Sunny Days 2020 Budget Report

This report provides an overview of the expected results, product analysis, cash position, market conditions, and recommendations for Sunny Days' 2020 budget. It analyzes the profitability of different product lines, cash position, market conditions in the clothing industry, and provides recommendations for improving profitability.

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Sunny Days
2020 Budget Report
Date of Board Meeting
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Sunny Days: 2020 Budget
Board Report
Page 2

1. Overview of Expected Results
The budget for the 12 months sales and expense has been prepared based on
the basis of estimated demands for the four product lines of the Sunny Days. It can
be observed from the budget that, the company is having a good demand for the
upcoming months and a significant amount of profit can be earned by the company.
Though some of their product lines are having a negative impact on the profitability
of the company, but in overall performance they are having a good mark. A 36.15%
gross profit margin can be earned by the company, if they can achieve the projected
sales and maintain their expenses within the budgeted estimates. In terms of net
profit, they can earn up to 22.5% of net sales revenue as net income if all the
operating expenses are incurred within the budgeted estimates. Monthly total sales
volume is having a fluctuation, initially it decreases to July and thereafter the sales
volume again starts rising. The fluctuation in the sales volume may be because of
seasonal trends for their products (Kamal 2015). The trend in their monthly sales
volume can be shown using the following bar chart.
2. Product Analysis
The Sunny Days is having four product lines the budget analysis and income
projections have been done taking only those product lines. Each of the products are
having different selling price and each of them requires different amount of input
materials and direct labor. Comparing the selling price per unit and variable costs per
unit the contribution margin analysis can be done for each of the products as
follows.
Explanations One piece Board
shorts Towels Beach
Umbrella
Selling price per unit $80.00 $75.00 $30.00 $35.00
Per unit variable costs $47.37 $35.34 $31.50 $68.44
Per unit contribution
margin $32.63 $39.66 $1.50 $33.44
Table 1: Contribution Margin by Product
Sunny Days: 2020 Budget
Board Report
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It can be observed from the above contribution margin analysis, that the
product Beach Umbrella is having a negative contribution margin of $33.44 per unit
and the product Towel is having a negative contribution margin of $1.50 per unit. On
the other hand, the product Board Shorts is having a positive contribution margin of
$39.66 and the product One Piece is having a positive contribution margin of $32.63.
Contribution margin is the amount that a single unit of product contributes towards
recovery of fixed costs and making profit. Therefore, the product Beach Umbrella is
having a significant effect on the profitability of the company. It is creating a huge
amount of loss for the company. In the same way, the product Towel is also having a
negative impact on the profitability of the company. Product One Piece and Board
Shorts are having a significant profitability which is compensating the loss made by
the other two products (Kaplan and Atkinson 2015). A comparison of the per unit
contribution margin can eb shown using the following bar chart.
3. Cash Position
Cash position is the measure of liquidity for a company. It can be observed
from the cash budget of the Sunny Days that, they are having a significant amount of
cash balance left with them at the end of each of the month. Even an accumulation
in the cash balance and a gradual increase in the cash balance can be observed for
the projected period. It is a good sign for the solvency of the company. Though, a
huge amount of cash balance may lead to a significant amount of interest loss for the
company (Kaplan and Atkinson 2015).
4. Analysis of Market Conditions
The Australian market for the clothing industry is diverse and adopts
developments and fashion trends. Suppliers with new designs and fashionable
products get preference in the market and enjoy a huge market share. Demand for
the products in this industry is ever changing with the change in tests and
preferences of individuals. Hence, the company Sunny Days must come up with new
products and new designs to compete in the market and to have a good market
share in the future.
Sunny Days: 2020 Budget
Board Report
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5. Summary of Recommendations
Though the company is having significant profitability parameters, still they
need to take certain important decisions and make certain changes in their product
offering. The Product Beach Umbrella is having a high degree negative contribution
margin. Hence this product line should be shut down. On the other hand, the
product Towel is having a negative contribution margin of $1.50 per unit and it can
be improved to a positive one if the direct expenses are managed well. Therefore,
the company should analyse the cost components of the product Towel and adopt
certain cost management techniques for the reduction in cost of production of the
product Towel. Lastly, the company should make an optimum product mix which will
be giving them the maximum amount of profit (Kamal 2015).
Sunny Days: 2020 Budget
Board Report
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6. References
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI
Learning.
Klychova, G.S., Zakirova, A.R., Zakirov, Z.R. and Valieva, G.R., 2015. Management
aspects of production cost accounting in horse breeding. Asian Social Science, 11(11),
p.308.
Cooper, R., 2017. Supply chain development for the lean enterprise:
interorganizational cost management. Routledge.
Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan
International Higher Education.
Kamal, S., 2015. Historical evolution of management accounting. The cost and
management, 43(4), pp.12-19.
Maskell, B.H., Baggaley, B. and Grasso, L., 2017. Practical lean accounting: a proven
system for measuring and managing the lean enterprise. Productivity Press.
Sunny Days: 2020 Budget
Board Report
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