You have now been asked to work with a start-up business (HAC). The business is particularly in need of support and guidance with budgeting and how it can be used to inform efficient resource allocation and support effective control and decision making. You are given a raw budget data in spreadsheet format (Excel Sheet 2 - Task 3) for the next year business plan that were prepared some months earlier. All the below information (numbers) from (a) to (i) will be given by the tutor. - At the end of this year, HAC will have an overdraft of (10,000\$) for the short-term plan within one year and the bank will ask for eliminating that borrowing by the end of next year. - Throughout next year, the business plans to spend more for the marketing budget (advertising expense) which in turn generates these increases in sales. Payments for advertising of (3,000$) will be made at the end of every quarter. - The selling expenses will be costed about 10% of each month's sales revenue and are payable in the following month. - The selling price per unit will be (22) throughout the year. 40% of sales are normally made on two months' credit. The other 40% are settled within the month of sale. Additionally, the rest 20%, customers pay with a credit card. The charge made by the credit card business is (2.0%) of the sales revenue value and will be added to the selling expenses for the month of sale. The credit card business pays back the money to HAC in the month concerned. - Raw materials will be held for one month before they are taken into production. Suppliers allow one month's credit. HAC uses one unit of raw material to produce one finished good and the cost of raw material is (5) per unit. - The direct labour cost will be (6) per unit of production. This is a variable cost and be paid in the month concerned. - Various fixed production overheads run at (1,500$) a month from October this year and increase by (50) every three months, including a steady (400) each month for depreciation. Overheads are planned to be paid 70% in the month of production and 30% in the following month. - To support the business to increase budgeted production level, a new small machine, costed (12,000$) will be purchased and set up in January. In the contract with supplier, HAC agreed to pay in 4 months from February to May with equal amounts of money. - There will be 300 units of raw material inventories at the beginning of December this year. - The opening cash balance is planned to be $1,000 on 1 January. Tou have to review its plan and accomplish the following tasks: 1. Draw up the cash budget for next year and present information in figures/charts. 2. Prepare the budgeted income statement (operating profit) for next year. 3. Furthermore, how the actual operating profit would be changed due to the impacts of scenarios below (using variance analysis)? Discounting prices by 20% leads to increase in sales volume per month by 10% Increasing advertising expense by 10% to generate an additional 20% in sales revenue Only offering customers one-month sales credit The reconciliation should include all the mentioned variances. BUSINESS PLAN FOR NEXT YEAR \begin{tabular}{|c|c|c|} \hline & Production Units & Sales Units \\ \hline Nov (This year) & 500 & 600 \\ \hline Dec (This year) & 550 & 650 \\ \hline Jan & 400 & 350 \\ \hline Feb & 450 & 500 \\ \hline Mar & 300 & 350 \\ \hline Apr & 350 & 400 \\ \hline May & 400 & 400 \\ \hline Jun & 500 & 550 \\ \hline Jul & 500 & 500 \\ \hline Aug & 600 & 600 \\ \hline Sep & 700 & 650 \\ \hline Oct & 750 & 750 \\ \hline Nov & 800 & 850 \\ \hline Dec & 850 & 850 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|} \hline & Nov (This year) & Dec (This year) & Jan & Feb & Mar & Apr & May & Jun & Jul & Aug & Sep & Oct & Nov & Dec & Jan \\ \hline Production Units & 500 & 550 & 400 & 450 & 300 & 350 & 400 & 500 & 500 & 600 & 700 & 750 & 800 & 850 & 800 \\ \hline Sales Units & 600 & 650 & 350 & 500 & 350 & 400 & 400 & 550 & 500 & 600 & 650 & 750 & 850 & 850 & 900 \\ \hline \end{tabular} You have now been asked to work with a start-up business (HAC). The business is particularly in need of support and guidance with budgeting and how it can be used to inform efficient resource allocation and support effective control and decision making. You are given a raw budget data in spreadsheet format (Excel Sheet 2 - Task 3) for the next year business plan that were prepared some months earlier. All the below information (numbers) from (a) to (i) will be given by the tutor. - At the end of this year, HAC will have an overdraft of (10,000\$) for the short-term plan within one year and the bank will ask for eliminating that borrowing by the end of next year. - Throughout next year, the business plans to spend more for the marketing budget (advertising expense) which in turn generates these increases in sales. Payments for advertising of (3,000$) will be made at the end of every quarter. - The selling expenses will be costed about 10% of each month's sales revenue and are payable in the following month. - The selling price per unit will be (22) throughout the year. 40% of sales are normally made on two months' credit. The other 40% are settled within the month of sale. Additionally, the rest 20%, customers pay with a credit card. The charge made by the credit card business is (2.0%) of the sales revenue value and will be added to the selling expenses for the month of sale. The credit card business pays back the money to HAC in the month concerned. - Raw materials will be held for one month before they are taken into production. Suppliers allow one month's credit. HAC uses one unit of raw material to produce one finished good and the cost of raw material is (5) per unit. - The direct labour cost will be (6) per unit of production. This is a variable cost and be paid in the month concerned. - Various fixed production overheads run at (1,500$) a month from October this year and increase by (50) every three months, including a steady (400) each month for depreciation. Overheads are planned to be paid 70% in the month of production and 30% in the following month. - To support the business to increase budgeted production level, a new small machine, costed (12,000$) will be purchased and set up in January. In the contract with supplier, HAC agreed to pay in 4 months from February to May with equal amounts of money. - There will be 300 units of raw material inventories at the beginning of December this year. - The opening cash balance is planned to be $1,000 on 1 January. Tou have to review its plan and accomplish the following tasks: 1. Draw up the cash budget for next year and present information in figures/charts. 2. Prepare the budgeted income statement (operating profit) for next year. 3. Furthermore, how the actual operating profit would be changed due to the impacts of scenarios below (using variance analysis)? Discounting prices by 20% leads to increase in sales volume per month by 10% Increasing advertising expense by 10% to generate an additional 20% in sales revenue Only offering customers one-month sales credit The reconciliation should include all the mentioned variances. BUSINESS PLAN FOR NEXT YEAR \begin{tabular}{|c|c|c|} \hline & Production Units & Sales Units \\ \hline Nov (This year) & 500 & 600 \\ \hline Dec (This year) & 550 & 650 \\ \hline Jan & 400 & 350 \\ \hline Feb & 450 & 500 \\ \hline Mar & 300 & 350 \\ \hline Apr & 350 & 400 \\ \hline May & 400 & 400 \\ \hline Jun & 500 & 550 \\ \hline Jul & 500 & 500 \\ \hline Aug & 600 & 600 \\ \hline Sep & 700 & 650 \\ \hline Oct & 750 & 750 \\ \hline Nov & 800 & 850 \\ \hline Dec & 850 & 850 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|} \hline & Nov (This year) & Dec (This year) & Jan & Feb & Mar & Apr & May & Jun & Jul & Aug & Sep & Oct & Nov & Dec & Jan \\ \hline Production Units & 500 & 550 & 400 & 450 & 300 & 350 & 400 & 500 & 500 & 600 & 700 & 750 & 800 & 850 & 800 \\ \hline Sales Units & 600 & 650 & 350 & 500 & 350 & 400 & 400 & 550 & 500 & 600 & 650 & 750 & 850 & 850 & 900 \\ \hline \end{tabular}