Cash Budget for the Month Ending October - Assignment Example

Question 1. Cash Budget for the month ending October Cash Receipts   Receipts from debtors (previous months sale) (40% of 1.2 million) 520000 Receipts from debtors (for sale in October) 576240 Total Cash receipts 1096240 Cash Payments   Fixed Indirect cost (excluding depreciation) 109769 Fixed Selling and administration cost 300000 Dividend 130000 Raw Material (20000 * 12) 240000 Direct Labor (20000 * 14) 280000 Variable Indirect Cost (20000 * 3) 60000 Total cash Payments 1119769 Net Cash Flow -23529 Opening Cash balance 62000 Closing Cash Balance 38471 a. Calculation of money collected from customer for September = 40% 0f 1.2 million = 520000 b. Calculation of quantities of goods sold Let goods sold = x So, 49x – (12x – 14x – 3x – 300000) = 100000 X= 20000 c. Calculation of money received from sale in October = 60% of (49 * 20000) – 2% of 60% of (49 * 20000) = 588000 – 11760 = 576240 d. Calculation of goods produced Opening Inventory + sales – closing inventory = goods produced 17000 + 20000 – 14000 = 23000 units e. Calculation of raw materials used Raw materials used = 23000 x 3 = 69000 kg Closing + Used – Opening = Purchase 28000 + 69000 – 20000 = 77000 kg Question 2 Part A Part 1 Total Production Cost = 5000000 Marketing expenses paid by Media Production= 3000000 Royal rumble revenue = 62. 5% of total receipts Media Production Revenue = 20% of royal rumble revenue a. Break even point for Royal Rumble on revenues received by them is Let revenue received be = x Royal Rumble revenue = 62.5% of x Expense paid to Media production = 20% of 62.5% of x Break even point is 62.5% of x – (20% of 62.5% of x) = 5000000 50% of x = 5000000 X = 10000000 i.e. 10 million So, breakeven point on the basis of receipt by Royal rumble = 62.5 % of 10 million = 6.25 million b. Break even point on the basis of box office receipt is Total revenue = x Royal Rumble revenue = 62.5% of x Expense paid to Media production = 20% of 62.5% of x Break even point is 62.5% of x – (20% of 62.5% of x) = 5000000 50% of x = 5000000 X = 10000000 i.e. 10 million So, Royal Rumble break even point is 10 million of total revenue receipts. Question 2 Part A Question 2 Revenue collected = 300 million Royal rumble receives = 62.5% of 300 million = 187.5 million Profit for Royal Rumble = 187.5 – (20% of 187.5) – 5 = 88.75 million Question 2 Part B Question 1 Production Cost = 21 million Contract A: Fixed salary of 15 million Contract B: Fixed Salary of 3 million + 15% of revenues Media Production marketing cost = 10 million Media Production receives 25% of the revenue of Royal Rumble Royal Rumble receive 62.5% of total revenue 1 a. Break even point on the basis of revenue received by Royal rumble for Contract A Let revenue received by Royal Rumble = X Break even point is X – 25% of X = 21+15 X = 48 million Break even point on the basis of revenue received by Royal rumble for Contract B Let revenue received by Royal Rumble = X Break even point is X – 25% of X = 21 + 3 + 15% of X X = 40 million 1 b. Break even point on the basis of total box office receipts for Contract A X i.e. revenue earned by Royal Rumble This is 62.5% of total revenue So total revenue for break even point is = 48 / 62.5% Break Even Point = 76.8 million Break even point on the basis of total box office receipts for Contract B X i.e. revenue earned by Royal Rumble This is 62.5% of total revenue So total revenue for break even point is = 40 / 62.5% Break Even Point = 64 million Question 2 Part B Question 2 Difference in the breakeven point for contracts A & B = 48 -40 = 8 million The difference arises because the company is following a different principle and giving a fixed pay in contract A but a mixture of fixed and variable pay in contract B. This causes the difference in breakeven to arise. Question 2 Part B Question 3 Income = 300 million Royal Rumble revenue = 62.5% of 300 = 187.5 million Operating Income = 187.5 – 25% 0f 187.5 – 21 – 3 – 15% of 187.5 = 88.5 million Thus, we see that there appears a slight difference in the profits between the two films despite the revenues being the same. This is because the cost has risen substantially but using contract B and paying on a fixed and variable method has ensured that the cost falls down which has made the profits match to a certain extent. It is also seen that it is helping the business to earn revenues and is a method which can be followed well. Question 3 Part A. Cost of each product based on current allocation method Common overhead expense = 1000000 Allocation = No of units produced No of units produced = 2500000 Per unit overhead expense = 0.4 per unit Per unit cost for J 275 = (235000 + 65000)/ 200000 + 0.4 = $1.9 per unit Per unit cost for R 895 = (590 + 80) / 1000 + 0.4 = $1.07 per unit Per unit cost for T 28A = (2800 + 1100) /14000 + 0.4 = $0.6785 per unit Per unit cost for Y 477 = (50000 + 10000) / 90000 + 0.4 = $ 1.096 per unit Question 3 Part B. Calculation of cost per unit by spreading common cost over units produced and expedition cost over product line Common overhead expense = 1000000 Depreciation = 325000 Expeditors salary = 675000 Total Unit produced = 2500000 Per Unit cost for depreciation = 325000 / 2500000 = 0.13 per unit Product Line = 490 Expedition cost per product line = 675000 / 490 = 1377.55 per