Week 7 - Identify and explain variations from the budget and make a decision for continuous improvement. Performance Evaluation The data for the February master budget columns should come over from the operating budget worksheet Verily that the Master budget Net Income is the same as that reported in sheet #41 Complete a flexible budget for February, showing what net income should have been using the operating budget revenue rate, variable expenses rates and fixed costs Actual operating results for the month are provided DO NOT CHANGE THIS DATA Calculate the variances between the flexible budget and actual results As being either for favorable or (U) for unfavorable Determine how much of the Net income variance was due to volume and how much was rate-related. How would you evaluate the actual results? What steps would you take to further investigate and possibly adjust your budget for the rest of the year? Incremental Analysis - Do we outsource? Given the relevant costs from the operating budget, prepare a worksheet comparing the relevant data to a vendor's price quote for doing the production currently done in-house Provide an opinion as to whether this business deal is acceptable. Are there any non-financial considerations? Week 7 - Identify and explain variations from the budget and make a decision for continuous improvement. Performance Evaluation The data for the February master budget columns should come over from the operating budget worksheet Verity that the Master budget Net Income is the same as that reported in sheet #41 Complete a flexible budget for February, showing what net income should have been using the operating budget revenue rate, variable expenses rates and fixed costs Actual operating results for the month are provided DO NOT CHANGE THIS DATA Calculate the variances between the flexible budget and actual results As being either for favorable or (U) for unfavorable Determine how much of the Net income variance was due to volume and how much was rate-related. How would you evaluate the actual results? What steps would you take to further investigate and possibly adjust your budget for the rest of the year? Incremental Analysis - Do we outsource? Given the relevant costs from the operating budget, prepare a worksheet comparing the relevant data to a vendor's price quote for doing the production currently done in-house Provide an opinion as to whether this business deal is acceptable. Are there any non-financial considerations? Background - The Business Plan Marketing: You have a segmentation analysis of the lifestyle variables for the adult learners market. The results support the need to invigorate and "refuel" with comfort food that is also nourishing. What better choice for adults than pizza? What will fill this need and differentiate "BUZZ-TIME PIZZA" is the caffeinated tomato sauce. Operations: You and a couple of friends will make, bake and deliver made-to-order pizzas, in two sizes. There is room in a garage for refrigeration, preparation tables, and a wood-fired oven. The sales manager will make all deliveries, in their vehicle. Financing: Clearly, this is a long-term investment. The three founders, who will each contribute an equal amount, have agreed not to draw a salary for three years. You have hired a sales manager and a part-time office manager. Week 3 - The first two deliverables involve preparing the necessary financial budgets in order to satisfy creditors and control business operations. The sales manager has provided the following sales estimates and price points for the first quarter of 2020. input these values in the worksheet labelled "Operating Budget January February March Number of pizzas 40,000 42,500 45,000 Sales price for large $10.50 Sales price for medium $ 8.50 There is much debate as to the probable sales mix between the two sizes. Input a product mix of your choice (make sure these two add-up to 100%), Direct labor consists of your chef, Pepe, who has agreed to a low wage as long as cigarette and bathroom breaks are included. DO NOT CHANGE THIS LABOR RATE However, you must calculate the chef's efficiency rate. Input how many minutes it will take to make one pizza from However, you must calculate the Chef's efficiency rate. Input how many minutes it will take to make one pizza from order to box. Ingredient and material costs, based on quotes after an extensive request for proposal (RFP), are good for two years. DO NOT CHANGE THE DIRECT MATERIAL RATES The only variable selling cost is a sales commission based on a percent of sales revenue. Input the percent you wish to pay your sale manager. Selling expenses include a fixed component for the sales manager's salary and car allowance for any company business use of their personal auto. Input the monthly salary you wish to pay for compensation including the car allowance Input the monthly salary for your office manager. Calculate the breakeven sales as well as the sales needed to make $200,000 in net income. You are to look over this financial plan and make adjustments in the data you have input, in order to obtain the most reasonable and not excessively optimistic results. The Cash Budget Once you are satisfied with your operating budget, you must prepare a cash budget