Outcome 4 - Budget Management Project

User Generated

zbunaanq1992

Humanities

Description

Students will be given relevant data of a hypothetical business, and create a report containing three month project cost and revenue projections, including a breakdown of monthly cash flow uses and sources. Students will also discuss factors that could cause a deviation from the projection, and what steps should be taken to appropriately deal with these factors.

Students may propose an alternative project of your own design that shows attainment of the corresponding course outcome. The mentor must approve the alternative project.


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Ca Beginning Balance Nov-13 Dec-13 Jan-14 Feb-14 $ 10,000.00 $ 9,360.00 $ 8,720.00 $ 8,080.00 Expected Cash Receipts perceived level of quality unit sales margin % x 100 retail price based on margin Cash Sales $ $ mid mid mid mid 15 15 15 15 2.00 2.00 2.00 2.00 384.00 $ 384.00 $ 384.00 $ 384.00 5,760.00 $ 5,760.00 $ 5,760.00 $ 5,760.00 Expected Cash Payments labor costs (average of 176 hrs per month * $20 per hour) electricity marketing total fixed costs material costs based on production Total Cash Expenses $ $ $ $ $ $ 3,520.00 200.00 1,000.00 4,720.00 1,680.00 6,400.00 monthly profit $ Ending Cash Balance $ $ $ $ $ $ $ (640.00) $ 9,360.00 3,520.00 200.00 1,000.00 4,720.00 1,680.00 6,400.00 $ $ $ $ $ $ (640.00) $ $ 8,720.00 3,520.00 200.00 1,000.00 4,720.00 1,680.00 6,400.00 $ $ $ $ $ $ (640.00) $ $ 8,080.00 3,520.00 200.00 1,000.00 4,720.00 1,680.00 6,400.00 (640.00) $ 7,440.00 Cash Budget Mar-14 $ 7,440.00 $ Apr-14 May-14 Jun-14 Jul-14 Aug-14 8,160.00 $ 12,720.00 $ 19,600.00 $ 28,800.00 $ 40,320.00 mid high high high high high 20 20 25 30 35 40 2.00 3.00 3.00 3.00 3.00 3.00 $ 384.00 $ 576.00 $ 576.00 $ 576.00 $ 576.00 $ 576.00 $ 7,680.00 $ 11,520.00 $ 14,400.00 $ 17,280.00 $ 20,160.00 $ 23,040.00 $ $ $ $ $ $ $ 3,520.00 200.00 1,000.00 4,720.00 2,240.00 6,960.00 $ $ $ $ $ $ 3,520.00 200.00 1,000.00 4,720.00 2,240.00 6,960.00 $ $ $ $ $ $ 3,520.00 200.00 1,000.00 4,720.00 2,800.00 7,520.00 $ $ $ $ $ $ 3,520.00 200.00 1,000.00 4,720.00 3,360.00 8,080.00 $ $ $ $ $ $ 720.00 $ 4,560.00 $ 6,880.00 $ 9,200.00 $ 11,520.00 $ 13,840.00 $ 19,600.00 $ 28,800.00 $ 40,320.00 $ 54,160.00 $ 8,160.00 $ 12,720.00 3,520.00 200.00 1,000.00 4,720.00 3,920.00 8,640.00 $ $ $ $ $ $ 3,520.00 200.00 1,000.00 4,720.00 4,480.00 9,200.00 Sep-14 Oct-14 1 yr totals $ 54,160.00 $ 68,000.00 high high 40 40 310 3.00 3.00 $ 576.00 $ 576.00 $ 23,040.00 $ 23,040.00 $ 163,200.00 $ $ $ $ $ $ 3,520.00 200.00 1,000.00 4,720.00 4,480.00 9,200.00 $ $ $ $ $ $ 3,520.00 200.00 1,000.00 4,720.00 4,480.00 9,200.00 $ $ $ $ $ $ 42,240.00 2,400.00 12,000.00 56,640.00 34,720.00 91,360.00 $ 13,840.00 $ 13,840.00 $ 71,840.00 $ 68,000.00 $ 81,840.00 $ 81,840.00 AP Manufacturing Instructions The deliverable in this assignment is three Pro Forma Monthly Cash Flow Statements and a one page narrative. The narrative will discuss factors that could cause a deviation from the projection, and what steps could be taken to address any unfavorable deviations. See the “Key Assumptions” section to help identify these factors. Relevant project data and a template for the Pro Forma Cash Flow Statements are given below. Project Background AP Manufacturing is a specialty manufacture and has recently entered into a one year contract to produce product’s A and B. AP Manufacturing receives the order for the exact number of units at the beginning of each month, and manufactures and delivers all units before the end of that month. AP Manufacturing receives payment in full the month after product delivery. Materials must be purchased with cash. All employees are independent contractors, and are paid at the end of each month for hours worked. The project will run from January 1 st through December 