product line Per unit cost for J 275 = (235000 + 65000 + 1377.55)/ 200000 + .13 = $1.64 per unit Per unit cost for R 895 = (590 + 80 + 1377.55) / 1000 + .13= $2.18 per unit Per unit cost for T 28A = (2800 + 1100 + 1377.55) /14000 + .13= $0.51 per unit Per unit cost for Y 477 = (50000 + 10000 + 1377.55) / 90000 + .13= $ 0.81 per unit Question 4 Part 1 CBA is administered on the basis of customer satisfaction. This is the top most priority and linking the bonus scheme to the growth in profits demonstrates the fact customer value falls high. In a public company the role of shareholders, directors and CEO plays a huge role. The shareholders determine the future course of action that the company needs to follow. A approval form them is required if the company intends to bring a change in the way it performs. This should be unanimously passed and supported by directors and CEO as they represent the shareholders. Also the fact that companies must adhere to corporate governance and see that every decision helps to increase value for shareholders. This decision which brings a change in policies and the manner in which a company is working takes place in the annual general meeting. Here a vote is done and if the resolution is supported by shareholders then it is passed and the directors and CEO have to abide by it. Question 4 Part 2 a Business looking for bonus on the basis of growth in profits faces some problems which can affect the growth of the business. The problems faced are as follows In case the “profits fluctuate then the bonus might be affected which might lead to de-motivating the work force”. (Scott, 1995) Some employees might feel that “they are not rewarded properly as their performance is based on the entire organisation and if others don’t perform as per the expectation they lose”. (Scott, 1995) This might made the employee lose interest and not work hard relying on others. In case of excess profits the business might have to higher bonuses resulting in the business loosing vital money. B Yes, the proposed scheme by John Schubert and the board would overcome some obstacle as their bonus scheme being designed on the profits and customer satisfaction both will have a different bearing. Also the fact that the scheme has been broken up into small components where the employees get bonus on the basis of profits earned and the percentage varies will ensure that the business doesn’t looses vital money. The fact that consumer confidence has also been considered and employees get bonus if that improves which will require time will ensure that the business is able to concentrate on important factors which will help the business to grow. Question 4 Part 3 a Customer satisfaction and business value are linked to each other as one leads to other. Customer value is “the additional benefit a customer gets from a product and the amount the customer has to pay for it”. (Customer Value, 2010) A business that has been able to achieve higher customer value ensures that customer satisfaction is high. This helps the business units to mould the customer satisfaction into business value. The value can be driven by the business to earn higher profits and ensure growth. b. Balance scorecard is a “tool which has been developed by the management to keep a track of the activities of the employees and monitor their actions”. (Norton, 2010) This tool helps the management to ensure that it is able to concentrate on areas of importance and use strategies to develop them. Some of the areas which the balance scorecard helps are as follows It looks into the financial perspective and ensures that “business is able to provide timely and accurate funding to the business and ensure that the financial angle is looked after”. (Norton, 2010) this thus helps to ensure that business is able to manage their funds properly and ensures that growth is not hampered. It looks into the customer perspective and ensures that “customer satisfaction is given a priority and measures are taken to ensure that customer gets what they want their laying importance to customer demands”. (Norton, 2010) this thus helps to find areas which will improve customer satisfaction and directing activities in those direction will ensure those. It looks in the learning and growth perspective and ensures that “proper training and guidance along with motivation is provided to the employees so that they can shape the both individual and corporate image”. (Norton, 2010) this will help to make employees ensure that they keep with the changing times and providing mentorship will help the business to ensure growth. Thus we see that a balanced scorecard helps to lay stress on areas which will help the business to improve their performance. This will help the business to ensure that all areas of importance are looked after and will help the business to grow. References Norton D, 2010, “Balanced scorecard Method”, value based management, retrieved on May 16, 2010 from http://www.valuebasedmanagement.net/methods_balancedscorecard.html Customer Value, 2010, “Customer Value”, retrieved on May 16, 2010 from http://www.businessdictionary.com/definition/customer-value.html Scott H, 1995, “Bonus programs with a motive: profit sharing plans”, retrieved on May 16, 2010 from http://findarticles.com/p/articles/mi_m1154/is_n12_v83/ai_17753852/ Read More