Question 1 Cash Budget Higlow Manufacture Ltd| Financial Budgets – 2010| Budgeted Cash Flow Statements| October| Beginning Cash Balance| $62,000. 00| Receipts:| | Estimated cash sales:| | October ($1248,961 ? 58%)| 724,397. 38| September ($1,300,000 ? 40%)| 520,000. 00| Total estimated cash sales| $1,306,397. 38| Payments:| | Estimated cash payments:| | Direct Material (75,467 ? $4)| 301,868. 00| Direct Labor (22,489 ? $14)| 314,846. 00| Variable indirect cost (22,489 ? $3)| 67,467. 00| Fixed indirect cost ($199,769 – $90,000)| 109,769. 00|
Selling & Administration costs| 300,000. 00| Dividends| 130,000. 00| Total estimated cash payments| $1,223,950. 00| Estimated ending cash balance | $82,447. 38| Calculations 1. Estimate the October sale ? Contribution Margin = Selling price – Variable cost = $49 – (12 + 14 + 3) = $20 ? The expected quantity of product sale in October: Fixed Cost + Expected profit Contribution Margin = (109,769 + 300,000 + 100,000) = 25,484. 45 ? 25,489 units $20 Total sale = 25,489 ? $49 = $1,248,961 Production cost = 25,489 ? $29 = $739,181 Total fixed cost = 409,769 + 739,181 = $1,148,950 Without depreciation) Finding expected profit total sale – total cost = $1,248,961 – $1,148,950 = $100,011 which is sufficient sales to earn 100,000 before taxes. 2. Estimate the quantity of product manufactured in October: Finished Good Beginning balance 17,000 +Produced + ? -Sold -25,489 =Ending balance =14,000 ? Produced unit =14,000 – 17,000 + 25,489 = 22,489 units ? Used raw material = 22,489 ? 3 =67,467 kg 3. Estimate the quantity of raw material purchased in October: Raw Material
Beginning balance 20,000 +Purchase + ? -Used -67,467 = Ending balance = 28,000 ? Purchased raw material = 28,000 – 20,000 + 67,467 = 75,467 kg ————————————————- Question 2 CVP Analysis Part A – 1 (a) Fixed costs (Production cost) $5,000,000 Variable costs 20. 0% Revenue 62. 5% Contribution margin = Fixed costs = 62. 5% – 12. % = 0. 8 Revenue 62. 5% Break-even point in revenues = Fixed cost = $5,000,000 = $6,250,000 CM per unit $ 0. 8 Part A – 1 (b) 6,250,000 = 62. 5% (Royal Rumble receives) Revenue of box office Therefore, break-even in box office revenues = 6,250,000 = $10,000,000 62. 5% Part A – 2 The operating profit to Royal Rumble from the Feature Creature in its first year Revenue (300,000,000 ? 62. 5%)| $187,500,000| Production costs| $5,000,000| Marketing expense (300,000,000 ? 62. 5% ? 0%)| $37,500,000| Operating Profit| $145,000,000| Part B – 1 Contract A Fixed costs for contract A: Production costs $21,000,000 Fixed salary 15,000,000 Total fixed costs$36,000,000 Variable cost = $0. 25 Contribution margin = $0. 75 Break-even point in revenues = Fixed costs Contribution Margin = $36,000,000 = $48,000,000 $0. 75 Revenue to Royal Rumble = $48,000,000 Revenue to Box office= $48,000,000 = $76,800,000 62. 5% Contract B Fixed costs for contract B Production costs $21,000,000 Fixed salary 3,000,000 Total fixed costs$24,000,000 Variable cost = $0. 5 (each $1 revenue of Royal Rumble 25cent will pay to media production) 0. 15 (each $ revenue of Royal Rumble 15 cent will pay to directors/actors) $0. 40 Contribution margin = $0. 60 Break-even point in revenues = Fixed costs Contribution Margin = $24,000,000 = $40,000,000 0. 60 Revenue to Royal Rumble = $40,000,000 Revenue to Box office== $40,000,000 = $64,000,000 62. 5% Part B – 2 As calculated Part B-1, the break-even point under contract A is higher than contract B. It can be better understood in the following example. Assume the revenue of Royal Rumble is $48,000,000.
