Financial Management - Cream Cheese Cookies Co Ltd - Assignment Example

CREAM CHEESE COOKIES CO. LTD. Name: Instructor: Course: Institution: Date: Part 1 1. CREAM CHEESE COOKIES 1cream cheese are types of cookies which are made using the following methods, working in it until the cream cheese is blended, you put sugar and cream to make sure it is smooth, then add egg plus vanilla, add some amount of flour to blend well. Put the mixture in a cookie shooter, give the baking machine the instructions on shapes of your preference, bake for about 10 or 15 minutes, and make the number of dozens that you desire. INGREDIENTS: 1c.Crisco 1(3oz.)cheese 1c.sugar 1eggyolk 1/2tsp.yolk 1/2tsp.vanilla 2 1/2 c. sifted flour COST OF RAWMATERIALS DIRECT MATERIALS Unit cost 1 cup (3 oz) cream cheese $ 1.32 1 cup sugar $ 0.15 1 egg yolk $ 0.10 2 ½ cup shifted flour $ 0.375 TOTAL $ 1.945 MANUFACTURING OVERHEADS Variable costs Fixed costs (Per dozen) (Per month) Utilities $ 0.50 Other indirect materials and labor $ 0.75 Maintenance $ 500 Depreciation $2000 Supervision $ 2500 TOTAL $ 1.25 $5000 OPERATING EXPENSES Variable costs Fixed costs (Per dozen) (Per month) Sales commission $ 0.40 Shipping costs $ 1.10 Salaries $ 1000 Depreciation $ 300 Other $ 2700 TOTAL $ 1.50 $ 4000 2 (a) Total variable costs for a dozen of cookies=4.25+1.50=5.75 (b). mark up on variable costs = 120% * 5.75 =6.90 ©. Contribution margin for a dozen cookie =total sales- variable costs=6.90-5.75=1.15 (d) Break-even point=variable costs+ fixed costs+ o= (5.75+21000+o)*3 EXPENSES 1. 1.Rawmaterials = $ 1.945 2. Manufacturing overheads =variable costs=$4.25 fixed costs=$5000 3. Operating expenses=variable costs 1.50 fixed costs 4000 Part 1 3 (a) Operating expenses in another name is period costs. They include expenses incurred at the time of selling, general and expenses incurred in running the business, interest and tax expenses 3(b) VARIABLE COSTS Utilities-you cannot determine how much you are going to spend on utilities, you always expect changes Other indirect materials and labor-are variable costs because they depend on units of products Sales commissions-are variable costs because they can increase or decrease concerning number of sales Shipping costs-usually depend with the number of products FIXED COSTS Maintenance-machines, buildings and other things that require maintenance always have a fixed cost Depreciation-will always remain constant whether you produce one product or a thousand products Supervision-if supervisors are there they are paid a fixed amount of money whether there is production or not Part 2 2(a) In doing business, the process is very complex and it does require many efforts for it to be successful, in business managers are aware that to coordinate a business is a challenge; the vital coordinating effort is to have a master budget, which acts as the financial plan for the whole organization, important coordination is important. The beginning of a master budget is looking at the expected sales through a sales budget. The sales you expect controls the plans of production and selling and other forms of budget such as, administrative and general budget. Production brings requirements for labor and materials. Factory overheads can be used using labor but revolves around comprehensive production. All processes in budgeting mostly start with the sales budget. Sales budget actually shows estimated sales volume, its outcomes caused by past sales patterns, present and designated economic conditions an so on. if the budget is to be of importance, collections, timing of cash must be carefully considered .Walther, L. (2010). Principles of accounts. Ney York 2(b) Sales budget the ability of the company or firm to get expected demand within or almost the company’s maximum returns potential Bolt, Gordon J. Market and Sales Forecasting. Franklin Watts, 2008. Sales budget is the beginning for budgeting process, the team given the work of sales tries to appropriate the amount in sale during the budget period and required sales price. Sales teams do use various types of plans when budgeting. Mentzer, J. T. (2008). Sales Forcasting Management. In order to develop an effective sales budget, a manager should apply the following strategies, identify the company’s goals, make sure you cater for staff, manage and train staff, have sales techniques, have a target market know the competitive advantage of the company and consider the costs; sales forecasting is a formal guess than a formula in mathematics. Start with predicting and estimating short-term sales example monthly sales and then long-term sales (years), this will help to know the number of products the company is to produce. William, C. (2008). the practice of marketing management. macmillan publishing. Sales budget provides a plan indicating the intended sales for a certain time in future; it also shows the details of the expenditure incurred in achieving sales. Henry, P. J. (2007). Sales Management and Motivation. Franklin Watts. . 