Question 4 Cash Budget and Yields Management 25 marks

(A) Shellys Designer NZ Ltd. operates a leather bags workshop in Hamilton, New Zealand and sells completed leather bags around Auckland and Hamilton stores.

Shellys Designer NZ Ltd. prepares monthly cash budget. The relevant data from operating budgets for 2020 are given below:

	March	April
	$	$
Sales	360,000	400,000
Material purchased	125,000	130,000
Labour used	90,000	100,000
Overhead costs/expenses	70,000	75,000
Selling and Admin Expenses	80,000	86,000

All sales are on credit. Collections are expected to be 50% in the month of sales. 30% in the first month after the sale and 20% in the second month after the sale. Of the material purchases, 60% are paid in cash in the month of purchase and the balance due is paid in the first month after the purchase. All other items are paid in the month they were incurred.

Additional data:

Credit sales: January 2021 $260,000. February 2021 300,000.

Purchases of materials: February 2021 $100,000.

Other receipts collected: March 2021: Notes receivable = $15,000 and in

April 2021: Proceeds from sale of securities $6,000.

Other payments: April 2021 Drawings of $5,000.

The cash balance on 1 March 2021 is expected to be $70,000. Shellys Designer NZ Ltd wants to

maintain a minimum cash balance of $55,000.

(Note: The selling and administrative expenses include $1000 worth of depreciation per month).

Required:

Prepare the following:

1. Expected cash collections from customers for March and April. 8 marks
2. Expected payment of materials for March and April. 4 marks
3. The cash budget for the month of March only. 8 marks

B. Yield management principles are relevant in the hospitality industry. It is a pricing approach which mainly focuses on hotel industry to determine room rates revenue.

Recently, you have joined the operations team of the Sunshine Hotel located in Tauranga. The Sunshine Hotel management team is keen to know about their financial return and the business efficiency by maximizing their yield as actual room sales in relation to potential sales.

They have requested you to use the information below on yield management to find out the yield/revenue percentage and comment on how you can use your calculation to improve the business efficiency.

The Sunshine hotel has 50 rooms available, with a full rate of $200 per room. The maximum potential revenue is $10,000. It is assumed that on a particular night, 30 rooms were sold at a lower average rate of $150. The achieved revenue is $4,500.