Management Accounting: Analysis of Budgeted Sales, Production Budget, Cash Position Analysis

This article provides an analysis of budgeted sales, production budget, and cash position analysis for On The Beach. It includes graphs and tables to show the expected sales revenue, production units, direct materials and labour usage, contribution margin, and cash collection and payments. The article also discusses the net income of the organization and suggests ways to improve it.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Authors Note:

1MANAGEMENT ACCOUNTING
Contents
Analysis of budgeted sales:.............................................................................................................2
Production budget:...........................................................................................................................5
Contribution margin from different products:.................................................................................8
Net income of the organization:......................................................................................................8
Cash position analysis:....................................................................................................................9
Conclusion:....................................................................................................................................11
References:....................................................................................................................................12

2MANAGEMENT ACCOUNTING
Analysis of budgeted sales:
Sales is the main source of revenue for the organization, i.e. On The Beach, thus, it is
important to consider the expected sales pattern of the organization in the future.
The graph below represents the expected sales of one piece in the coming months in 2019. As
can be seen that the expected sales of one piece will be quite high at the beginning of the year
only to reduce significantly as the year progresses towards the end. The expected sales of one
piece however will pick up momentum from August, 2019 and will continue to rise till
December of 2019. In January, 2019 the expected revenue from sales of one piece is $180,000
which will reduce constantly with each passing month till July to $40,000. However by the end
of the year the organization is expected to earn revenue of $150,000 from sale of one piece
(Wheelen et. al. 2017) .
1 2 3 4 5 6 7 8 9 10 11 12
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
One piece sales ($)

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Similar sales patter is expected to emerge from sale of Board shorts, towels and beach bags. The
graphs provided below indicative of the expected sales revenue from sale of different products of
the organization.
1 2 3 4 5 6 7 8 9 10 11 12
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
Board short sales
As can be seen from the above that the sales revenue from Board sales will be highest in the year
January only to decrease till the mid-year and again pick up from there onwards till the end of
the year.
Revenue from sales of towel as well as sales from beach bags showed the same trend. The graph
below represents the revenue expected to be earn in different months from sale of towels (Carroll
and Buchholtz 2014).

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1 2 3 4 5 6 7 8 9 10 11 12
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Towel sales
As can be seen the trend in sales remain the same irrespective of the different products of the
organization.
1 2 3 4 5 6 7 8 9 10 11 12
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
Beach bag sales
Again the revenue from sales of beach bags is expected to follow the same trend of high
quantum of sales at the beginning of the year with continuous decrease in sales till July and again
increase in sales from August to continue all the way till the end of the year.

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The following line and points indicate the total amount of expected sales of the organization in
different months of 2019. As clear from earlier that the organization is expected to earn highest
amount of revenue from sales in the month of January. The sales expected to dip significantly
after the month of January all the way till the month July. From August however, the expected
revenue of the organization will increase and continue to increase till the end of the year
(Hammer 2015).
January
February
March
April
May
June
July
August
September
October
November
December
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
Total sales
In the month of January, 2019 the organization is expected to achieve a combined sale of
$336,000 which is expected to decrease to $83,800 in the months of June and July. The sales
however also expected to increase to $274,000 by the end of the year, i.e. in the month of
January. If the underlying factors hold true then the organization is expected to achieve a total
sales of $2,358,600 in the year 2019 (Chang 2016).
Production budget:
The organization has decided to manage its productions systematically, i.e. the
productions shall be made as per the monthly sales requirements to minimize the amount of

6MANAGEMENT ACCOUNTING
holding cost of finished goods as well as raw materials. This will help the organization to reduce
the operating costs significantly.
January
February
March
April
May
June
July
August
September
October
November
December
0
500
1000
1500
2000
2500
3000
3500
4000
Total production units
As can be seen from the above graphical representation of production units in different months
of 2019 it is clear that the productions have been made in accordance with expected sales.
Obviously, as the productions are expected to be based on the requirements of sales in different
months the material costs, cost of labour and other operating expenses will also move along the
line of production units. This will help On The Beach to reduce the operating costs significantly
(Hislop et. al. 2018).
Expected usage of total direct materials can be understood from the following graph:

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January
February
March
April
May
June
July
August
September
October
November
December
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
Direct materials used
Expected usage of total direct labour can be understood easily from the following graph:
January
February
March
April
May
June
July
August
September
October
November
December
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
Usage of total direct labour
Fixed overheads however due to its character expected to remain same throughout the year
except in the months of March, June, September and December when the quarterly maintenance
expenditures of $2500 will needed to be paid. Operating expenses such as utilities, insurance,
admin wages and general office expenses are expected to remain same in each of the months in
2019 (Kerzner and Kerzner 2017).