based on estimated cash flows from collections on customer receivables and cash payments Ensure that the sales revenues for January - March is the same as that on the operating budget. Using the aging of cash collections, calculate total cash receipts for January - March. For each month's cash disbursements, you are to assume that half of the direct material payments are from the current month's purchases and half are from the prior month's purchases. All selling and administrative expenses are paid in the month incurred. Calculate the forecast direct material cash payments by month. You are to decide in which month to invest a significant amount of cash in a facility expansion. You are also to decide on the timing and amount of financing that will cover any month in which you do not meet the compensating cash balance requirement At the end of the first quarter, management desires to have any new debt for this expansion paid-off. Week 5 - Identify and explain variations from the budget and make a decision for continuous improvement. Performance Evaluation The data for the February master budget columns should come over from the operating budget worksheet. Verify that the Master budget Net Income is the same as that reported in sheet #1 Complete a flexible budget for February, showing what net income should have been using the operating budget revenue rate, variable expenses' rates and fixed costs. Actual operating results for the month are provided. DO NOT CHANGE THIS DATA Calculate the variances between the flexible budget and actual results. As being either F for favorable or (U) for unfavorable. Determine how much of the Net income variance was due to volume and how much was rate-related How would you evaluate the actual results? What steps would you take to further investigate and possibly adjust your budget for the rest of the year? Incremental Analysis - Do we outsource? Given the relevant costs from the operating budget, prepare a worksheet comparing the relevant data to a vendor's price quote for doing the production currently done in-house Provide an opinion as to whether this business deal is acceptable. Are there any non-financial considerations? Week 7 - Project Justification It is now time to prepare a capital budget. The idea is to prepare a list of acceptable projects in which to spend in the first quarter in order to increase the value of operations. Recall that the cash budget included funds for plant expansion The estimated future cash flows arising from sales, net of operating costs are given. The hurdle rate represents the interest rate to borrow these funds plus a 2% risk factor. Use this percent in order to discount the cash flows. The project cost and the salvage value, as well, have already been input into the worksheets. Input these cash flows: Sales revenues: Years 1 - 5 $135,000 per year; Years 6-10 $200,000 per year Operating costs: Years 1-5 $ 95,000 per year; Years 6-10 S 135,000 per year Decide in which year (5-7) to spend the $85,000 of major maintenance Complete the five (5) measures at the bottom of the worksheet Provide a recommendation as to whether this project is acceptable. UAI 30 Prepare a Master Operating Budget for the Fut Charts Bira Target Market adult learners, timestarved, poor time management har feh Total IA) input the forecast sie vone Sales Avere Sales Priceunit input the planned product mix w I input the number of para made per hour Prices Sales Price (all 2 topping wo input the sales commission as a free Total Sales Revenue $ Large Input the sweeper's Medium 350 0) input the office managers salary Variable Contated as per un OS G Calculate the breakeven point in sales Production $ 2.555 2.555 2:55 Direct Labor Calculate the united to reach a Seling efficiency antes per 5200.000 net income target Total Variable Costs per 255 2255 255 hourly labor costringeben 12700 Contribution Marie 5 5 Total direct labor per per OM per units 0255 12.55) 2.55) Mato DO ON/O: DIV/0 Direct Material Fard Coh Dough 0.25 Selling 5 cheese a.se Administration toppings DH To Fed Costs $ S caminated tomato 100 Bones ODS Net income Total direct material per Breen Point in 192 Sales comissions 10 Total Variable Selling Expenses per plaza CH BUDGET March Lan Total 5 $ 5 (A) Calculate based on the collection History, the cash receipts from customers (8) Calculate the cash disbursements for raw material purchases, suming 1/2 of the previous month's purchases are paid in the current month Total Purchase December URLY February Mer DIV/01 $ Prepare a Cash Budget ACTUAL Nov Cosh Receipts Sales Revenues $ 300,000 $ 200,000 $ Cash Receipts from: 2 months ago (1011 1 month ago 180 IA) current month (25) total cash receipts Cash Disbursements Raw Materials Selling Expenses Administrative Expenses totalisbursements Net Operating Cash Investments Expand Business 10 Financing New Debt 10 Repay debt Net Cash Flow Beginning Cash Balance Ending Cash Balance 5 THE MINIMUM CASH BALANCE IS $ 75,000 (C) Dedide in which month you wil make a capital investment of $300,000 (0) Determine the appropriate financing activities so as to keep at least the required minimum cance of $ 75,000 and payoff any amount borrowed 133 75.000 75.000 75,000 75,000 75 000 75.000 75.000 75,000 Prepare a exible buget Confort Variance Master But ACT February Verences for at Tone per U Unit Total See 5 35,000 344,750 $ A verify the income is the same as the Bet I not the flex budget and the parke IC) the budget production content and cu the soutienos Dingut the budget copert E) in the futud garden F) Cacaces between the stand tex budget On the De Chichevole in the bedroom Variable Cost Production s 5 2.55 190.750 $ 545 3850 255 SOOS 25. 