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




Assignment Help
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
You have decided to buy a house. You can get a mortgage rate of 5 percent, and you want your payments to be $1,540 or less. How much can you borrow on a 15-year fixed-rate mor
A $100 face value preferred share (with no special features) with a stated 4% dividend is observed trading in the market at $103.24. What is discount rate must the market be u
Suppose the government announces that, based on a just completed survey, the growth rate in the economy is likely to be 2% in the coming year, as compared to 5% for the year j
If interest parity holds and the interest rate in the U.K. is 6 percent, the interest rate in the US is 4.5 percent, and the one-year forward exchange rate is 1.75 dollars per
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company iss
The rate that can be locked in for the period between six months and nine months using an FRA is 7%. - What arbitrage opportunities are open to the bank? All rates are continu
Kahn Inc. has a target capital structure of 50% common equity and 50% debt to fund its $10 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 14%, a before-tax
You have $36,400 on deposit with no outstanding checks or uncleared deposits. One day you write a check for $6,300 and then deposit a check for $4,700. What are your disbursem