Financial Report - Widget Company

This memo provides a summary of the financial position and analysis of Widget Company as of June 30, 2018, revealing higher operating expenses and low-income trends. It also discusses the projected units, revenue, variable and fixed costs, and provides recommendations for improvement.

Widget Company
Memorandum
To: Kerum A. Unlu
From: Samira Kamran
Date: June 06, 2019
Subject: Financial Report
Monthly Finance Report
This memo has the purpose for showing the summary of the financial position of the static
and the flexible variances of the analysis of the Widget Company as on June 30, 2018. The
analysis reveals that the there is higher operating expenses as well as trends of low-income.
Moreover, the analysis has also revealed that the lower cost does not yield in making the
profit favorable and the actual performance is of having the revenue higher.

The projected units of Widget for the static budget were 6,000 units in June. At same cost per
unit, there was increase in flexible budget by 500 units. It is being analyzed that even if
having the static budget of favorable outcome of revenue, the incurring of the expenses has
decreased the profit of the company by $-1960. There was unfavorable occurrence of the
variance with increase in the units of the flexible units.
Revenue
Widget was having the expectation for selling 6,000 units in the month June. Although, the
company had prepared the flexible budget, it is because there was selling of 6,500 units and
there was the assumption of the company that the price of selling will be same that is $10 per
unit. The revenue for selling 6,500 units at $10 per unit is equal to $65,000. Moreover,
company has reported the unfavorable variances of ($1,760) for the revenue at the June end.
The budget of the company shows that at $9.73 per unit, each unit was sold that is instead of
the originally budgeted at $10 (Robinson et al. 2015).
Variable and Fixed Costs
There was the expectation of the Widget’s original budget that $29,250 would be the variable
cost for producing 6,500 units, however, because of increase in the labor hours and material
for creating the additional units, the actual cost was $31,200.
During my analysis for June, I have found that Widget was having the unfavorable variance
of direct material price of $1,950; it is because for $31,200, the actual paid price was higher
than the allowed standard price for $29,250 for the units of 6,500. The unit cost of $4.50 per
unit was the expected budget; however, $4.80 was the actual cost. The increase of $0.30 per
unit might have caused material price increase or enough material not ordered by the
management for covering total units of 6,500 for June.

Therefore, I would give the recommendations that for the lower material price, the
management should look for the others suppliers and they should also make it sure that the
necessary materials should be ordered by the every department for covering the needs of
production. It is because there would be increase in the variances of price due to additional
cots in handling and shipping in case there is the requirement of urgent order by the
company. The company has also forecasted $24,000 in the fixed cost of this month; however,
in order to produce the units of 6,500, there is the requirement for rent the new equipment,
which has caused increase of the fixed expenses to $25,000. For June, there was unfavorable
fixed cost variance of $1,000 that was caused by the additional expense. It was because of the
new spending, the company was having loss of the profit.
Conclusion
I can suggest after completion of analysis that Widget should be using their budget as the tool
for solving the problems of productions and they should initiate for investing in the other
available ventures. In case of revaluation of the budget, the budget will be functioning as the
as the tool for production and sales coordinating, expense controlling as well as for allowing
to formulate the financial program that includes financing and the investment.

Date: 04/01/2019
Dear Loyal Client,
This proposal is being written by me for informing you about the two projects that are
potential and you may like to invest in it. I have understand the requirement of yours and I
would like to tell you that the two projects would not be able to meet your requirements,
however, they would closely cater your needs by the payback of 3 years and minimum return
of 16%. I would be recommending after the analysis of two ventures that the investment
should be done in the Project B due to its closeness of the requirements and because of its
high yield of return. I would provide the comparison of these two investments with the help
of using the different methods of discounted cash flows that have resulted in concluding by
me that the best decision would be investment B.
I will also be suggesting about the qualitative factors that plays the important role in the
decision making. The qualitative factors should be considered before the investments. The
management of the company should ensure that the services or products delivered should not
be of low quality and the ethical consideration is taken into account regarding various factors
such as safety of employee, environmental concerns and so on (Damodaran, 2016).
I would recommend after the comparison for both the projects by Net Present Value that the
best investment of the amount $650,000 is project B. There should be discounted of future
dollar before it is to be added to current dollar. According to my belief, the Project B return
leads for better NPV rather than Project A performances of $510,000.

In case of payback period of 3 year, neither of any projects provides requested payback of 3
years, however, Project B is closer to 3.25 payback year, which will reduces the risk and
helps in maximizing the profit. Time value of money is ignored under this method.
In case of internal rate of return, the return of 16% is on the Project A and return of 17% is on
the project B. Both of the projects have same yields and almost same percentage and they are
not exceeding the cash flow. Hence, there is the choice that can be made between the two
projects. Although, I believe that Project A would be still better than that of Project A in
terms of highest return (Rich & Rose, 2014).
The last method that I am using for the analysis is Accounting rate of return. Project A have
25% of the rate of return and Project B have 18% of the rate of the return. There would be
better return every year from Project B because of the faster payback method. The cash flow
of $200,000 per year would be provided over the pay back of 3.25 years and over 3.50 pay
back of Project B, only 145,000 would be provided. Hence, in this method also it is proved
that Project B would be good option (Santos et al. 2014).
Therefore, with the help of using and applying the different methods of discounted cash
flows, I believe that Project B is more profitable investment as compare to Project A.
Regards,
Samira Kamran