150.150 S 4915 Total Costs Contribution Foud Costs 5 E) Admin Todos Net income Master Bus Achat income Vince 60 000 50.00 118100 31.650 $31.650 What is the spending IH Evaluate antering decision Master Budget Relevant KA Outsource Relevant costs Units to Proch Variable costs stated as per unit) Production Selling Total Variable costs per unit (A) input the number of units to be produced same as the sales for the quarter (8) From the maner budget, input the variable costs per unit for production From the master budget, input the variable costs per un for selling input the total and costs from the master budget 1) input the vendor's price 7.50 Input a S. incremental variable selling costs due to the outsourcing decision 1. Enter the total fred costs that will NOT be avoided due to oursourcing Selling $50,000 Admin 540,000 it) Pored Costs Selling Administration Total Fixed Costs Total Costs Cost per unit produced 16) IG) DIV/01 VOI Prepare a discounted cash flow analysis Year Year 2 YON Year 4 Year's Yew Year Year Year Investment Year 10 Total (300.000 Cashflow (300.000 Sales 135.000 135.000 135,000 135.000 185.000 200,000 200.000 200,000 Salvage value 200.000 200.000 1,675,000 Operating costs 150.000) (50,000) 195,000) 195.000) 195,000) 195,000) 195,000 135.000 195.000 (135.000) Major Maintenance (135.000 (135,000 (1,150.000 () Net Cathrow (300.000 40,000 40,000 40.000 40,000 40.000 65,000 Cumulative CF 65,000 65.000 65,000 15.000 175.000 (300.000) (260,000) (220,0001 1180,000) 140,000 (100.000) (35.0001 30,000 95.000 160,000 175,000 Hurdle Rate SN Net Present Value (NPV) TA) Use the Excel function NPV in order to determine the value of the future cash flow, net of the initial Invest Internal Rate of Return (IRR) B) Use the IRR function in order to determine the interest earned on the cash flows from year to yew 10 Payback Period I look at the commulative cash flow. How long before the initial Investment is paid off Profitability Index Dj Calculate the ratio of the project's PV of cash flows from years 1-10/initial Investment Major Maintenance SC00E) Decide in which year in this expenditure should be made. Add 55.000 for every year after year 5 Week 7 - Identify and explain variations from the budget and make a decision for continuous improvement. Performance Evaluation The data for the February master budget columns should come over from the operating budget worksheet Verily that the Master budget Net Income is the same as that reported in sheet #41 Complete a flexible budget for February, showing what net income should have been using the operating budget revenue rate, variable expenses rates and fixed costs Actual operating results for the month are provided DO NOT CHANGE THIS DATA Calculate the variances between the flexible budget and actual results As being either for favorable or (U) for unfavorable Determine how much of the Net income variance was due to volume and how much was rate-related. How would you evaluate the actual results? What steps would you take to further investigate and possibly adjust your budget for the rest of the year? Incremental Analysis - Do we outsource? Given the relevant costs from the operating budget, prepare a worksheet comparing the relevant data to a vendor's price quote for doing the production currently done in-house Provide an opinion as to whether this business deal is acceptable. Are there any non-financial considerations? Week 7 - Identify and explain variations from the budget and make a decision for continuous improvement. Performance Evaluation The data for the February master budget columns should come over from the operating budget worksheet Verity that the Master budget Net Income is the same as that reported in sheet #41 Complete a flexible budget for February, showing what net income should have been using the operating budget revenue rate, variable expenses rates and fixed costs Actual operating results for the month are provided DO NOT CHANGE THIS DATA Calculate the variances between the flexible budget and actual results As being either for favorable or (U) for unfavorable Determine how much of the Net income variance was due to volume and how much was rate-related. How would you evaluate the actual results? What steps would you take to further investigate and possibly adjust your budget for the rest of the year? Incremental Analysis - Do we outsource? Given the relevant costs from the operating budget, prepare a worksheet comparing the relevant data to a vendor's price quote for doing the production currently done in-house Provide an opinion as to whether this business deal is acceptable. Are there any non-financial considerations? Background - The Business Plan Marketing: You have a segmentation analysis of the lifestyle variables for the adult learners market. The