Business Management

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Running head: BUSINESS MANAGEMENT
Business Management
Name of the Student
Name of the University
Authors Note
Course ID

1BUSINESS MANAGEMENT
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to A:..........................................................................................................................2
Answer to B:..........................................................................................................................2
Answer to question 2:.................................................................................................................3
Answer to A:..........................................................................................................................3
Answer to B:..........................................................................................................................4
Answer to question 3:.................................................................................................................5
Answer to A:..........................................................................................................................5
Answer to B:..........................................................................................................................6
References:.................................................................................................................................8

2BUSINESS MANAGEMENT
Answer to question 1:
Answer to A:
Name Sunshine Ltd
Cash Budget for the six months ending 31 October 2018
July August September October
₵ ₵ ₵ ₵
Receipts
Cash sales 11700 12600 10800 9000
Credit sales 11000 14300 15400 13200
22700 26900 26200 22200
Payments
Purchases 12000 16000 18000 14000
Overheads 8000 8000 8000 8000
---------- ---------- ---------- ----------
20000 24000 26000 22000
====== ====== ====== ======
Net cash flow 2700 2900 200 200
Add bank balance at
beginning of the month
7200 4500 1600 1400
Bank balance at end of
month
4500 1600 1400 1200
====== ===== ===== ======
Answer to B:
Four problems related to budgeting are as follows;
a. Inaccuracy: Budget is generally based on the set of assumptions which is not very far
from operating conditions based on which it was formulated (Weygandt et al. 2015).
On any change in business environment the cost structure or revenue of business may
change drastically causing the actual result to move off from the anticipated budget.

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b. Rigid decision making: Budgeting procedure emphasis on the management attention
while formulation period nears end. Given there is any fundamental changes in
market following the completion of budget, there is no system of reviewing or making
changes. This places the company in more disadvantage position.
c. Time consuming procedure: Budgeting is a time consuming procedure, particularly
in poorly organized environments (Kaplan and Atkinson 2015). Budgeting procedure
can more extensive if the conditions of business keeps on varying.
d. Expense distributions: Budget requires allocation of cost to numerous departments.
However, problem lies with departments that do not have the permission of
substituting the lower cost services which is available somewhere else.
Answer to question 2:
Answer to A:
Gross Profit Margin Brandon Ltd Gordon Ltd
Operating Profit 2280 1960
Revenues 15160 12260
Gross Profit Margin 15% 16%
Return on Equity
Profit After Tax 1320 1440
Equity Capital 9880 9440
ROE 13% 15%
Inventory Turnover Period
Closing Inventory 1580 1260
Cost of Sales 10720 8680
Inventory Turnover Period 53.80 52.98
Accounts Receivables Collection Period
Accounts Receivables 1720 1360
Credit Sales 15160 12260
Accounts Receivables Collection Period 41.41 40.49
Accounts Payable Settlement Period
Accounts Payable 1920 960

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Credit Purchase 10720 8680
Accounts Payable Settlement Period 65.37 40.37
Current Ratio
Current Assets 3300 2900
Current Liabilities 3040 1440
Current Ratio 1.09 2.01
Interest Cover Ratio
Profit before interest and tax 1760 1920
Interest 520 40
Interest Cover Ratio 3.38 48
Dividend per share
Dividends for the year 180 600
No of shares 6000 6000
0.03 0.1
EPS
Profit After Tax 1760 1920
No of Shares 6000 6000
EPS 0.29 0.32
Answer to B:
Limitations of ratio analysis are as follows;
Historical: The information obtained for ratio analysis is historical which is obtained from
the historical results. This does not signifies that similar outcomes would be carried in future.
Inflation: Ratio analysis fails to take into the account the inflation. Given the rate of inflation
has changed during any period under review, then it implies that the figures cannot be
compared across periods.
Aggregation: The information given in the financial report line of items used for ratio
analysis might have been aggregated in a different manner (Hoskin, Fizzell and Cherry
2014). Therefore, conducting ratio analysis on that line of trend does not compare the similar
information all through the entire period of time.