To: Graphic Art, Inc.
From: Samira Kamran
Subject: Transfer of Pricing
Dear Mrs. Paul,
For making benefit, it would be immense pleasure for me as your business partner for
informing you that important information would be given by the different exchange value
techniques.
Currently our retail division in Greece and the print division in China shows that the 20%
income taxes in China and 50% in the Greece, that also has 10% import duty of all the goods
transfer price. For both the divisions the full cost revenue was $1,500, $1,500 is the cost,
$1,000 is the variable cost, however, at $2,000 Greece could sell goods.
After the calculations for both the divisions of the full cost transfer price has created $400
tax. The Print Division’s transfer price in China was $1,500, however, the company is having
($1500) cost for providing the division with that of zero balance for the taxation. Moreover,
the selling of the merchandise at $2,000 by the retail division minus $1,500 transfer price left

the taxable income of $500. Hence, towards taxable income, 10% import duty and 50% were
calculated.
Apart from that, the method of variable cost transfer price carries negative in the Print
division and favorable tax in Retail division, which means print division has $100 revenue
and negative ($500) in the taxable income after the factor in cost of the $1,500. After, the
factored for the taxes in 20%, the total tax left is at ($100). In case of retail division, goods
sold at $2,000 with 50% tax and I<port duty 10%. Moreover, after factoring, import duty and
the tax in the equation, under the variable cost, 4500 would be total tax of the company.
Hence, logically the method of full-cot transfer price would be profitable rather than China’s
method of variable costs price because the taxes of the method of full-cost transfer price are
lower than variable cost than exist in China rather than Greece.
Sincerely,
Samira Kamran
To: Kerum A. Unlu
From: Samira Kamran (General Manager)
Subject: Static Budget vs. Flexible Budget

The factors for making use of the flexible budget are merely dependent on the level of
flexibility. It is seen that it is a developing business and there is a requirement for budget with
the help of which we can develop.
A budget that is flexible in nature can be acclimatizing to any transformations that an
organization can incorporate within their system. The flexible budget is associated to the
present time and because of several issues that are faced by the company this budget creates a
sustainable environment for the companies. For instance, when there is a transformation in a
variable cost, the adoption of flexible budget can take place but such changes cannot be made
in a static budget (Das et al. 2015).
It is even seen that flexible budget can resolve the decision making issue of the management
as this budget provides a guideline regarding the expenses that a company may undertake on
the basis of the fluctuations within the organization. Each company has their own demands
for budget and therefore the decisions that need to be undertaken should be based on the
budget. In case Widget remains a small business, then static budget is an ideal budget for
them but it has to be taken into consideration that there is a change taking place each day and
therefore we are in need of a budget that can adjust with those changes (Das et al. 2015).
Regards
Samira Kamran
Jaden Water Inspection Service (JWIS)
Break Even Analysis
The current report has been prepared in order to have a proper understanding of why the
company should utilize break even analysis in order to ascertain whether they would incur

profit if an extra employee was incorporated within the roster. Initially, break even analysis
would permit us to ascertain the numbers of inspections that are needed in order to attain a
benefit after all the costs are added. This process even permits the organizations to observe
the fixed costs that are related to the profit and this can be attained by adding further 60
inspections (Morano & Tajani, 2017).
The point of view of break even analysis has been to observe whether the contribution
marginal profit will be equivalent to the marginal expenses when the new inspections are
added. The contribution margin ascertains if the selling price is going over the variables
expenses or the variable expenses are more than the selling price. For instance, we receive
$150 every inspection, and there is an expectation that 60 additional queries can be done with
the help of employment of extra employees. There is a variable cost of $45, which is the
aggregate expense for every inspection. Then, there would be fixed cost of $3,000 every
month for the new vehicles and employees (Morano & Tajani, 2017).
According to my assessment, the organization will generate sufficient profit after the 28th
inspection in order to make up for the variable and the fixed costs and therefore the
organization can break even till 28 inspections. In case of an estimation of 60 inspections
done by the new employees, a profit will be attained after the 28th inspection. According to
my assessment, the organization will generate a profit of $3,000 when the employees attain
the 57th inspection. Therefore, undertaking an investment in a new employee will have a vital
effect on our income (Morano & Tajani, 2017).

Reference
Damodaran, A. (2016). Damodaran on valuation: security analysis for investment and
corporate finance(Vol. 324). John Wiley & Sons.
Das, S., Yang, B., Gu, G., Joshi, P. C., Ivanov, I. N., Rouleau, C. M., ... & Xiao, K. (2015).
High-performance flexible perovskite solar cells by using a combination of ultrasonic
spray-coating and low thermal budget photonic curing. Acs Photonics, 2(6), 680-686.
Morano, P., & Tajani, F. (2017). The break-even analysis applied to urban renewal
investments: a model to evaluate the share of social housing financially sustainable
for private investors. Habitat International, 59, 10-20.
Rich, S. P., & Rose, J. T. (2014). Re-examining an old question: Does the IRR method
implicitly assume a reinvestment rate?. Journal of Financial Education, 152-166.
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis. John Wiley & Sons.
Santos, L., Soares, I., Mendes, C., & Ferreira, P. (2014). Real options versus traditional
methods to assess renewable energy projects. Renewable Energy, 68, 588-594.