results support the need to invigorate and "refuel" with comfort food that is also nourishing. What better choice for adults than pizza? What will fill this need and differentiate "BUZZ-TIME PIZZA" is the caffeinated tomato sauce. Operations: You and a couple of friends will make, bake and deliver made-to-order pizzas, in two sizes. There is room in a garage for refrigeration, preparation tables, and a wood-fired oven. The sales manager will make all deliveries, in their vehicle. Financing: Clearly, this is a long-term investment. The three founders, who will each contribute an equal amount, have agreed not to draw a salary for three years. You have hired a sales manager and a part-time office manager. Week 3 - The first two deliverables involve preparing the necessary financial budgets in order to satisfy creditors and control business operations. The sales manager has provided the following sales estimates and price points for the first quarter of 2020. input these values in the worksheet labelled "Operating Budget January February March Number of pizzas 40,000 42,500 45,000 Sales price for large $10.50 Sales price for medium $ 8.50 There is much debate as to the probable sales mix between the two sizes. Input a product mix of your choice (make sure these two add-up to 100%), Direct labor consists of your chef, Pepe, who has agreed to a low wage as long as cigarette and bathroom breaks are included. DO NOT CHANGE THIS LABOR RATE However, you must calculate the chef's efficiency rate. Input how many minutes it will take to make one pizza from However, you must calculate the Chef's efficiency rate. Input how many minutes it will take to make one pizza from order to box. Ingredient and material costs, based on quotes after an extensive request for proposal (RFP), are good for two years. DO NOT CHANGE THE DIRECT MATERIAL RATES The only variable selling cost is a sales commission based on a percent of sales revenue. Input the percent you wish to pay your sale manager. Selling expenses include a fixed component for the sales manager's salary and car allowance for any company business use of their personal auto. Input the monthly salary you wish to pay for compensation including the car allowance Input the monthly salary for your office manager. Calculate the breakeven sales as well as the sales needed to make $200,000 in net income. You are to look over this financial plan and make adjustments in the data you have input, in order to obtain the most reasonable and not excessively optimistic results. The Cash Budget Once you are satisfied with your operating budget, you must prepare a cash budget based on estimated cash flows from collections on customer receivables and cash payments Ensure that the sales revenues for January - March is the same as that on the operating budget. Using the aging of cash collections, calculate total cash receipts for January - March. For each month's cash disbursements, you are to assume that half of the direct material payments are from the current month's purchases and half are from the prior month's purchases. All selling and administrative expenses are paid in the month incurred. Calculate the forecast direct material cash payments by month. You are to decide in which month to invest a significant amount of cash in a facility expansion. You are also to decide on the timing and amount of financing that will cover any month in which you do not meet the compensating cash balance requirement At the end of the first quarter, management desires to have any new debt for this expansion paid-off. Week 5 - Identify and explain variations from the budget and make a decision for continuous improvement. Performance Evaluation The data for the February master budget columns should come over from the operating budget worksheet. Verify that the Master budget Net Income is the same as that reported in sheet #1 Complete a flexible budget for February, showing what net income should have been using the operating budget revenue rate, variable expenses' rates and fixed costs. Actual operating results for the month are provided. DO NOT CHANGE THIS DATA Calculate the variances between the flexible budget and actual results. As being either F for favorable or (U) for unfavorable. Determine how much of the Net income variance was due to volume and how much was rate-related How would you evaluate the actual results? What steps would you take to further investigate and possibly adjust your budget for the rest of the year? Incremental Analysis - Do we outsource? Given the relevant costs from the operating budget, prepare a worksheet comparing the relevant data to a vendor's price quote for doing the production currently done in-house Provide an opinion as to whether this business deal is acceptable. Are there any non-financial considerations? Week 7 - Project Justification It is now time to prepare a capital budget. The idea is to prepare a list of acceptable projects in which to spend in the first quarter in order to increase the value of operations. Recall that the cash budget included funds for plant expansion The estimated future cash flows arising from sales, net of operating costs are given. The hurdle rate represents the interest rate to borrow these funds plus a 