2. Operating expenses includes all components in business expenditures, for instance wages, rent and depreciation among others, of which some are variables while others are fixed. Disbursements for operating expenses on the other hand are components of the operating expenses that control a firm’s cash flows. William, C. (2008). the practice of marketing management. macmillan publishing Accounting dictionary of accounting terms: Part 3 2 (a) In preparing income statements using absorption costing and using variable costing you will get different operating net income figures, absorption costing do include manufacturing costs in general while variable costing do include manufacturing costs variables only. (Milner, 2011) 2(b) A budget aids managers in planning for the future or time to come, if a manager does not budget he or she will not be in apposition to plan in the interest of the company. If managers do have a budget, they are in good position to see challenges before they come. Day to day problems are therefore minimized. Budgets make managers be in a position to organize people(labor)in the best economical areas with the highest rate of return creating awareness to managers of the resources which are less or scarce. Budget helps managers to measure the performance in comparison with the amount budgeted, making them know if particular departments are performing. A budget will help in coordinating activities of the company making the people to concentrate on the most rewarding areas. A budget motivates people in the organization in that people are aware of the firm’s goals therefore having a direction of achieving the firm’s goals and objectives. (Robert, 1999) 2 (c) Sensitivity analysis is a method applied to show how values of independent variables will affect a certain dependent variable given some assumptions; sensitivity analysis should used in a certain way, which depends on a single, or many input variables, in short sensitivity analysis speculate the expectation of decisions, that is if the situation do not concur with the predictions. (Horgren, 2004) Spreadsheet provides a creative way of solving problems, easy or difficult calculations solved with the use of spreadsheet in relation to sensitivity analysis looks simpler. This acts as a good way of enhancing creative thinking, in an environment free from risks and provide an automatic tool for doing this, (Mentzer, 2008) References Henry, P. J. (2007). Sales Management and Motivation. New York: Harper collins Horgren C, F. (2004). Cost Accounting a Managerial emphasis. New York: McGraw hill Mentzer., J. (2008). Advanced Spreadsheet Modeling With Lotus. New York: Wiley and sons Mentzer, J. T. (2008). Sales Forcasting Management. New Jersey: prentice hall Milner, J. (2011). Accounting for Management. London: Black well Robert, G. (1999, November wednesday). Business and Management , pp. 123-127. Walther, L. (2010). Principles of accounts. New York: McGraw hill William, C. (2008). the practice of marketing management. London: macmillan publishing. Budget: Sales budget/Cash collection budget for the quarter ending march 31st January February March April TOTAL SALES Expected sales in dozen of cookies 3000.00 2000.00 4000.00 6000.00 15000.00 Selling price per dozen $6.90 $6.90 $6.90 $6.90 $27.60 Total sales in dollars $20,700.00 $13,800.00 $27,600.00 $41,400.00 $103,500.00 total cash sales $14,490.00 $9,660.00 $19,320.00 $28,980.00 $72,450.00 total credit sales (3o%) $6,210.00 $4,140.00 $8,280.00 $12,420.00 $31,050.00 CASH COLLECTIONS cash sales this month $ 14,490.00 $ 9,660.00 $ 19,320.00 $ 28,980.00 $ 72,450.00 100% of last months credit sales $ 6,210.00 $ 4,140.00 $ 8,280.00 $ 18,630.00 Total cash collections $ 14,490.00 $ 15,870.00 $ 23,460.00 $ 37,260.00 $ 91,080.00 Eggs Dozen of cookies to be produced 3000 2000 4000 6000 15000 Raw materials for dozen cookies 0.5 0.5 0.5 0.5 0.5 Production/cost of goods sold needs 1500 1000 2000 3000 7500 Add desired ending raw material inventory 90 205 310 450 450 Total needs 1590 1205 2310 3450 7950 less:Beggning raw materials inventory 90 205 310 Raw materials to be purchased 1590 1115 2105 3140 7950 