Accounting for Managers 4

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Question 1 Cash Budget
Higlow Manufacture Ltd|
Financial Budgets - 2010|
Budgeted Cash Flow Statements| October| Beginning Cash Balance| $62,000.00|
Receipts:| |
Estimated cash sales:| |
October ($1248,961 × 58%)| 724,397.38|
September ($1,300,000 × 40%)| 520,000.00|
Total estimated cash sales| $1,306,397.38|
Payments:| |
Estimated cash payments:| |
Direct Material (75,467 ×$4)| 301,868.00|
Direct Labor (22,489 × $14)| 314,846.00|
Variable indirect cost (22,489 × $3)| 67,467.00|
Fixed indirect cost ($199,769 – $90,000)| 109,769.00|
Selling & Administration costs| 300,000.00|
Dividends| 130,000.00|
Total estimated cash payments| $1,223,950.00|
Estimated ending cash balance | $82,447.38|
Calculations
1. Estimate the October sale
∵ Contribution Margin = Selling price – Variable cost
= $49 - (12 + 14 + 3) = $20 ∴ The expected quantity of product sale in October:

Fixed Cost + Expected profit
Contribution Margin

= (109,769 + 300,000 + 100,000) = 25,484.45 ≈ 25,489 units $20

Total sale = 25,489 × $49 = $1,248,961
Production cost = 25,489 × $29 = $739,181
Total fixed cost = 409,769 + 739,181 = $1,148,950
(Without depreciation)

Finding expected profit total sale – total cost = $1,248,961 - $1,148,950 = $100,011 which is sufficient sales to earn 100,000 before taxes.

2. Estimate the quantity of product manufactured in October: Finished Good
Beginning balance 17,000
+Produced + ?
-Sold -25,489
=Ending balance =14,000

∴ Produced unit =14,000 – 17,000 + 25,489 = 22,489 units ∴ Used raw material = 22,489 × 3 =67,467 kg

3. Estimate the quantity of raw material purchased in October: Raw Material
Beginning balance 20,000
+Purchase + ?
-Used -67,467
= Ending balance = 28,000

∴ Purchased raw material = 28,000 – 20,000 + 67,467 = 75,467 kg -------------------------------------------------

Question 2 CVP Analysis
Part A - 1 (a)
Fixed costs (Production cost) $5,000,000
Variable costs 20.0% Revenue 62.5%

Contribution margin = Fixed costs = 62.5% - 12.5% = 0.8
Revenue 62.5%

Break-even point in revenues = Fixed cost = $5,000,000 = $6,250,000 CM per unit $ 0.8

Part A - 1 (b)
6,250,000 = 62.5% (Royal Rumble receives) Revenue of box office

Therefore, break-even in box office revenues = 6,250,000 = $10,000,000
62.5%
Part A – 2 The operating profit to Royal Rumble from the Feature Creature in its first year

Revenue (300,000,000 × 62.5%)| $187,500,000|
Production costs| $5,000,000|
Marketing expense (300,000,000 × 62.5% × 20%)| $37,500,000| Operating Profit| $145,000,000|

Part B – 1
Contract A
Fixed costs for contract A:
Production costs $21,000,000
Fixed salary 15,000,000
Total fixed costs$36,000,000

Variable cost = $0.25
Contribution margin = $0.75
Break-even point in revenues = Fixed costs
Contribution Margin
= $36,000,000 = $48,000,000
$0.75

Revenue to Royal Rumble = $48,000,000
Revenue to Box office= $48,000,000 = $76,800,000
62.5%

Contract B
Fixed costs for contract B
Production costs $21,000,000
Fixed salary 3,000,000
Total fixed costs$24,000,000

Variable cost = $0.25 (each $1 revenue of Royal Rumble 25cent will pay to media production) 0.15 (each $ revenue of Royal Rumble 15 cent will pay to directors/actors) $0.40

Contribution margin =...
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