ACC00724-Accounting for Managers
Assignment
The Overall Scenario
You work for a management consulting firm and have 3 client jobs to complete:
1. Prepare a cash budget for XYZ Pty Ltd and provide associated advice on required financing;
2. Prepare and interpret a variance analysis for ABC Pty Ltd; and
3. Advise LMN Pty Ltd on sources of finance.
Job Details
1. XYZ Pty Ltd operates in a seasonal industry with a sales peak in spring. Budgeted sales, along with budgeted raw materials and labour costs are shown in the table below.
All sales are on credit and past records indicate that collections are as follows: 20% in the month of sale, 55% in the month after sale and 25% in the second month after sale. Labour and materials are paid as follows: 60% in the month the expenses are incurred and 40% in the month following that.
Other budgeted expenses during the period July to December are as follows: selling, general and administration of $30,000 per month; rent of $10,000 per month; and depreciation of $20,000 per month. Where relevant, payments are made in the month the expenses are incurred.
Taxation payments of $33,000 each will be made at the end of September and end of December. In October, company motor vehicles will be traded-in for new models with an expected net cash payment of $80,000. The motor vehicles are expected to have an 8 year life
The cash balance at 1 July is $10,000.
Required:
(a) prepare a cash budget for the company for July through to December
(b) advise the company on the debt financing that would best be used to deal with cash shortfalls and major payments in the cash budget.
2. ABC Pty Ltd operates a no frills hairdressing salon with a single service offering: wash, cut and blow dry (WCD). The price of this service is $40.
The budget for September is shown below. Actual figures for September were: sales revenue of $30,400 for 760 units; supplies $2,000, variable utilities $1,520; labour costs $16,000; and fixed overhead $9,000.
Sales (WCDs) 800
Sales Revenue $32,000
Supplies $1,600
Labour $16,000
Variable utilities $1,600
Fixed overheads $9,000
Profit/(loss) $3,800
Required:
(a) prepare a variance analysis for September. The analysis should show the original budget, a flexed budget, actuals and relevant variances.
(b) To assist the Managing Director of ABC Pty Ltd in controlling the business, briefly interpret and provide possible explanations for the variances
3. LMN Pty Ltd is a new company with an interesting new service that shows great potential. However, the company needs more long-term finance to grow. Its founder, Harpreet, is an expert in her area but she knows very little about business. She is currently the only shareholder of the company and has no family or friends that could provide further financing. You have been asked to meet her on a video call to explain sources of long-term financing.
You have decided to keep it simple and explain the difference between debt and equity, and provide an example of each that would apply to a start-up business such as LMN.