If the choice is contract A, then according to its break-even point $48,000,000, there is no profit left for Royal rumble. However, with the $40,000,000 break-even point of contract B, Royal Rumble will earn $8,000,000 operating profit. To maximum profit, Royal Rumble should choose contract B. Part B – 3 Revenues (0. 625 ? $300,000,000)| $ 187,500,000| Variable costs (0. 40 ? $187,500,000)| 75,000,000| Fixed costs| 24,000,000| Operating profit| $ 88,500,000| # Comment the difference in Operating income between the two films below; * Feature Creature 1 Revenue = $300,000,000 Contribution margin = 0. 8 Fixed cost = $5,000,000
Operating profit = ($300,000,000 ? 0. 8) – $5,000,000 = $235,000,000 * Feature Creature2 Revenue = $187,500,000 Contribution margin = 0. 6 Fixed cost = $24,000,000 Operating profit = ($187,500,000 ? 0. 6) –$24,000,000 = $88,500,000 The operating profit of the Feature Creature1 is more than twice of Feature Creature2. It can be explained by examining the contribution margin. The contribution margin of Feature Creature 1 is higher than Feature Creature2. It means after deducting the variable costs, the balance of revenue could contribute to cover fixed cost is higher in Feature Creature1 than Feature Creature2.
In addition, the fixed cost of Feature Creature2 is much higher than Feature Creature, which results in much less profit in Feature Creature2 than Feature Creature 1. ————————————————- Question 3 Costing and in an entity A) Rating Overhead per unit = Total overhead 2009 Total unit produced 2009 = 1,000,000 = $0. 4/unit 2,500,000 Per unit| Direct Material| Direct Labour| Overhead| Total cost| J-275| 235,000? 200,000 =1. 18| 65,000? 200,000 = 0. 33| 0. 4 | 1. 91| R-895| 590? 1,000 =0. 59| 800? 1,000 =0. 80| 0. | 1. 79| T-28A| 2,800? 14,000 =0. 2| 1,100? 14,000 =0. 08| 0. 4 | 0. 68| Y-477| 50,000? 90,000 =0. 56| 10,000? 90,000 =0. 11| 0. 4 | 1. 07| Per product| Direct Material| Direct Labour| Overhead| Total cost| J-275| 235,000| 65,000| 0. 4 ? 200,000 = 80,000| 380,000| R-895| 590| 80| 0. 4 ? 1,000 = 400| 1,070| T-28A| 2,800| 1,100| 0. 4 ? 14,000 = 5,600| 9,500| Y-477| 50,000| 10,000| 0. 4 ? 90,000 = 36,000| 96,000| | | | Total 122,000| | B) Common costs = $325,000 Unit produced = $2,500,000 Production expediting = $675,000 Product lines = 490 lines Rating 1
Common cost per unit = Common costs Total unit produced = 325,000 = $0. 13 per units 2,500,000 Rating 2 Product expediting =Expeditors salaries Number of product lines 2009 = 675,000 = $1377. 55/lines 490 | | | Overhead| | Per unit| Direct Material| Direct Labour| Common cost| Product Expediting| Total cost| J-275| 1. 18| 0. 33| 0. 13 | 1,377. 55? 200,000=0. 01| 1. 65| R-895| 0. 59| 0. 80| 0. 13 | 1,377. 55? 1,000=1. 38| 2. 90| T-28A| 0. 2t0| 0. 08| 0. 13 | 1,377. 55? 14,000=0. 10| 0. 51| Y-477| 0. 56| 0. 11| 0. 13 | 1,377. 55? 90,000=0. 02| 0. 82| | | | Overhead| |
Per Product| Direct Material| Direct Labour| Common cost| Product Expediting| Total cost| J-275| 235,000| 65,000| 0. 13 ? 200,000 = 26,000| 1,377. 55| 327,377. 55| R-895| 590| 80| 0. 13? 1,000 = 130 | 1,377. 55| 2,177. 55| T-28A| 2,800| 1,100| 0. 13? 14,000 = 1,820 | 1,377. 55| 7,097. 55| Y-477| 50,000| 10,000| 0. 13? 90,000 =11,700 | 1,377. 55| 73,077. 55| ————————————————- Question 4 Performance measurement 1. Answer * Shareholders – fundamental that they require the approval to grant approval the new plan for senior executives. And shareholders also do get the ability to vote on remuneration reports. The annual general meeting – the meeting of the Board and shareholders to discuss on approval of the new bonus plan. It is also reviewing fiscal information regarding the directions the business will take in the future. * The board of directors – They are a decision making. Board must brain storm to generate the new plan on the meet CBA’s goal in improving customers’ satisfaction. * Chief executive officer (CEO) –to improve customers’ satisfaction and higher the CBA’s standing in customers’ service ranking. There are also many primarily responsible to carry out the strategic plans and policies as established by the board of directors. . a. Answer 1. Lead to misbehavior of executives. 2. Shareholders, board members, and executives themselves disagree. 3. Too much emphasis on shorter incentive 4. Uncapped incentive plans 5. One-dimensional performance measurement b. Answer 1. Lead to misbehavior of executives – having bonus paid base on performances and depending on customer’s satisfaction could positively achieve higher ethic. Each step that is base on client’s satisfaction, the general results will be standard performance to most of the client in spite of their identity. 2.
