Improving Business Performance

The Simpsons' business is experiencing a positive deviation in sales and beverage demand, driven by strong consumer demand for their products. To improve business performance, the firm should focus on controlling expenses, particularly utility costs, wages, and rent. It is recommended to target a 5% increase in electricity expenses while reducing other costs. The firm should also consider revising contract terms with the lessor and curtail some liabilities like maintenance of buildings. Additionally, the firm can curtail its workforce by increasing extra working hours for existing employees and offering monetary incentives. Finally, the firm should enter into contracts with multiple suppliers to reduce dependence on a single supplier.

FINANCE

TABLE OF CONTENTS
TASK 1........................................................................................................................................................................................................3
Question1.................................................................................................................................................................................................3
Question 2................................................................................................................................................................................................4
Question 3................................................................................................................................................................................................6
Question 4................................................................................................................................................................................................7
TASK 2........................................................................................................................................................................................................7
(A)Possible cause of deviation and recommendation to improve business performance.......................................................................7
(b) Suggestion regarding contract for purchasing soft drinks.................................................................................................................8
© Reasons for making changes in budget...............................................................................................................................................8
REFERENCES............................................................................................................................................................................................9
Table 1Raw input for calculation................................................................................................................................................................3
Table 2Anticipated expenses for a forthcoming year..................................................................................................................................3
Table 3Sales revenue and cost of the product line on monthly and quarterly basis....................................................................................3
Table 4Sales revenue for the products on monthly basis............................................................................................................................4
Table 5 Forecasted cash flows on monthly and quarter basis.....................................................................................................................5
Table 6 Variance analysis............................................................................................................................................................................6

Table 7Adjustements in the budget for Q2, Q3 and Q4..............................................................................................................................7

TASK 1
Question1
Table 1Raw input for calculation
Values in USD
2016 2017
Sold units (Take away meals) 54600 60060
Price per meal 10.50 13
Cost per meal 4.60 4.60
Sold units (Soft drinks) 20000 30000
Price per unit 2.50 1.50
Cost per unit of soft drink 0.80 0.50
Table 2Anticipated expenses for a forthcoming year
Anticipated yearly expenses Values in USD
COGS 291276
Rent 24000
Utilities 10000
Wages 60000
Miscellaneous 6000
Table 3Sales revenue and cost of the product line on monthly and quarterly basis
2016
Monthly
average Quarterly average

Sales revenue from meals 573300 47775 191100
Cost per meal 251706 220242.75 880971
Sales revenue from soft drinks 50000 4166.666667 16666.66667
Cost per unit of soft drink 16200 10416.66667 13500
Table 4Sales revenue for the products on monthly basis
January February March April
Sales revenue from meals 47775 47775 47775 47775
Sales revenue from soft drinks 4166.666667 4166.666667 4166.666667 4166.666667
May June July August September October November December
47775 47775 47775 47775 47775 47775 47775 47775
4166.666667 4166.66667 4166.667 4166.66667 4166.666667 4166.667 4166.666667 4166.666667
Interpretation
Raw table given above indicated that sales units for the take way meals enhanced by 10 and thereafter its value become 60060.
Price per mean increased from $10.5 to $13 and at same time cost remain stable at $4.61. On other hand, sold units of soft drinks
increased from $20,000 to $30,000 and price of same reduced from $2.5 to $1.51. Cost of soft drink reduced substantially from the
0.81 to 0.51. This clearly reflect that contract that is signed by the Simpsons lead to decline in the cost and due to this reason in order
to increase sale of same price is reduced from $2.5 to $1.5. Sales and cost values are computed on yearly basis and in order to compute
monthly and quarterly sales as well as cost same is divided by the 12 months and 4 quarters. In this way, monthly and quarterly
average sales and cost total are calculated in above table.

Question 2
Table 5 Forecasted cash flows on monthly and quarter basis
Particulars 2017
Average
monthly 2017
Average
quarterly 2017
Sales revenue from meals 780780 65065 195195
Sales revenue from soft
drinks 45300 3775 11325
Total revenue 826080 68840 206520
Less: COGS
Cost of meals 276876.6 23073.05 69219.15
Cost of soft drinks 15300 292176.6 1275 24348.05 3825 73044.15
Gross profit 533903.4 44491.95
133475.8
5
Expenses
Rent 24000 2000 6000
Utilities 10000 833.3333333 2500
Wages 60000 5000 15000
Miscellaneous 6000 500 1500
Total expenses 100000 8333.333333 25000
Net profit 433903.4 36158.61667
108475.8
5
Interpretation

