Analyzing Budgets and Making Decisions

This presentation focuses on analyzing budgets and making appropriate decisions for revenues and expenses. It covers topics such as cash flow, pricing decisions, project viability, and sources of finance. The presentation provides insights and suggestions for effective financial management.

TASK-5

Analyzing budgets and making appropriate
decisions
Revenues/Expenses Janua
ry
Febru
ary
March April May June
Expected sales 32000 48000 60000 65000 72000 90000
Total cash revenues 32000 48000 60000 65000 72000 90000
Cash payments
Total Purchase 20000 28000 40000 47000 65000 75000
Purchase of furniture
and equipment
7000 3000 2000 1000 1000
Other operational
expenses
2000 2200 2200 2350 2500 2550
Administrative
expenditures
800 1000 1000 1200 1200 1250
Electricity bill 500 500 800 1000 1200 1650
Total cash expenses 30300 31700 47000 53550 70900 81450
Net cash flow
(Surplus/deficit)
1700 16300 13000 11450 1100 8550
Opening cash balance - 1200 17500 30500 41950 43050

Cont...
 Cash budget reflects that surplus of the business is varying
time to time
 Cash balance in the month of May is 1100 which was
greater in the previous month

Suggestions
 Sainbury must have proper control over the business flow
 corporation should apply strategy to reduce the flow of
expenses and establish proper security and safety for the
business
 personnel can be provided training to speed the production
activities and positive impact of the same can be seen in
term of low cost.

Calculating the unit cost and making
pricing decision using relevant
information
Particular Cost (£)
Material cost 20000
Labour cost 15000
Other overheads 8000
Fixed cost 12000
Total cost 55000
Unit cost
(Total product
cost/No. Of unit
produced)
(55000/1000 units)
= 55

Pricing decision
Particular Calculation Amount
(£)
Unit Cost 55
Add:
Required
return
@30%
(55*30%) 16.5
Selling
price
71.5

Cont...
 cost plus mark up price has been set under which
percentage of profit as 30% has been set
 setting the 30% mark up company get profit worth 16.5 on
each unit. This leads to enhance overall profitability and
meet the long as well as short term objectives of the
business.

Assessing the viability of a project using
investment appraisal techniques
Payback period method-This is the most effective method
used for the calculation of payback period of project. This
assists firm to find the time period taken to recover the initial
investment. The below mentioned table reflects project 1 is
more viable in comparison to other mentioned one.

Cont...
Net present value method-Under this method, management of
Sainsbury find the best project in accordance with actual
future value of the project. The below mentioned table is
showing that project 1 is most beneficial as the net present
value of the same is higher.

Cont...
Internal rate of return-The below mentioned table is showing
that project 1 generate higher internal rate of return through
which it becomes easy for Sainsbury to select the best project
for its expansion.

Analyzing sources of finance available to
business
 Retained profit
 Bank loan
 Leasing companies

References
Adams, C. F., Litan, R. E. and Pomerleano, M., 2010. Managing
Financial and Corporate Distress: Lessons from Asia. Brookings
Institution Press.
Brotman, B. A., 2010. The impact of market conditions using
appraisal models. Journal of Property Investment & Finance. 28
(3). pp.237 – 242.
Drake, P. P. and Fabozzi, J. F., 2012. Analysis of Financial
Statements. 3rd ed. John Wiley & Sons.
Epstein, M. J. and Buhovac, A. R., 2014. Making sustainability work:
Best practices in managing and measuring corporate social,
environmental, and economic impacts. Berrett-Koehler Publishers.

Thank You