Executives are being challenged that whether their pay are a lot. Some associational such as shareholders, politicians, and the public believe the Executives are overpaid. On the other hand, shareholders, board members, and executives themselves disagree. 3. Too much emphasis on short term incentive –lead to executive taking risk to pay off in the near-term with attractive rewards, without considering the long-term impact towards the company. CBA should well assure that the programs truly reward sustained ‘long-term’ results. 4. Uncapped incentive plans – reward to xecutive can be a windfall if the incentive plans are uncapped and affect the performance. If a certain funds are funded as a set percentage to annual revenues and profits, a similar problem may arise because such method does not cater how the results were generated. In a state whereby caps are not used or reward maximum. Alternatively, companies may consider deferring incentive amounts in excess of certain levels into stock or other forms of at-risk pay to ensure that the interests of executives are appropriately aligned with long-term, sustainable results. 5.
One-dimensional performance measurement – Incentive programs may over-simplify the assessment of performance when the evaluation of the results are based on only one or two metric and most likely it will encourage inappropriate risk taking. 3. a. Answer The aptitude to measures customer satisfaction, value, and loyalty to financial and market performance indicators should be component of the fundamental of any organization’s performance measurement and management process. Demand continues to grow for evidence of the bottom-line impact of customer satisfaction and loyalty initiatives.
Guidance and assurances are sought that investments made in managing relationships with customers, as well as those made in relevant process and quality improvements, can contribute to growth in revenues and profitability. Only by demonstrating such linkage can a strong business case for investing in customer satisfaction and loyalty be established. The increased profitability correlated with customer retention efforts take place the reason as following; * Acquisition cost incurred during the early stage of a relationship: the longer the relationship, the lower the amortized cost. Usually long term customers may not have much intention to switch and also tend to be less sensitive towards the pricing. It can positively increase the unit sales volume and increases in dollar-sales volume. Most Long term customers may have good intention for transmit free word of mouth promotions and referrals. * Long term customers most likely to purchase high end product and additional products at the same time. * Loyal customers tend to be satisfied with their relationship with the company and not easily go to competitors. * For usual customers(loyal customers) be like to be nexpensive to service because they know with the procedure and not need to educated and are consistent in their order placement. On the other hand the bank officers’ jobs will be much easier and more gratifying. In cycling, happy officers response into higher customer satisfaction. b. The Balance Scorecard Goals| Measures| Drivers| 1. Financial perspective| Maximize benefit/cost on overall financial value| Profitability| Contribution margin per product and contribution per customer group| | Economic value added| Divisional profit| Prosper| Increase market share and ROE| Increase perceived value on the part of the customer| 2.
Internal process perspective| Improve quality on services| Quality training and documentations| * Update manuals * Number of employees undertaking quality training| Customer response time| Customer response time| * Number of steps from customer transaction in to delivery in that particular services * Delivery time| 3. Innovation and improvement| Enhance knowledge management capabilities| Develop skill and knowledge | Number of employees attending training| Achieve positive employee climates| Employee satisfaction survey| Employee benefits, facilities and challenges | | Employee suggestions| Number of employee suggestions| Employee performance| Number of employees receiving bonuses | List of references Commonwealth Bank of Australia 2010, ‘Corporate’ viewed 13th May 2010, Integrated Bank Technology 2010, ‘Welcome to Integrated Bank Technology’ viewed 20th May 2010 Jacqueline Birt, Keryn Chalmers, Diana Beal, Albie Brooks, Suzanne Byrne, Judy Oliver 2008, ‘Accounting: Business Reporting for Decision Making’ 2nd edn, Craft Print International Ltd, Singapore Mercer LLC 2010, ‘ERP #78: Weathering the storm – Part II: Executive compensation reconsidered’ viewed 19th May 2010