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Contribution margin from different products:
Products Unit price ($) Unit cost ($) Contribution margin
per unit ($)
One piece 100 71 29
Board shorts 80 64 16
Towels 50 52 (2)
Beach bags 45 52 (7)
From the above table it is clear that all the products of the organization are not expected to
contribute to the overall profit of the organization. In fact the towels and beach bags are expected
to have a negative contribution of $2.00 and $7.00 per towel and beach bag to the overall
contribution margin. Thus, the management should seriously consider whether to continue
producing towels and beach bags in the future as the organization expected to incur loss for
producing and selling towels and beach bags (Uhl and Gollenia 2016).
Net income of the organization:
As per the budget the organization is expected to make a net income of $481,996 for the
year ending on December 31, 2019. However, the net income could be increased if the
organization increase the prices of towels and beach bags. The following budgeted income
statement will enlighten us on the expected net income of the organization in the year 2019.

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On The Beach
2019 Budget
Budgeted Income Statement for the year ended 31 December 2019
Sales 2,358,600$
Less cost of goods sold 1,790,404$
Gross margin 568,196$
Less Operating expenses
Utilities 600$
Insurance 6,000$
Administrtion Wages 30,000$
General Offi ce Expense 18,000$
Rent 16,800$
Interest 14,800$
Total Operating Expenses 86,200$
Net Income 481,996$
Cash position analysis:
Cash collection analysis: For an organization it is not only about earning revenue and
incurring expenditures but at the same time the ability of the organization to collect cash from its
operations and made payment of cash in systematic manner to maintain a stable liquidity position
is equally important.
One of the positive thing noticed during the budget preparation is the fact that the organization is
expected to collect significant amount of cash from business. In fact in all the months the
organization is expected to collect more cash from the business than the expected amount of
monthly sales. This shows the ability of the organization to collect its receivable efficiently and
without much delay. The following columns show the expected monthly cash collection of the
company in the year 2019 (Rosemann and vom Brocke 2015).

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January
February
March
April
May
June
July
August
September
October
November
December
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
Cash collected
Expected payments of cash in the year 2019:
It is not only about expected cash collection but how an organization spends cash in the future
determines the liquidity position. An organization desired to have a favourable cash position in
order to have a good liquidity position. The ability of an organization to make use of cash
resources can be substantially understood from its cash spending (Welford 2016).
January
February
March
April
May
June
July
August
September
October
November
December
$-
$50,000
$100,000
$150,000
$200,000
$250,000
Monthly cash payments

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The graph above shows how the organization is expected to make cash payments in the year
2019. As can be seen that the amount of cash payments in each months in the year 2019 is
expected to significantly lower than the amount of cash collection from business. Thus, the
organization is expected to have a suitable cash position in the future with significant amount of
cash in hand at the end of each month and at the end of the year (Jeston 2014).
At the end of different months the organization is expected to have following cash in hands.
January February March April May June July August September October November December
Cash in hand208,793$ 301,981$ 393,907$ 498,107$ 543,939$ 549,358$ 527,324$ 461,358$ 469,543$ 514,275$ 535,207$ 564,913$
Each month in the year 2019 the organization expected to have surplus cash in hand. The surplus
cash can be used by investing in equipment and machineries to expand the business in the future.
Conclusion:
Taking into consideration the above analysis of expected performance of the organization
in the year 2019 it can be safely said that the organization is going in the right direction as per as
its operating strategy is concerned. However, there are still room for improvement as the pricing
of towels and beach bags seems quite less than the actual cost of production. Thus, if the
management can made necessary changes in the pricing of towels and beach bags then the future
performance of the organization is expected to be even better than showed in the budgeted
statements.

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References:
Carroll, A. and Buchholtz, A., 2014. Business and society: Ethics, sustainability, and
stakeholder management. Nelson Education.
Chang, J.F., 2016. Business process management systems: strategy and implementation.
Auerbach Publications.
Hammer, M., 2015. What is business process management?. In Handbook on business process
management 1 (pp. 3-16). Springer, Berlin, Heidelberg.
Hislop, D., Bosua, R. and Helms, R., 2018. Knowledge management in organizations: A critical
introduction. Oxford University Press.
Jeston, J., 2014. Business process management. Routledge.
Kerzner, H. and Kerzner, H.R., 2017. Project management: a systems approach to planning,
scheduling, and controlling. John Wiley & Sons.
Rosemann, M. and vom Brocke, J., 2015. The six core elements of business process
management. In Handbook on business process management 1 (pp. 105-122). Springer, Berlin,
Heidelberg.
Uhl, A. and Gollenia, L.A. eds., 2016. Business transformation management methodology.
Routledge.
Welford, R., 2016. Corporate environmental management 1: systems and strategies. Routledge.

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Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2017. Strategic management
and business policy. pearson.