+1-415-670-9189
info@expertsmind.com
Determine operational expenditures
Course:- Financial Management
Reference No.:- EM13233




Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Financial Management

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances, data can assist managers in performing what-if analysis (sometimes referred to as 'sensitivity analysis'), whereby discussions can focus on likely behaviour given changing sets of data.

Suppose that the management of a manufacturing company has approached you as a consultant. You have been asked to analyse financial data and develop alternative budget scenarios to help the company make some pricing decisions with which it is struggling.

The details of this are as follows:


The Blake Manufacturing Corporation manufactures and sells folding umbrellas. The corporation's condensed income statement for the year at 31 December 2011 follows:


Sales (200,000 units)

 

$1,000,000

Cost of goods sold

 

600,000

Gross margin

 

400,000

Selling expenses

$150,000

 

Administrative expenses

100,000

 

Net profit (before income taxes)

 

$150,000

Blake's budget committee has estimated the following changes for 2012:

- 30% increase in number of units sold

- 20% increase in material cost per unit

- 15% increase in direct labor cost per unit

- 10% increase in variable indirect cost per unit

-  5% increase in indirect fixed costs

-   8% increase in selling expenses, arising solely from increased volume

-   6% increase in administrative expenses, reflecting anticipated higher wage and supply price levels

Any changes in administrative expenses caused solely by increased sales volume are considered immaterial.

Because inventory qualities remain fairly constant, the budget committee considered that for budget purposes any change in inventory valuation can be ignored. The composition of the cost of a unit of finished product during 2011 for materials, direct labor and manufacturing support, respectively, was in the ratio or 3:2:1. In 2011, $40,000 of manufacturing support was for fixed costs. No changes in production methods or credit policies were contemplated for 2012.




Put your comment
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
When you graduate you have $15,000 on your credit card which charges an APR of 14% compounded monthly. The credit card company tells you that your minimum payment is $232.90.
Consider the following cash flows on two mutually exclusive projects: Year Project A Project B 0 –$ 56,000 –$ 71,000 1 36,000 35,000 2 31,000 44,000 3 26,000 47,000 The cash f
You are considering purchasing a stock, and will sell it for $100 per share in 2 years. Dividends per share were $2 per share this year, but you expect them to increase at 20%
Burnwood Tech plans to issue some $60 par preferred stock with a 5% dividend. A similar stock is selling on the market for $74. Burnwood must pay flotation costs of 7% of the
Risk and Return. We have seen that over long periods of time, stock investments have tended to substantially outperform bond investments. However, it is not at all uncommon to
Sorenson Inc. has sales of $3,112,489, a gross profit margin of 23.1 percent, and inventory of $833,145.-What are the company's inventory turnover ratio and days' sales in inv
If 10 year T-bonds have a yield of 6.0%, 10 year corporate bonds yield 8.5%, the maturity risk premium on all 10-year bonds is 1,3% and corporate bonds have a 0.4% liquidity p
If you observe news reports about financial markets for some time, you will notice that investors pay a tremendous amount of attention to economic data releases from thee gove