In order to prepare budgeted profit and loss account total revenue and cost is computed. In order to calculate overall revenue
value first of all sales revenue on meals and drinks is computed. Thereafter, cost is computed for soft drinks and meals and same is
summed up to compute overall cost of the products. In order to compute gross profit simple from the revenue amount cost is deducted.
Finally, all indirect expenses namely rent, utility, wages, and miscellaneous expenses are added and deducted from the gross profit. In
this way, net profit is computed. Net profit for the forecasted years is $433903.4. On monthly basis, computed value of net profit is
$36,158. Apart from this on quarterly basis also net profit is also calculated which stood at 108475. It can be said that budgeted
income statement is clearly reflecting that expenses value is below revenue amount and due to this reason sufficient amount of profit
is earned in the business.
Question 3
Table 6 Variance analysis
2017 (Actual
results) 2017 (Forecast) Variance
Food revenue 234234 195195 39039
Food cost 89984.895 69219.15 20765.745
Beverage sales 15000 11325 3675
Utility expense 3000 2500 500
Wage expense 20000 15000 5000
Rent expense 6500 6000 500
Interpretation
Variance analysis is done in the above table and it can be seen that variance in case of all variables is positive. In case of some
variables positive variance reflects that firm give good business performance and vise verse. In case of food revenue and beverage
sales positive variance is reflecting that sales value get increased which is good for the business firm. At same time cost of food
production also get increased. Because sales get increased in every condition will enhance. More important is to identify whether
growth rate of revenue was higher or lower than cost. It must be noted that growth of elevation in cost is 30% and same of sales

revenue of food items is 20%. This reflects that firm failed to control its expenses and on this front it give poor performance. It can be
observed that variance is case of utility, wage and rent expense increased which is not good for the business. Hence, it can be said that
on these fronts firm failed to give strong business performance.
Question 4
Table 7Adjustements in the budget for Q2, Q3 and Q4
Q2 Q3 Q4
Food cost 15.6 16.38 17.199
Expenses
Rent 6500 5500 5500
Utilities 3000 3150 3307.5
Wages 20000 15000 15000
Interpretation
In order to control cost adjustments are made on the food cost, rent, utilities and wages. As part of adjustment food cost is only
increased by 5% on quarter basis. Rent amount is reduced from $6500 to $5500. Utility is also increased by 5% on quarterly basis.
Wage amount is also reduced from $20000 to $15000. By making all these adjustments cost will be reduced in the business.
TASK 2
(A)Possible cause of deviation and recommendation to improve business performance
Deviation is observed in the sales value which is positive and good for the Simpsons. This deviation happened because there is
strong demand of the firm product in the market. Along with this, deviation of the beverages is also positive and it is also reflecting
the same thing. Low price strategy is the one of the most important reason due to which consumption of the soft drink sold by the firm
get increased. Positive deviation in the expenses is the matter of concern for the business firm. Here, it needs to improve business
performance. It is recommended that business firm must try to control its expenses. Main focus must be on controlling utility
expenses. Under this, it is suggested that firm may target to increase its electricity expenses only by 5%. This is because food cost is

increased by 5% in terms of more processing of raw material. In order to ensure that electricity is used in controlled manner on daily
basis evaluation of units consumed will be done and in this way close monitoring of energy consumption will be done. On daily basis
reasons will be evaluated due to which more energy consumed at the workplace. By doing so reasons will be identified and
immediately corrective action will be taken to ensure that energy consumption at the workplace is within control. It is recommended
that business firm must try to control its rent amount and under this it must revise terms and conditions of contract that is signed with
the lessor. Under this firm must curtail some of its liabilities like maintenance of building and other relevant expenses. By doing so
rent cost can be reduced in the business. Wage cover substantial portion of the firm overall expenditure and it is recommended that
Simpsons must curtail its workforce to some extent and must increase extra working hours of the existing workforce. Monetary
incentive must be given to the employees. By doing so with limited workforce productivity can be enhanced. Mentioned firm can keep
temporary workforce in order to meet extra demand if arise in future. These are the recommendations that must be followed to
improve business performance.
(b) Suggestion regarding contract for purchasing soft drinks
It is suggested that firm must enter in to contract with multiple suppliers. This is because by doing so firm will not be dependent
on single supplier to meet demand of the customers (The long run increases in sales, 2017). If relationship with the existing supplier
will be tarnished then business of the firm can get disrupted. Bargaining power of the Simpsons will be increased as it will have
multiple alternatives from where it can receive product at low price. Thus, this strategy will help firm in operating its business
smoothly in easy way.
© Reasons for making changes in budget
There are several reasons due to which changes are made in the budget. One of the main concern was that growth rate of per unit
cost was higher than same of the revenue. On other hand, indirect expenses were also increasing in the business. All these things were
collectively reducing firm profitability. These were the reasons due to which adjustments are made in the budget in terms of control of
utility expenditures, wages and rent etc.

REFERENCES
Books and journals
The long run increases in sales, 2017. [Online]. Available through :<
http://www.economicsonline.co.uk/Business_economics/Economies_of_scale.html>. [Accessed on 22nd February 2017].