellaneous items including toiletries are revenue expenditure and will be consumed entirely during the current period. The loss in inventory is proportionately divided between the two half of the years and half of the expected loss is taken. The corresponding impact has been taken in the inventory. Task 2 (a) As per the given scenario, the average spending has decreased by 15% which means that the average spending in actual turned out to be 127.5. If we substitute this figure with the current expected occupancy rate, the revenue is likely to decrease. The following table presents the revised income statement Income Statement In ? For the six months ended September 30,20X0 Revenue 386,325 Cost of Purchases (77,265) China glass and cutlery (10,000) Bed linen and towel (10,000) Miscellaneous items including toiletries (5,000) Labor Cost (77,265) Overhead Cost (96,581) Depreciation (133,167) Losses in inventory (1,000) Net loss (23,953) As apparent from the above table, the net loss has further increased which would adversely affect the financial outlook of the company. In order to maintain the previous less of profitability (in this case net loss of 92) the company is required to maintain the same level of sales. This can only be done by increasing the level of occupancy so that the sales remain the same at ?454,500. In order to maintain the same level of sales the monthly occupancy should be increased by 20% monthly. Since the occupancy rate of august is already 90%, it can only by increased to a perfect 100%. Following is the revised occupancy rate if the previous level of sales is desired Monty Occupancy Rate April 24% May 36% June 61% July 97% August 100% September 73% Average 65% Thus the revise sales ...Download file to see next pagesRead More
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