Given, Commencement of trading by Grommets Ltd is: January 2021 Share Capital of Grommets Ltd = £ 50,000
Amount to be spent on equipment for the company = £ 140,000
The number of funds raised by the means of a loan is = £ 125,000
Instalment or the monthly repayments of principal and interest amount (combined) are = £ 3,650 per month.
Expected sales for the month of January 2021 = £ 60,000 per month
Expected sales for the month of February 2021 = £ 60,000 per month
Expected sales for the month of March 2021 = £ 60,000 per month
The inventory at the beginning of the operational year is estimated to be = £ 30,000
Estimated purchase of inventory per month = 30% of Sales
Wages per month = £ 20,000 (payable during the month when incurred)
Salaries per month = £ 10,000 (payable during the month when incurred)
Overhead expenses per month = £ 10,000 (payable one month in arrear)
| Beginning Cash Balance | 30,000 | 145000 | 260000 |
| Add: Budgeted Cash Receipts: | 60000 | 60000 | 60000 |
| Total Cash Available for Use | 3650 | 3650 | 3650 |
| Less: Cash Disbursements | N/A | N/A | N/A |
| Direct Material | N/A | N/A | N/A |
| Direct Labor | 20000 | 20000 | 20000 |
| Factory Overhead | 10000 | 10000 | 10000 |
| Selling and Admin. Expenses | 10000 | 10000 | 10000 |
| Equipment Purchases | 140000 | N/A | N/A |
| Total Disbursements | N/A | N/A | N/A |
| Cash Surplus/(Deficit) | N/A | N/A | N/A |
| Financing: | |||
| Borrowing | 125000 | N/A | N/A |
| Repayments | 3650 | 3650 | 3650 |
| Interest | N/A | N/A | N/A |
| Net Cash from Financing | N/A | N/A | N/A |
| Budgeted Ending Cash Balance | 145000 | 260000 | 375000 |
The company can face several cash flow problems due to the cash budget of the organization. A good cash flow budget is one that considered all the cash competencies of the organisations and their finances. The following are the consequences and problems that the organization is going to face n the coming months:
Corrective measures that can be taken to overcome the cash flow shortcomings are:
(c) differences between fixed and flexible budgets are as follows:
| Fixed Budget | Flexible Budget |
| The fixed budgets are not flexible and do not change with the volume of sales and output achieved. | The flexible budgets are flexible and they change with the volume of sales and output achieved. |
| In the case of a fixed budget, the assumptions are made that the business outputs and conditions remain static. | In the case of a flexible budget, the assumption is not made that the business outputs and conditions remain static. |
| In the case of a fixed budget, it is difficult to estimate the results or forecast results and outputs. | In the case of a flexible budget, it is easier to estimate the results or forecast results and outputs. |
| In the case of a fixed budget, the application of cost control tools is limited. | In the case of flexible budgets, the application of cost control tools is not limited. |
| In the case of a fixed budget, the comparison between the budgeted or estimated output and the actual out is not possible. | In the case of a flexible budget, the comparison between the budgeted or estimated output and the actual output is easily possible. |
| In the case of a fixed budget, the cost of operations in the business is not classified in the categories of fixed costs, variable costs or semi-variable costs. | In the case of flexible budgets, the cost of operations in the business is always classified in the categories of fixed costs, variable costs or semi-variable costs. |
| In the case of a fixed budget, the estimation is unrealistic and non-explanatory. | In the case of a flexible budget, the estimation is realistic and non-explanatory. |
(a)
Thus, the formula of the Return on capital employed is as follows:
Return on capital employed = (net operating profit / total asset) * 100
Profit = $ 12000
Total Asset = $ 760000
Current Liability = $ 17000
Therefore, ROCE = 14.12%
gross profit margin = ( Revenue – Cost of good sold) / revenue
Thus,
Sales / Revenue = $ 10000
Production Cost = $ 2500
Gross Profit = $ 7500
Gross Profit Margin = 75%
iii) Current ratio – the formula for current ratio is Current assets / current liabilities
Thus,
Current assets = $ 308000
Current liabilities = $ 1510000
Therefore, Current ratio = 0.98
(b) some of the recommendations are that the company must focus on its sales volumes. Because increasing the sale volume may lead to high gross profit margins. Although the current ratio of the organization is weak. Because the suitable current ratio is 2:1. Thus, the company lacks to maintain an adequate amount of liquid assets as well. This is needed to be kept in check to get better results.
(c ) the limitation of the ratio analysis is as follows:
Cash flow = $ 765,000
Payback period = is 1.83 years
(c) Sunk costs: sunk costs are the costs that cannot be recovered once they are incurred.
working capital: working capital is the summation of the current assets minus the number of current liabilities.
residual values: residual values are needed to calculate the depreciation of the company’s machinery. Therefore, this expense is incurred after the usage of the machine for a long period of time.
a)
The profit volume ratio (P/V) is the calculation of the rate of profit adjustment due to a change in market volume. The allocation made in relation to revenue is one of the major ratios for the measurement of profitability.
Using the following formula to obtain the PV or P/V ratio.