31st. Rent and electric bills are paid at the end of each month. AP Manufacturing’s beginning cash balance is $650,000. Equipment Purchase and Loan Data AP Manufacturing will incur one time equipment costs at the initiation of the project of $250,000. This will be partially financed with a $210,000 bank loan. The balance will be paid in cash. See the terms of the loan below; Loan Information Interest Rate: 6.50% Loan Term: 12 Months 12 Months 28th of Each Month Payment due date: The first 11 payments are interest only, the final payment includes that months interest and the loan principal. Sales Forecast AP Manufacturing is paid $245 per unit for product A and $475 per unit for product B. The number of units ordered is seasonal and varies based on demand. The below matrices estimate unit demand in above average, average, and below average economic conditions. To project unit demand in a particular month, take a weighted average of the three scenarios. Round to the closest unit. Probability that economic conditions are above average Probability that economic conditions are average Probability that economic conditions are below average Demand for Product A 30% 40% 30% Demand for Product B January Above Average Economy Average Economy Below Average Economy 2,436 Units 2,014 Units 1,601 Units January Above Average Economy Average Economy Below Average Economy 912 Units 740 Units 612 Units February Above Average Economy Average Economy Below Average Economy 2,577 Units 2,128 Units 1,644 Units February Above Average Economy Average Economy Below Average Economy 900 Units 708 Units 580 Units March Above Average Economy Average Economy Below Average Economy 2,602 Units 2,199 Units 1,700 Units March Above Average Economy Average Economy Below Average Economy 864 Units 648 Units 531 Units Direct Cash Costs Unit Cost Product A Labor 4 hours at $30/hour ($120) Materials $40 Unit Cost Product B Labor 6 hours at $30 per hour ($180) Materials $115 Other Monthly Cash Expenses Rent Electricity $10,000 per month $12.50 per kilowatt hour. AP Manufacturing uses a fixed 200 kilowatt hours per month, plus 1.0 kilowatt hour for each unit produced. Pro Forma Cash Flow Statement Template Cash Flow Statement for Month Ending XX/XX Cash Flow from Operating Activities Cash receipts from customers $ Cash paid to suppliers $( )* Cash paid to employees $( )* Cash paid for electricity $( )* Cash paid for rent $( )* Interest Paid $( )* Net cash flows from operations $ Cash flows from investing activities Equipment purchases $( )* Proceeds from equipment sales $ Net cash flows from investing activities $ Cash Flows from financing activities Proceeds from loan $ Repayment of loan principal $( )* Net cash flows used in financing activities $ Net change in cash and cash equivalents $ Cash and cash equivalents, beginning of month $ Cash and cash equivalents, end of month $ *Use parentheses to indicate a cash outflow. Key Assumptions Material costs assumptions are based on current market prices at the beginning of the year. Product demand was estimated base on past performance of similar products in various economic conditions. Rent is fixed per the lease agreement. The terms of the loan are fixed and cannot be adjusted by either party. The labor hours estimation is based on prototype work and the assumption that speed will improve as the labor force becomes more experienced over the course of the year. The electricity cost estimation is based on current rates, which can change. Electricity usage estimations are based on past experience manufacturing similar but not identical products. The equipment selling price is based on current market prices of comparable equipment with total machine hours close to what AP Manufacturing predicts will be use during the course of the project.
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