Download Week 4 assignment

Running head: WEEK 4 ASSIGNMENT
1
Week 4 assignment
Name
Ashford University
Managerial Accounting
BUS 630
Dr. Barrett
April 29, 2013
WEEK 4 ASSIGNMENT
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Chester & Wayne
1. Prepare a cash budget for each month of the fourth quarter and for the quarter in
total. Prepare supporting schedules as needed. (Round all budget schedule
amounts to the nearest dollar).
See schedule: answer 1
2. You meet with Mr. Chester and Mr. Wayne to present your findings and happen to
bring along you PC with the budget model software. They are worried about your
finding in Part 1. They have obviously been arguing over certain assumptions you
were given.
a. Mr. Wayne thinks that the gross margin may shrink to 27.5 percent because
of higher purchase prices. He is concerned about what impact this will have
on borrowings.
It may sound obvious, but understanding gross margin is often overlooked. This
can have a direct impact on your ability to effectively manage a business, price
your products, and most importantly, make a profit. Gross margin is the money
left after you have covered all the variable costs associated with the sale of a
product or service. “Understanding and monitoring gross margins can also help
business owners avoid pricing problems, losing money on sales, and ultimately
stay in business” (Beasley, 2013). Mr. Wayne is correct bank borrowing will
need to increase in November by $42,528 and in December by $28,122.
See schedule: answer 2 a
WEEK 4 ASSIGNMENT
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b. Mr. Chester thinks that the “stock outs” occur too frequently and wants to
see the impact of increasing inventory levels to 30 and 40 percent of the next
quarter’s sales on their total investment.
“One aspect has remained unchanged, perfect performance is difficult to
achieve, with many possibilities of stock outs and other failures which negatively
impact performance. In pursuit of higher service levels and improved
performance, many firms have begun to examine their internal functions to
discover logistics opportunities yet to be leveraged”(Voss, Calantone, & Keller,
2005, p. 3).Product stock outs, are instances when a certain product is not
available in stock for immediate purchase by a customer. A product stock out in
the majority of cases will not have a cash cost for the company ,except lost sales,
but it may have intangible costs to the business such as the satisfaction of the
customers, loss of future business, and delays/costs to customers. In some cases
supply contracts for certain goods and services will have a penalty clause which
penalizes the supplier if it cannot deliver the product or service, or a minimum
quantity. This is common when product stock outs incur large financial losses to
the customer and subsequent customers along the supply chain. Increasing
inventories may be a good idea but should be thoroughly planed out for storage
spat, cost and other expences before a decision is made
See schedule: answer 2
c. Mr. Wayne wants to discontinue the cash discount for prompt payment. He
thinks that maybe collections of an additional 20 percent of sales will be
delayed from the month of billing to the next month. Mr. Chester says
WEEK 4 ASSIGNMENT
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“That’s ridiculous! We should increase the discount to 3 percent. Twenty
percent more would be collected in the current month to get the higher
discount.
Delay in collections will increase the burden on bank borrowing therefore the
discount should not be continued. The borrowing interest rate is a concern
because offering more discounts will reduce the borrowing burden but the
company will have the cost for early payments, if the cost of early payment is less
than the cost of borrowing then the early payment should be encouraged
otherwise not. Gross margin is not that high already to increase the discount
would be a mistake.
WEEK 4 ASSIGNMENT
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REFERENCE
Beasley, C. (2013, January 09). Understanding gross margin and how it can make or break your
startup. Retrieved from http://www.sba.gov/community/blogs/community-blogs/small-
business-cents/understanding-gross-margin-and-how-it-can-make-
Schneider, A. (2012). Managerial accounting: Decision making for the service and
manufacturing sectors. San Diego, CA: Bridgepoint Education.
Voss, D. B., Calantone, R. J., & Keller, S. B. (2005). Internal service quality. International
Journal of Physical Distribution & Logistics Management, 35. Retrieved from
http://search.proquest.com.proxylibrary.ashford.edu/docview/232593330?accountid=32521
WEEK 4 ASSIGNMENT
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Answer-1
Oct
Nov
Dec
Total
Cash Budget
Cash collection
40% after 2% discount
308700 324106 340334 973140
25% without discount
196875 206700 217050 620625
30% in next month
225000 236250 206700 667950
Renting of warehouse
24000
24000
Sell of Marketable Securities
7351 192649
200000
Bank Borrowing
29750
53393
83143
Total Collection
761926 989455 817477 2568858
Supporting Schedules
Account Receivable
less payments
60% of Purchases and other
40% of Purchases and other
Equipment
Dividend
December 911,600
Total payments
Surplus or Deficit
Opening Balance
Closing Balance
429871
354155
357157
286580
250000
42000
238104
45000
784026
-22100
142100
120000
893737
95718
120000
215718
325104
492373
120000
612373
Answer-2
a
Oct
Cash Budget
Cash collection
40% after 2% discount
25% without discount
30% in next month
Renting of warehouse
Sell of Marketable Securities
Bank Borrowing
Total Collection
less payments
60% of Purchases and other
40% of Purchases and other
Equipment
Dividend
Nov
Dec
1012500
August $750,000
September
October $826,800
September 787,500
November 868,200
829027
878840 January 930,000
250000
45000
826800 868200
Purchases an other expenses
Oct
NOV
2002867 Cost of good sold
578760 607740
565991 add ending inventory
151935
0
142100 less beginning inventory-150388 -151935
708091 Total Purchases
580307 455805
Selling and admin
111340 113410
Advertising
24804
26046
Total to be paid
716451 595261
Total
Supporting Schedules
Account Receivable
70000
0
70000
1012500
August $750,000
308700
196875
225000
24000
23008
324106
206700
236250
176992
72288
777583 1016336
340334
217050
206700
973140
620625
667950
24000
200000
81515 153803
845599 2639518
September
October $826,800
September 787,500
November 868,200
December 911,600
445528
354155
469316
297019
250000
487722 1402567
312877 964051 January 930,000
250000
0
45000
45000
826800 868200 911600 930000
Purchases an other expenses
Oct
NOV
Dec
Jan
Total payments
799683 1016335 845600 2661618 Cost of good sold
599430 629445 660910 674250
Surplus or Deficit
-22100
0
0
-22101 add ending inventory 157361.3 165227.5 168562.5
Opening Balance
142100 120000 120000 142100 less beginning inventory-150388 -151935 -159530
Closing Balance
120000 120000 120000 119999 Total Purchases
606403.3 642737.5 669942.5
Selling and admin
111340 113410 115580
The borrowing will increase as follows
Advertising
24804
26046
27348
OCT
NOV
DEC
Total to be paid
742547.3 782193.5 812870.5
BY
0
42538
28122