Company's monthly cash budget Assignment

FINANCE

TABLE OF CONTENTS
PART 1............................................................................................................................................1
A) Calculating total fixed cost and variable cost.........................................................................1
B) Calculate :...............................................................................................................................1
C) Outsourcing the catering services outside at a xcharge of GBP 350 per table. .....................1
D) Significance of break even point and margin of safety..........................................................2
PART B ...........................................................................................................................................3
a) Monthly cash budget for six months........................................................................................3
b) Comments on Cash budget......................................................................................................4
REFERENCES................................................................................................................................6

PART 1
A) Calculating total fixed cost and variable cost.
Per
table In total
Selling Cost 1000 15000
Variable Cost 250 3750
Contribution 750 11250
Fixed cost 300 4500
Earnings 450 6750
B) Calculate :
a) Contribution Selling cost – Variable cost
1000-250= 750
b) Break even point Fixed Cost/ (Price – Variable Cost)
4500/(1000-250)
6
c) Margin of Safety Actual sales – Break even point
' (15-6) 9
Margin of Safety
(%)
(Current sales level –
break even point) /
Current Sales level
(15-6)/15
46.67%
d)
Expected
profit number of table * profit per table
15*450
6750
C) Outsourcing the catering services outside at a xcharge of GBP 350 per table.
a) Contribution Selling cost – Variable cost
1

1000-350=650
b)
Break even point
Fixed Cost/ (Price – Variable Cost)
4500/(1000-350)
7
c) Margin of Safety
'
Actual sales – Break even point
(15-7) 8
Margin of Safety (%) (Current sales level – break even point) / Current Sales
level
(15-7)/15
53.33%
d) Expected profit number of table * profit per table
15*350
5250
D) Significance of break even point and margin of safety.
For promotion of the business manager is keeping a dinner for clients.
Fixed and variable cost
Fixed cost refers to the cost that does not change with the change in output. Fixed costs
are to be incurred whether or not output has been produced by the company. Fixed are to be
incurred even when when companies are facing lock outs. In present case fixed will be cost of
booking tables for the guest in any hotel. Cost of the table will be paid even if the table remains
empty. For booking tables manager is required to pay 300 per table in total for 15 table fixed cost
of 4500.
Variable cost refers to the costs that changes per unit with change in output. Variable
cost refers to the cost that are incurred for manufacturing product. But in the present case
variable cost refer to the cost of food per table. Cost will be decreased if the number of guest are
decreased. Variable over here is calculated per table that is amounting to 250 per table where in
total it amounts to 3750. Variable in total will change if number of table are not full occupied by
the guests.
Contribution refers to amount that is left after deducting variable cost from the selling
price. Contribution will change if the variable cost changes per unit. Fixed costs are deducted
from the contribution for coming on the actual profits. Higher the contribution better for
company.
2

Break even point refers to point where sale are exactly covering its expenses. At this
point company is having no loss no profit. The concept says that revenues are necessary for
covering the total fixed and variable costs (Break even point, 2019). The break-even point for
manager arranging the tables is 6 that means that for covering its cost it has to full 6 tables.
Margin of safety is financial ratio for measuring the sales exceeding break even point. It
refers to earned after paying all variable and fixed costs of the company. Margin of safety in
other words refers to sales that company could afford losing before losing the profit levels.
Managerial accountants makes analysis of market demand and production process for knowing
number of product could be sold in given period (Margin of safety, 2019). The margin of safety
for the manager is 9 tables where it would be not at a loss. Where in percentage terms margin of
safety is 46.67%.
When company gets the catering services from outside it will have to pay GBP 350 per
table it will reduce the contribution per table of company. Also due to catering outside profits of
company will be decreased. Therefore, manager will not be availing catering from outside.
PART B
a) Monthly cash budget for six months
Cash Budget for six months
Particulars December January February March April May
Receipts
Opening bal 20000 14500 21375 38775 61525 88150
Sales (Event) 1 2 4 5 5 5
Cash 10500 21000 42000 52500 52500 52500
Credit 4500 9000 18000 22500 22500
Total Receipts 30500 40000 72375 109275 136525 163150
Payments
Catering (Events) 1 2 4 5 5 5
50.00% 5250 10500 21000 26250 26250 26250
50.00% 2625 5250 10500 13125 13125
Office Equipment 1000
Fixed Expenses 4500 4500 4500 4500 4500 4500
Sales promotion 750 500 500 300 300 300
3

Administrative
expense
Rent 2000 2000
Deposit 2000
Salaries 1850 3700 3700 3700
Office expense 500 500 500 500 500 500
Total Payments 16000 18625 33600 47750 48375 48375
Balance 14500 21375 38775 61525 88150 114775
b) Comments on Cash budget
Considering the part 1 of the report cash budget has been prepared taking catering service
in cost. Cash budget for the months December to June has been prepared considering all the
factors. Cash budget is showing an regular increase which shows that business is growing
continuously. Initial capital of 20000 has been invested for the business. Increased cash is kept
idol and is not been used productively. Administration and selling expenses of company has been
paid regularly by. By analysing cash budget it can be reviewed that company is having healthy
liquidity position. Company can expand it business by taking loan as the financial condition of
the company is good and healthy. It can easily pay the interest expense arising on loan.
Company should go for loan as gives fixed interest rate that allows company to make budget for
the fixed amount.
There are different sources of finance available like loan and overdraft.
Overdraft
Overdraft finance are provided when the payments made by company from its current account
exceeds the available balance (Overdraft, 2019). It gives company short term funding facility
and iis repayable by company on demand .
Advantages
 Bank overdraft is more flexible than other finances. Charges are not deducted for repaying overdraft early.
Disadvantages
 Extra charges are to be paid for extension of overdraft.
 Interest rate is variable.
Loan
4

Loan refers to finance source where fixed rate of interest is payable till the amount is paid. Loans
are availed for acquiring fixed assets and meeting working capital requirements (Loans, 2019).
For expansion loan proves to more beneficial.
Advantages
 Loans are not repayable over demand and is available for whole term for which loan is
availed. They provide with fixed interest rate that allows company to arrange for fixed expense.
Disadvantages
 Loans are not flexible as interest is to be paid when funds are not being used in business.
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REFERENCES
Online
Loans. 2019. [Online]. Available through :
<https://www.nibusinessinfo.co.uk/content/advantages-and-disadvantages-bank-loans>.
Overdraft. 2019. [Online]. Available through :
<https://www.nibusinessinfo.co.uk/content/advantages-and-disadvantages-overdrafts>.
Break even point. 2019. [Online]. Available through :
<https://www.readyratios.com/reference/analysis/break_even_point.html>.
Margin of safety. 2019. [Online]. Available through :
<https://www.accountingformanagement.org/margin-of-safety/>.
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