P/V ratio =contribution x100/sales (*Contribution means the difference between the sale price and variable cost)
The high-profit margin is granted when the P/V ratio is high. A low P/V ratio suggests a low margin of benefit. In the event of a poor margin, the organisation can either lift the purchase price to boost its PV ratio or maximise sales to generate successful business benefits. The high PV ratio condition is regarded as productive.
In the following, the p/v ratio, the breakpoint and the safety margin can be determined further.
Sales=1500
Contribution=sales price-variable cost=174-24=150
P/V ratio= 150 x100/1500=10%
10%, the production plant that will maximise profit for Giant Ltd for next year given that Giant Ltd has only managed to contract 45,000 labour hours for next year.
A profit calculator is a simple tool to calculate the profit earned during sales. This article will explain how to calculate profit and what gross profit is also. The last part deals with how the benefit ratio is measured.
When it speaks about one thing, the benefit is the difference between price and cost. The total benefit is the difference between sales and expense when dealing with larger quantities of goods. In general, the motivation behind most business deals is a benefit. On the one hand, a commodity or service needs to be bought and the other wants to market it for profit.
Profit represents the financial gain gained by exceeding revenues, expenses and taxes involved in sustaining the operation in problem while income is generated from economic activity. Any money received by companies who either pocket the cash or reinvest it into the corporation. Total receipts are measured as less total expenditures.
Profit =selling price-cost
Cost = 24+32+40=96
So, profit=174-96 =78
So, Giant’s profit based on the production plan in A is 78.
Profit =selling price-cost
Cost = 80+96+60=236
So, profit=340-236 =104
So, the production plant that will maximise profit according to this new factor is 104.
Everett M. Rogers has defined the five factors that affect the acceptance and progress of any innovation. As the feasibility of innovation is measured, whether it is a new product or service, comparing the advantages of innovation to the five considerations will help define potential obstacles to acceptance and areas of development.
Analysis has shown that the relative advantages, compatibility and sophistication of the first three facets consistently affect the degree of invention acceptance. Technologies that better fit these requirements likely attain the highest degree of saturation for prospective adopted individuals.
When an invention is deemed equivalent to the alternative approach it substitutes, it is implemented more generally. This relative gain could be economic, but it could also be (receiving email more quickly than typing and going to the post) or a prestige factor (“I need that product in order to look cool”). The new technology is cheaper than the old technology, or it is costly but more efficient. A relative advantage is important because a modern product seldom has no alternative, be it digital cameras, not analogue cameras, or video on demand rather than DVD rentals from a DVD store. But relative benefits are not adequate to guarantee rapid diffusion speed, and superior hardware, from the Dvorak keyboard to the Betamax or Video 2000 video recorder, is plentiful on the market.
Innovation is compatible with the collection of norms, values and other cultural aspects of religious beliefs which prevail in the population. This often entails branding issues: in a culture with a poor degree of compatibility, a commodity wearing the wrong name or the wrong colours.
Complexity is the degree to which an invention can be seen as a functional complexity, either because the user interface is not simple, or because it needs so many steps in sequence such as swallowing pills ten times a day per hour. This is an area in which well-conceived solutions, such as iPod and iTunes, bundle hardware and apps, may have a real competitive advantage: each component can be conveniently used by itself and the components have been optimally built to communicate.
Trialability is the extent to which an invention may be limitedly played with. It removes barriers to customers’ entrance, in particular the late majority. Trialability will help reassure those who are reluctant to use the technology and would slow down their use of it because they do not know whether it meets or satisfies prior practise standards. In order to enable subscribers to use the service, a substantial majority of telecommunications networks provide new offerings free of charge in their initial launch process, such as unrestricted mobile TV coverage.
Lastly, inventions that are less observable can spread more slowly than others, so they advertise observable innovations themselves. These may include technologies used only in domestic and not external uses or innovations that have provided less shelter than other goods.
According to Rogers, “five innovation attributes were found to account for around half of the variance in the rate of adoption of innovations.” The second half is based on:
Because, Marginal costing, as well as absorption, are two distinct methods used to measure the inventory, where only nominal costs incurred by the manufacturer by the marginal costing are added to the inventory while variable costs and fixed costs incurred by the company apply to the inventory in case of absorption costs.
Two cost accounting methods used to attribute the cost to the goods manufactured for assessment are marginal costing and absorption costs. A marginal cost assigns variable expenses to goods separately, and fixed costs would be excluded immediately from the contribution received as time costs. Fixed costs for absorption are often allocated as overheads to the expense of the component.
Marginal costs create a gap between the cost of the goods and the cost of the duration. The contingent costs incurring on goods are regarded as the expense of products and cycles are called the fixed costs paid by the entity in a given period. Thus, as the marginal price is applied to the expense of the goods, fixed costs are not added to the cost of the product, but removed from the commitment to achieving the amount of the operating benefit. The cost of absorption, as the name implies, consumes or charges fixed costs for the product. In addition to the variable expense for each substance on the basis of an absorption rate, absorption costs are thus distributed at fixed costs.