You work as a management consultant and one of your clients, Planet Pets, has asked you to complete a few planning and control initiatives that they would like to put in place with your help. These include; 1. To better manage their cash flow requirements - preparation of a cash budget and recommendations as to any potential financing arrangements that may be required. Prepare and interpret a variance analysis based on Planet Pets' operational budget. 3. Advise Planet Pets on sources of finance. 2. 1. Planet Pets manufacture chemical free toys for domestic animals and designer collars for customers' pets. Both of their products are manufactured and warehoused in Williamstown and sold to various wholesalers and retail outlets throughout Australia. The business has experienced significant growth over the last year and the owner of the business has decided that now is a really good time to start forward planning and develop a more sophisticated control system, to ensure that there is sufficient cash available in order to meet the operational needs of the business. As the management consultant of Planet Pets, you have been tasked with preparing a cash budget for 6 months that will be incorporated into the business' overall business plan. The following information has been obtained from the sales department regarding the upcoming sales forecasts for the next six (6) months January to June: Budgeted sales (in dollars) Sales information Nov (in dollars) Pet Toys Designer Collars Dec Credit Sales Jan Feb 80,000 110,000 100,000 90,000 Cash collections - Percentage % Cash Sales 100,000 150,000 145,000 125,000 Collected in month of sale Collected in the following month Collected in the 2 month following sale Mar Apr 85,000 95,000 20% 95,000 87,500 68,000 60,000 80% 30% 50% May June 20% 70,000 62,500 + The following information has been obtained from the production department regarding the upcoming production forecasts for the next six (6) months. The costs are related to budgeted raw materials and labour costs. Budgeted raw materials and labour costs (in dollars) Cost information (in Nov dollars) Pet Toys Designer Collars 65,000 75,000 Dec Jan Feb Paid in month incurred Paid in the month following 85,000 80,000 65,000 72,500 70,000 50,000 41,500 Raw materials and labour are paid as follows % All raw materials and labour: Mar Apr 105,000 95,000 87,000 85,000 67,500 47,000 48,500 30% May 70% Additional Information: The business currently rents factory and warehouse premises. The monthly rental is $7,500 per month. Rent is paid in the month it is incurred. Monthly utilities charges are budgeted for the months of Nov - Mar at $4,500 per month and Apr - June at $4,250 per month. Utilities are paid one month after they are incurred June The production supervisor's salary is budgeted at $110,000 per annum. The production supervisor is paid one month in arrears. Administration wages are currently $300,000 per annum. Administration wages are paid one month in arrears. 0 The company is planning on purchasing and paying for a new piece of machinery in March for $20,000. This new piece of machinery will be used for the designer collar product line and have a useful life of 5 years. The first service on the new machinery is expected in June at a cost of $450 and is paid in cash on the day. Annual insurance for the business totals $9,000. Insurance is renewed on the 1st January each year and paid in February. General office expenses are budgeted at $12,000 per month. Office expenses are paid in the month they are incurred. Cash on hand at the end of December was $36,000. Ignore taxation and GST implications. a) Prepare a cash budget for 6 months beginning January b) Advise the company on the debt financing that could be used to deal with cash shortfalls and any major payments in the cash budget. Your advice in this part should explain and provide reasons for your recommendations. (Maximum 200 words) 2. The following relates to information used in preparing the operational budget for Pet Planet for July and the pet toys product line. Selling price for pet toys $25 each Actual unit sales for pet toys for July were 4,200. Direct materials cost $36,000, Direct labour $18,900, Rent $4,500, Utilities $2,500, Administration wages $7,000, Production supervisor salary $4,000. Budgeted amounts for July were as follows: Pet Toys (sales) 6,000 units Direct materials $45,000 Direct labour $30,000 Utilities $2,750 Fixed Costs: Administration wages $5,000 Production supervisor salary $7,000 Rent $4,500 $55.750 Profit/(Loss) a) Prepare a variance analysis for July. This analysis should show the original budget, a flexed budget, actuals and relevant variances. b) To assist the owner of Planet Pets with their planning and control initiatives, briefly interpret and provide possible reasons for the non-zero variances in July. (Maximum 200 words)