SUMMARY OF FORMULAS Cost-Volume Profit Analysis Contribution margin per unit (CMU) = Selling price per unit - Variable cost per unit B.E.P.in units = Fixed costs/CMU B.E.P.in revenues = B.E.P.in units x SPU Margin of safety = Sales units - B.E.P.in units Units to sell to get a profit = (Fixed costs + expected profit)/CMU Profit = Total Revenues - Variable Costs Fixed costs Cost Allocation Total indirect OR overhead costs Overhead rate Total volume allocation base Budgeting Sales Budget Budgeted sales = budgeted units x selling price per unit Production Budget Budgeted production (units) = Budgeted sales(units) + Target closing finished goods (units) - Opening finished goods (units) Material Budget Budgeted raw material usage = Required production (unit) x material required per unit Budgeted raw material purchase = Budgeted raw material + Target closing raw material stock - Opening raw material stock Cash Budget Cash Budget = opening balance + cash inflow - cash outflow FV2 + + Capital Investment Decisions FV, FV FVR Net Present Value (NPV) = + ... + 1. (1 + r) (1+r)2 (1+r) (1+r)" NPV. R Average annual net profit before interest and taxes Accounting Rate of Return (ARR) = Initial Capital employed on the project Question 2 Sport4All Ltd. is a multinational company, founded in 1980s, that specialises in manufacturing and selling a wide range of sports equipment. The company has recently reviewed its production process and is planning to expand the product offer towards hoverboard vehicles as a new sport equipment product. You are a management accountant of Sport4All and you work closely with the senior management in the finance function. You would need to supervise this special project and provide a budget for the period July-September 2021, that reflects the effect of this change in the manufacturing process on the financial results of the company. Based on some preliminary analysis conducted by the marketing department, they have come up with details on the forecasted sales and costs for the period July-November 2021. It is expected that the new product requires some changes in the production process in the coming months, including new materials and staff training. At the same time, the company expects to increase the amount of sales revenue in the coming months. The new production will start in July 2021. 1) The company expects to sell each hoverboard for 65 in the first two months and then increase the price to 85. The forecasted sales figures are as follows: July 3,000 August September October 3,000 3,500 3,500 November 4,000 Budgeted units 2) Sales are collected in the following pattern: 80% of the sales are collected in the month of sale, while 20% in the following month, and there are no account receivables. 3) The company plans to hold stock of finished goods equal to 20% of the budgeted sales for the following month. As it is a new product, there is no finished good stocks inventory as of June 2021. 4) Each hoverboard requires 2 kilograms of plywood. The company expects to keep raw material inventory at the end of each month equal to 10% of the following month's production. The new materials are more expensive and cost 10 per kilograms. At the end of June 2021, 200 kilograms of plywood were at hand. 5) The new product will lead to further expenses. The company would need to hire two specialist technicians who will be paid a monthly salary of 30,000 each with no overtime. The production staff will need to be trained monthly and the training cost is expected to be 1,000 per month. Further, it is expected that the fixed overhead will be 8,000 per month and tax liability of 5,000 per month on average in the coming period. 6) Cash opening balance at start of July 2021 is 3,000. Required: Prepare the following budgets for the period from July to September 2021, showing monthly figures: a) Sales budget and consequent Cash Collection Budget [4 marks] b) Production budget and Material Purchase Budget [8 marks] c) Other Expense Budget [4 marks] d) Consolidated Cash Budget [4 marks]