+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
What are effective work capital management techniques or strategies? Explain how rapidly expanding sales can drain the cash resources of a firm. Explain in DETAIL. How should
Suppose that the workers' compensation policy changed so that only government-assigned physicians could verify injury claims.-  What is likely to happen to the rate of repor
What is the value of equity? Stock price (or market cap)? Or a sort of book value? Union Pacific Railroad reported net income of $770 million in 1993, after interest expenses
The balance sheet of Tribank starts with an allowance for loan losses of $1.33 million. During the year, Tribank charges off worthless loans of $0.84 million, recovers $0.22 m
The liquidity premium theory of the term structure helps explain why on average, the Treasury yield curve typically slopes upward. The liquidity premium theory relies on the f
Given the following X-Corp.’s options between two CD offerings, perform the following tasks by applying appropriate techniques/methods where necessary in M. Which one is bette
Rocky Mountain Lumber, Inc., is considering purchasing a new wood saw that costs $50,000. The saw will generate revenues of $100,000 per year for five years. The cost of mater
A large retailer obtains merchandise under the credit terms of 3/20, net 30, but routinely takes 55 days to pay its bills. (Because the retailer is an important customer, supp