Contents
Question 1.
a) Cash budget
b) Sources of fund.
Debt Capital
External Source: Debt Financing: Merits.
External Source: Debt: Shortcomings.
Question 2.
a) Variance analysis.
b) Interpretation of variance analysis.
Reference.
Cash Budget |
|||||||
Cash Budget |
July |
Aug |
Sep |
Oct |
Nov |
Dec |
Total |
Opening Cash Balance |
10000 |
4500 |
-4800 |
-32300 |
-79300 |
40900 |
-61000 |
Cash Inflows: |
|||||||
Total Cash Collections |
167500 |
215500 |
297500 |
395000 |
443000 |
352000 |
1870500 |
Total Cash Available |
177500 |
220000 |
292700 |
362700 |
363700 |
392900 |
1809500 |
Cash Outflows: |
|||||||
Total Cash Payments |
133000 |
184800 |
252000 |
322000 |
282800 |
179200 |
1353800 |
Selling, General & Administrative Expenses |
40000 |
40000 |
40000 |
40000 |
40000 |
40000 |
240000 |
Taxation Expense |
33000 |
33000 |
66000 |
||||
Capital Expenditure |
80000 |
80000 |
|||||
Total Cash Outflow |
173000 |
224800 |
325000 |
442000 |
322800 |
252200 |
1739800 |
Closing Cash Balance |
4500 |
-4800 |
-32300 |
-79300 |
40900 |
140700 |
69700 |
Every business entity including companies requires funds to perform its business operations, to expand their businesses into new locations or markets, to overcome the competition or to invest in research & development (RND). Like any other company, both the selected companies also have limited sources to raise to raise capital funding or external funding. The various sources are:-
Like any other entity, companies also can borrow money in the form of private bank loans or issue of debentures, corporate bonds or other debt securities to public. Using debt issues a huge number of investors can become the lenders to the company. The most important drawback of debt capital is the fixed payments (interest) to the lenders.
Particulars |
Budgeted |
Actual |
Variance $ |
Variance % |
Sale |
800 |
760 |
-40 |
-5% |
Price |
40 |
40 |
0 |
0% |
Revenue |
32000 |
30400 |
-1600 |
-5% |
Supplies |
1600 |
2000 |
400 |
25% |
Labor |
16000 |
16000 |
0 |
0% |
Variable Utilities |
1600 |
1520 |
-80 |
-5% |
Fixed OH |
9000 |
9000 |
0 |
0% |
Profit / (Loss) |
3800 |
1880 |
-1920 |
-51% |
The actual to budget variance analysis is very important during the financial planning of a business. It is a process by which the budget of a company gets compared to the actual outcomes and later interpretation of the reasons for the variance is conducted.
When budgeted figures are compared to the actual figures numbers, and the differences are called as variance. It is calculated for revenue, labor, materials, and variable expenses. However, management pays attention to variances that are significant. Generally, analysis of these variances is conducted to identify any problem in order to fix them or to improve the overall performance of the company. This is an unfavorable situation
As per the above variance analysis of ABC Pty Ltd, the actual sales revenue is less by 5% than expected (budget), the main reason is that the company was not able to sale its services as per expectations (800 WCD) and could sale only 760 WCDs
Despite of lower sales volume, the cost of supplies increased by $400, this is also an unfavorable situation
The variable utilities witness a little decrement in the actual figures ($ 1520) as compared to the budgeted figures ($ 1600). The main reason is that the actual sales remain lower than the budgeted sales and variable expenses are directly depended on the sales volume. This cannot consider being a favorable situation.
Overall the overall profit of the company gets reduced considerably.
Coleman, S., Cotei, C. and Farhat, J. 2016. The debt-equity financing decisions of US startup firms. Journal of Economics and Finance, 40(1), pp.105-126.
Schwienbacher, A., Baker, T. and Welter, F. 2015. Financing the business. The Routledge companion to entrepreneurship, pp.193-206.
Yazdanfar, D. and Öhman, P. 2015. Debt financing and firm performance: an empirical study based on Swedish data. The Journal of Risk Finance, 16(1), pp.102-118.
Chiu, C.H., Choi, T.M., Dai, X., Shen, B. and Zheng, J.H., 2018. Optimal advertising budget allocation in luxury fashion markets with social influences: a mean‐variance analysis. Production and Operations Management, 27(8), pp.1611-1629.
Saputra, M.D. and Putrayasa, M.A., 2018, May. Analysis of sales budget and actual sales at CV Sumberjaya. In Proceedings (Vol. 1, No. 1, pp. 141-146).
Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help
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