MANAGING FINANCE RESOURCE

Managing Finance Resources and Decisions



Managing Finance Resource and Decisions

Task 3: Alpha Ltd

3.1 (a) Prepare Monthly Cash Budget from July to December and recommend for the short term borrowing analysing the results. (AC 3.1)

Alpha Ltd

Cash budget 

For the period ended Dec 2009

 

June

July

August

September

October

November

December

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Cash inflows

 

Sales

280

500 550 600 630 640 660

 

 

Cash sales: 50%

250 275 300 315 320 330

Cash sales: 50%

140 250 275 300 315 320

Total cash sales

390 525 575 615 635 650

 

 

Cash outflows

 

Payment to suppliers

120 250 260 280 300 320

Administrative Expense

110 120 124 130 136 140

Packaging Costs

2 2 4 6 6 6

Delivery costs

5.00 5.50 6.00 6.30 6.40 6.60

Misc Expenses

12 12 14 14 16 16

Loan Payments

100 100

 

Total Cash outflows

349 390 408 436 564 489

 

 

Net Cash flow

41 136 167 179 71 161

Opening Balance

(310)

(269)

(134)

34 212 283

Closing Balance

 

(269)

(134)

34 212 283 444

Working

Sales Receipts

 

July

August

September

October

November

December

 

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

Cash: 50% of 500

250

 

Credit: 50% of 280

140

 

 

390

 

 

 

Cash: 50% of 550

275

 

Credit: 50% of 500

250

 

 

525

 

 

 

Cash: 50% of 600

300

 

Credit: 50% of 550

275

 

 

575

 

 

 

Cash: 50% of 630

315

 

Credit: 50% of 600

300

 

 

615

 

 

 

Cash: 50% of 640

320

 

Credit: 50% of 630

315

 

 

635

 

 

 

Cash: 50% of 660

330

 

Credit: 50% of 640

320

 

 

 

 

 

 

 

650

 

3.2 (b) Prepare Profit & Loss Account for Alpha Ltd for the six month period ending December 2009 based on the above given scenario. (AC 3.2)

Alpha Ltd

Profit & Loss Account

For the period ended Dec 2009

 

£'000

£'000

Sales*

3,580

Cost of Sales**

1,938

Gross Profit

 

1,642

 

 

Delivery costs

35.80

 

Admin. Expenses

760

 

Misc Expenses

84

 

Total Expenses

879.80

Net profit

 

762.20

Working

 

July

August

September

October

November

December

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Sales*

500

550

600

630

640

660

3580

 

 

Cost of Sales **

 

 

 

 

 

 

 

Opening Stock

500

Add: Purchases

250 260 280 300 320 330 1,740

Less: Closing Stock

340 1,900

Packaging Costs ***

4

6

6

6

8

8

38

 

 

 

 

 

 

 

1938

 

 

 

 

Delivery costs 5.00 5.50 6.00 6.30 6.40 6.60

35.8

Note: Delivery Costs could have been included in Cost of Goods Sold

 

 

Admin. Expenses ****

110 120 124 130 136 140

760

 

 

Misc Expenses *****

12 12 14 14 16 16

84

c) Explain the different types of costs involved in the production and the implications of such costs in pricing decisions in general.

Production cost is the only force that governs supply of the product. Companies usually select a combination of factors that reduces or minimizes production cost at a particular output level. Commodity production demands expenses that have to be incurred on different factors (Graham, Smart, 2011, p. 478). Cost of production is the total expenses incurred in order to pay for factors of production. These costs usually comprise of direct cost, selling cost and sundry cost. Cost of production for few companies comprises of all type of expenditures that are expressed in term money while few companies only take those expenditure that had entirely forfeit under-gone by the factors in the production. Following are the different types of costs involved in the production (Lee et al., 2011, p. 182).

Accounting Cost and Economic Cost: Accounting cost includes all those expenses that are entre in the book of accounts such as wages, rent expense for land and building, interest expense, raw material expenses, utility expense, selling and other administrative ...