cost of raw materials per cup 0.1 0.1 0.1 0.1 0.1 Total cost of raw materials 159 111.5 210.5 314 795 cream cheese Dozen of cookies to be produced 3000 2000 4000 6000 15000 Raw materials for dozen cookies 1.32 1.32 1.32 1.32 1.32 Production/cost of goods sold needs 3960 2640 5280 7920 19800 Add desired ending raw material inventory 60 75 150 200 200 Total needs 4020 2715 5430 8120 20000 less:Beggning raw materials inventory 60 75 150 Raw materials to be purchased 4020 2775 5355 7970 20000 cost of raw materials per cup 3 3 3 3 3 Total cost of raw materials 12060 8325 16065 23910 60000 TOTAL RAWMATERIAL PURCHASE 30849 4,002,870,937 8,005,741,276 12,008,611,724 30,030,585,795 Direct material purchases/Cash disbursment budget continued Total rawmaterials inventory April 30th units units unit cost total Total rawmaterials inventory April 30th units units $ 24,108.50 flour/sugar 900 $ 0.15 $ 135.00 eggs cheese 250 $ 0.10 $ 25.00 180 $ 1.32 $ 237.60 Total rawmaterials inventory April 30th units inventory $ 397.60 cost of goods sold $ 23,710.90 Schedule of expected cash disbursements January February March April TOTAL 20% of current month's raw material purchases 6169.80 800574187.30 1601148255.10 2401722344.80 6006117159.00 80% of prior month's raw materials purchases 24679.20 3202296749.20 6404593020.40 9606889379.20 24024468636.00 Total cash disbursements 30849.00 4002870936.50 8005741275.50 12008611724.00 30030585795.00 Manufacturing overhead budget for January to April January February March April TOTAL Dozens of cookies to be produced 3000 2000 4000 6000 15000 Variable manufacturing overhead per dozen 1.25 1.25 1.25 1.25 1.25 Budgeted variable overhead 3750 2500 5000 7500 18750 Budgeted fixed overhead 4000 4000 4000 4000 16000 Total budgeted manufacturing overhead 7750 6500 9000 15000 34750 Less:non cash expenses depreciation 1000 1000 1000 1000 4000 Cash disbursements for manufacturing overhead 6750 5500 8000 14000 30750 Operating expense budget for January to April January February March April TOTAL Dozens of cookies to be produced 3000 2000 4000 6000 15000 Variable operating expenses per dozen 1.5 1.5 1.5 1.5 1.5 Budgeted variable expense 4500 3000 6000 9000 22500 Budgeted fixed expenses 4000 4000 4000 4000 16000 Total budgeted operating expenses 8500 7000 10000 13000 38500 Less:Non cash expenses-Depreciation 300 300 300 300 1200 Cash expenditure for operating expenses 8200 6700 9700 12700 37300 Pro forma Budgeted Income Statement-Variable for the four months ending April 30th Sales $103,500.00 variable costs: Direct materials $ 23,710.90 manufacturing overhead $18,750.00 operating expenses 22500 less;total variable costs $64,960.90 contribution margin $38,539.10 fixed costs manufacturing overhead $ 16,000.00 operating expenses $ 16,000.00 interest expense(from cash budget) $ 1,380.00 less:total fixed costs $ 33,380.00 operating income $5,159.10 less income taxes $1,289.78 net income $3,869.33 Pro forma budgeted income statement-Absorption for four months ending April 30th sales $103,500.00 cost of goods sold direct materials $ 23,710.90 manufacturing overhead $34,750.00 less total cost of goods sold $ 58,460.90 gross profit $45,039.10 less operating expenses $ 38,500.00 less interest expense(from cash budget) $ 1,380.00 operating income $5,159.10 less income taxes $1,289.78 net income $3,869.33 Cash budget for the four months ending 30th April January February March April Total cash beginning balance 10177 10620 10800 capital contributions 50000 50000 add collections 21848 26040 31730 35752 115370 total cash available 71848 36217 42350 46552 165370 less disbursements direct materials $0.00 0.00 0.00 0.00 0.00 manufacturing overhead $0.00 $0.00 $0.00 $0.00 $0.00 operating expenses $ - $ - $ - $ - $ - income taxes $0.00 $0.00 equipment purchases 90000 90000 total disbursements $0.00 0.00 0.00 0.00 90000.00 excess(deficieny)of cash $71,848.00 36217.00 42350.00 46552.00 75370.00 financing: borrowings 50000 0 0 0 50000 repayments 4000 2000 1000 7000 interest 500 460 420 1380 total financing 50000 -4500 -2460 -1420 41620 cash balance,ending 10177 10620 10800 10732 10732 Budgeted Balance Sheet as at April 30th ASSETS Current Assets cash 10732 accounts receivable 16054 raw materials inventory 1026 total current assets 27812 fixed assets(less accumulated depreciation) 83400 total assets 111212 LIABILITIES AND EQUITIES liability accounts payable 5495 notes payable 44000 total liabilities 49495 Equity capital contributions 50000 retained earnings 3869.325 total equities 53869.325 total liabilities and equties 103364.325 Read More