2% risk factor. Use this percent in order to discount the cash flows. The project cost and the salvage value, as well, have already been input into the worksheets. Input these cash flows: Sales revenues: Years 1 - 5 $135,000 per year; Years 6-10 $200,000 per year Operating costs: Years 1-5 $ 95,000 per year; Years 6-10 S 135,000 per year Decide in which year (5-7) to spend the $85,000 of major maintenance Complete the five (5) measures at the bottom of the worksheet Provide a recommendation as to whether this project is acceptable. UAI 30 Prepare a Master Operating Budget for the Fut Charts Bira Target Market adult learners, timestarved, poor time management har feh Total IA) input the forecast sie vone Sales Avere Sales Priceunit input the planned product mix w I input the number of para made per hour Prices Sales Price (all 2 topping wo input the sales commission as a free Total Sales Revenue $ Large Input the sweeper's Medium 350 0) input the office managers salary Variable Contated as per un OS G Calculate the breakeven point in sales Production $ 2.555 2.555 2:55 Direct Labor Calculate the united to reach a Seling efficiency antes per 5200.000 net income target Total Variable Costs per 255 2255 255 hourly labor costringeben 12700 Contribution Marie 5 5 Total direct labor per per OM per units 0255 12.55) 2.55) Mato DO ON/O: DIV/0 Direct Material Fard Coh Dough 0.25 Selling 5 cheese a.se Administration toppings DH To Fed Costs $ S caminated tomato 100 Bones ODS Net income Total direct material per Breen Point in 192 Sales comissions 10 Total Variable Selling Expenses per plaza CH BUDGET March Lan Total 5 $ 5 (A) Calculate based on the collection History, the cash receipts from customers (8) Calculate the cash disbursements for raw material purchases, suming 1/2 of the previous month's purchases are paid in the current month Total Purchase December URLY February Mer DIV/01 $ Prepare a Cash Budget ACTUAL Nov Cosh Receipts Sales Revenues $ 300,000 $ 200,000 $ Cash Receipts from: 2 months ago (1011 1 month ago 180 IA) current month (25) total cash receipts Cash Disbursements Raw Materials Selling Expenses Administrative Expenses totalisbursements Net Operating Cash Investments Expand Business 10 Financing New Debt 10 Repay debt Net Cash Flow Beginning Cash Balance Ending Cash Balance 5 THE MINIMUM CASH BALANCE IS $ 75,000 (C) Dedide in which month you wil make a capital investment of $300,000 (0) Determine the appropriate financing activities so as to keep at least the required minimum cance of $ 75,000 and payoff any amount borrowed 133 75.000 75.000 75,000 75,000 75 000 75.000 75.000 75,000 Prepare a exible buget Confort Variance Master But ACT February Verences for at Tone per U Unit Total See 5 35,000 344,750 $ A verify the income is the same as the Bet I not the flex budget and the parke IC) the budget production content and cu the soutienos Dingut the budget copert E) in the futud garden F) Cacaces between the stand tex budget On the De Chichevole in the bedroom Variable Cost Production s 5 2.55 190.750 $ 545 3850 255 SOOS 25. 150.150 S 4915 Total Costs Contribution Foud Costs 5 E) Admin Todos Net income Master Bus Achat income Vince 60 000 50.00 118100 31.650 $31.650 What is the spending IH Evaluate antering decision Master Budget Relevant KA Outsource Relevant costs Units to Proch Variable costs stated as per unit) Production Selling Total Variable costs per unit (A) input the number of units to be produced same as the sales for the quarter (8) From the maner budget, input the variable costs per unit for production From the master budget, input the variable costs per un for selling input the total and costs from the master budget 1) input the vendor's price 7.50 Input a S. incremental variable selling costs due to the outsourcing decision 1. Enter the total fred costs that will NOT be avoided due to oursourcing Selling $50,000 Admin 540,000 it) Pored Costs Selling Administration Total Fixed Costs Total Costs Cost per unit produced 16) IG) DIV/01 VOI Prepare a discounted cash flow analysis Year Year 2 YON Year 4 Year's Yew Year Year Year Investment Year 10 Total (300.000 Cashflow (300.000 Sales 135.000 135.000 135,000 135.000 185.000 200,000 200.000 200,000 Salvage value 200.000 200.000 1,675,000 Operating costs 150.000) (50,000) 195,000) 195.000) 195,000) 195,000) 195,000 135.000 195.000 (135.000) Major Maintenance (135.000 (135,000 (1,150.000 () Net Cathrow (300.000 40,000 40,000 40.000 40,000 40.000 65,000 Cumulative CF 65,000 65.000 65,000 15.000 175.000 (300.000) (260,000) (220,0001 1180,000) 140,000 (100.000) (35.0001 30,000 95.000 160,000 175,000 Hurdle Rate SN Net Present Value (NPV) TA) Use the Excel function NPV in order to determine the value of the future cash flow, net of the initial Invest Internal Rate of Return (IRR) B) Use the IRR function in order to determine the interest earned on the cash flows from year to yew 10 Payback Period I look at the commulative cash flow. How long before the initial Investment is paid off Profitability Index Dj Calculate the ratio of the project's PV of cash flows from years 1-10/initial Investment Major Maintenance SC00E) Decide in which year in this expenditure should be made. Add 55.000 for every year after year 5