Business Analysis and Interpretation
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Added on 2020-03-28
Business Analysis and Interpretation
Added on 2020-03-28
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Business Analysis andInterpretation[Type the abstract of the document here. The abstract is typically a short summary of the contentsof the document. Type the abstract of the document here. The abstract is typically a short summary of the contents of the document.]
Question 1a) The monthly cash budget for the Landscaping Business for the three months ended 30 September 2016 is presented below:ParticularsJuly AugustSeptemberBeginning cash balance$26,500-$74,000$61,800Add: Budgeted cash ReceiptsFees$1,40,000$1,60,000$2,00,000Proceeds from sale of surplus non-current assets$1,00,000Total cash available for use$1,66,500$1,86,000$2,61,800Less: Cash disbursementsSalaries and wages$70,000$70,000$70,000Supplies$8,500$9,200$12,000New Equipment$1,20,000Purchase of plants$42,000$45,000$61,000Total disbursements$2,40,500$1,24,200$1,43,000Budgeted ending cash balance-$74,000$61,800$1,18,800b) In case the business decides to lease the new equipment instead of buying it, the cash changed cash budget is presented below:ParticularsJuly AugustSeptemberBeginning cash balance$26,500$36,000$1,61,800Add: Budgeted cash ReceiptsFees$1,40,000$1,60,000$2,00,000Proceeds from sale of surplus non-current assets$1,00,000Total cash available for use$1,66,500$2,96,000$3,61,800Less: Cash disbursementsSalaries and wages$70,000$70,000$70,000Supplies$8,500$9,200$12,000New Equipment$10,000$10,000$10,000Purchase of plants$42,000$45,000$61,000Total disbursements$1,30,500$1,34,200$1,53,000
Budgeted ending cash balance$36,000$1,61,800$2,08,800From the above we see that if the company leases the new equipment, the ending cash balance is positive for all the three months whereas in the initial arrangement, when the company had bought the equipment and paid for it in the month of July, the ending cash balance of July was negative as cash payments were more than the cash receipts. It is very important for any business to maintain a positive cash balance at any given point in time because cash is required on a day to day basis to run the business operations smoothly. If the cash balance is negative, the company will have to borrow money from the bank and this borrowing will attract interest which is a finance cost to the company[CITATION Ros121 \l 16393 ]. Moreover as a result of leasing, the cost of the equipment will be evenly divided throughout the year.Hence, it is better to lease the new equipment in order to maintain a positive cash balance for all the three months.Question 2Break even points in units = fixed costs / contribution marginFixed costs = $402,800Contribution margin = selling price per unit – variable cost per unitParticulars1 year old tree2 year old tree3 year old treeTotalSelling price$20$28$45$93Variable cost per unit$12$18$27$57Contribution margin per unit$8$10$18$36Therefore, total break- even point in units = $402,800 / $36= 11,189 unitsFor per product break-even units, the total break-even units are divided between the products on the basis of the percentage of product sale in total sales.1 year 2 year 3 year Total
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