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Running head: WEEK 4 ASSIGNMENT 1 Week 4 assignment Name Ashford University Managerial Accounting BUS 630 Dr. Barrett April 29, 2013 WEEK 4 ASSIGNMENT 2 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 3 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 4 “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 5 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 6 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