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Operational changes: A business might change its operational structure in a manner that
ratios computed several years before and compared to the similar ratio done today would
provide a misleading information.
Answer to question 3:
Answer to A:
Material Variance
Material Price
Variance
Material Price
Variance
Material Price
Variance
Product K
Amount
(£) Product L
Amount
(£) Product M
Amount
(£)
Standard Price 8.7 Standard Price 3 Standard Price 7.5
Actual Price 8.6 Actual Price 2.5 Actual Price 6.1
Actual Quantity 150 Actual Quantity 2800 Actual Quantity 7500
Material Price
Variance 15
Material Price
Variance 1400
Material Price
Variance 10500
Material Usage
Variance
Amount
(£)
Material Usage
Variance
Amount
(£)
Material Usage
Variance
Amount
(£)
Product K Product L Product M
Standard
Quantity 130
Standard
Quantity 2500
Standard
Quantity 5600
Actual Quantity 150 Actual Quantity 2800 Actual Quantity 7500
Standard Price 8.7 Standard Price 3 Standard Price 7.5
Material Usage
Variance -174
Material Usage
Variance -900
Material Usage
Variance -14250
Total Material
Variance
Amount
(£)
Total Material
Variance
Amount
(£)
Total Material
Variance
Amount
(£)
Product K Product L Product M
Standard
Quantity 130
Standard
Quantity 2500
Standard
Quantity 5600
Standard Price 8.7 Standard Price 3 Standard Price 7.5
Actual Quantity 150 Actual Quantity 2800 Actual Quantity 7500
Actual Price 8.6 Actual Price 2.5 Actual Price 6.1
Total Material
Variance -159
Total Material
Variance 500
Total Material
Variance -3750
Labour Variance

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Labour Rate
Variance
Amount
(£)
Labour Rate
Variance
Amount
(£)
Labour Rate
Variance
Amount
(£)
Product K Product L Product M
Standard Rate 8.6 Standard Rate 10 Standard Rate 3.84
Actual Price 8.7 Actual Price 11 Actual Price 4
Actual Hours 80 Actual Hours 4000 Actual Hours 9250
Labour Rate
Variance -8
Labour Rate
Variance -4000
Labour Rate
Variance -1480
Labour
Efficiency
Variance
Amount
(£)
Labour
Efficiency
Variance
Amount
(£)
Labour
Efficiency
Variance
Amount
(£)
Product K Product L Product M
Standard Hours 90 Standard Hours 3750 Standard Hours 9500
Actual Hours 80 Actual Hours 4000 Actual Hours 9250
Standard Rate 8.6 Standard Rate 10 Standard Rate 3.84
Labour
Efficiency
Variance 86
Labour
Efficiency
Variance -2500
Labour
Efficiency
Variance 960
Total Labour
Variance
Amount
(£)
Total Labour
Variance
Amount
(£)
Total Labour
Variance
Amount
(£)
Product K Product L Product M
Standard Rate 8.6 Standard Rate 10 Standard Rate 3.84
Standard Hour 90 Standard Hour 3750 Standard Hour 9500
Actual Rate 8.7 Actual Rate 11 Actual Rate 4
Actual Hour 80 Actual Hour 4000 Actual Hour 9250
Total Labour
Variance 78
Total Labour
Variance -6500
Total Labour
Variance -520
Answer to B:
To perform the variance analysis it is necessary to ascertain the causes of variance in
order to initiate the management to undertake the actions to correct the unfavourable
variance. The following are the possible causes of variance;
a. Variance mainly occurs due to changes in the market price or delivery cost
(Langfield-Smith et al. 2017). Furthermore, purchase that are made on emergency
basis may upset the programme for production.

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b. Budget is also caused by changes in the design of production or methods of
production or may also vary due to abnormal wastage.
c. Budget variance also takes place when there is change in the basic rate of wages. This
results the management in paying higher wages during the seasonal and operations
that are carried on emergency basis.
d. Changes in the indirect labor and indirect material price may cause the budget
variance as this forces in non-availability of special services.

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References:
Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014. Financial Accounting: a user
perspective. Wiley Global Education.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Langfield-Smith, K., Smith, D., Andon, P., Hilton, R. and Thorne, H., 2017. Management
accounting: Information for creating and managing value. McGraw-Hill Education
Australia.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting.
John Wiley & Sons.