Course: Bachelor of Science (BSc) in Management

Module: Financial and Management Accounting (ACC2002L)

Lecturer: Dr.Ming Yen Tan

Assignment title: Assignment 02 (Group Assignment)

Submitted by: G.D.E.Imesha Jayawardhana

Student Number: 19208625

Submission Date: 29.02.2020

Word Count: 2535

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 Group members

Name Student Number

G.D.E.Imesha Jayawardhana 19208625
J.M.H.P.Jayasundara 19208714
M.W.Samadhi Dulshani 19208672

I declare that all materials included in this report is the end result of my
own work and that due acknowledgement have been given in the
bibliography and references to all sources be they printed ,electronic or
personal.

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Question 01

(a)

WISE LTD

CASH BUDGET

JULY-DECEMBER 2020

cash Inflows July August september October November December

Sales - July 20,000 20,000
- August 21,000 21,000
- September 10,000 10,000
- October 23,000 23,000
- November 21,000
- December 25,000
- June 15,000
- May 14,000
Total Cash Inflows 34,000 36,000 30,000 44,000 31,000 48,000

Cash Outflows July August september October November December

Cash Purchases 6,300 8,400 8,820 4,200 9,660 8,820
Credit Purchases 13,720 14,700 19,600 20,580 9,800 22,540
Wages 5,000 5,000 5,000 5,000 5,000 5,000
Sales commission 1,500 2,000 2,100 1,000 2,300 2,100
Rent 10,000 10,000
Telephone,Heating,Electricity 800 800 800 800 800 800
Divident payment 6,000
Interest repayable 100 100 100 100 100 100
Tax 5,000
Total Cash outflows 27,420 31,000 46,420 31,680 42,660 45,360
Net cash flow 6,580 5,000 -16,420 12,320 -11,660 2,640
Opening Balance 3,000 9,580 14,580 -1840 10,480 -1180
Closing Balance 9,580 14,580 -1,840 10,480 -1,180 1,460

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(b) According to this cash flow WISE LTD has a rapidly changing closing balance. In July,
august, October and December has positive values but September, November has negative
values.

There is lots of way to improve WISE LTD’s cash flow. Mainly they can do more cash sales and
it helps to maintain huge cash inflows. They can lease and reduce buying a lot.

In short term they can reduce current assets (stocks and debtors), and increase current liabilities
(delaying payments like electricity bills, rent etc.).selling surplus fixed assets and in long term
they can increase equity. Finance increase long term liabilities and reduce net outflows on fixed
assets.

They can make sales for cash or credit cards rather than invoicing and they can promote or
attract their business to new customers to earn or gain more revenue. They have change the
timing or reduce of owner’s draw, buy inventory from venders at reduced or lower price. If they
have lot of creditors; they can establish a policy to get paid sooner by their customers.

By doing those things WISE LTD can improve their cash flows.

(c) A budget is a money related arrangement for future exercises. The budget utilized in
business regularly incorporates a deals or incomes spending plan point by point by items or
administrations, creation spending plans, spending plans for every division in the organization,
money spending plan, capital uses spending plan, and others. The blend of the considerable
number of spending plans is alluded to as the organization's lord spending plan or benefit plan.
Spending plans assist the board with choosing which exercises it will attempt and how the
organization's assets will be utilized. In the event that the planned salary explanation and asset
report leaving the ace spending plan are not adequate, the board can roll out the required
improvements before the year really starts. Spending plans can likewise help with controlling the
genuine expenses, since directors understand that the expenses of their exercises will be
contrasted with the budget.

Different functions of budgeting

● Planning
● Coordinating
● Communicating
● Motivating

● Controlling
● Evaluating

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Planning
● Planning annual operations
The major planning decision will already have been made as a part of the long-term planning
Process. However the annual budgeting process leads to the refinement of those plans, since
Managers must produce detailed plans for the implementation of the long range plan. Without
the annual budgeting process, the pressures of day-to-day operating problems may tempt
managers not to plan for future operations. The budgeting process ensures that managers do plan
for future operations, and that they consider how conditions in the next year might change and
what steps they should take now to respond to these changed conditions. This process encourage
managers to anticipate problems before they arise, and hasty decisions that are made on the spur
of the moment, based on expediency rather than reasoned judgment will be minimized.

Coordination
 Coordinating activities of the various parts of the organization and ensuring that the parts
are in harmony with each other.
Coordination The budget serves as a vehicle through which the actions of the different parts of
an organization can be brought together and reconciled into a common plan. Without any
guidance, managers may each make their own decisions, that working in the best interests of the
organization. For example, the purchasing manager may prefer to place large orders so as to
obtain large discounts; the production manager will be concerned with avoiding high inventory
levels; and the accountant will be concerned with the impact of the decision on the cash of
business. It is the aim of budgeting to reconcile these differences for the good of the organization
as a whole, rather than for the benefit of any individual area. Budgeting therefore compels
managers to examine the relationship between their own operations and those of other
departments, and, in the process, to identify and resolve conflicts.

Communication
Organization is to function effectively, there must be definite lines of communication so that all
the parts will be kept fully informed of the plans and the policies, and constraints, to which the
Organization expected to conform. Everyone in the organization should have a clear
Understanding of the part they de expected to play in achieving the annual budget. This process
will ensure that the appropriate Individuals are made accountable for implementing the budget.
Through the budget, top management unicasts its expectations to lower level management, so
that all members of the organization may understand these expectations and can coordinate their
activities to attain them. It is not just the budget self that facilitates communication preparing it.
Communication If an much vital information is communicated in the actual act of preparing it. In
wise ltd if they have a flat organizational structure, it is easy for them to communicate with the
employees and understand their problems; so the conflicts that would occur will be minimized
and the flow of the organization also will be very smooth. And also the close relationships
among them will help the managers to supervise the employees and get to know about their
progress. So because of those maintaining good relationships with the employees is a must to run
the organization in a smooth manner.

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Motivating
 Motivating managers to strive to achieve the organizational goals.
Spending plans can be utilized to influence worker perspectives and execution. Spending plans
ought to be take an interest, including support by those to be influenced by them. Further, lower -
level workers are on the working line each day so they are very educated. Their info is required.
Spending plans can be. A budget is an inspirational and testing instrument on the off chance that
it is tight yet achievable. It must be reasonable. On the off chance that the financial backing is
excessively tight, it brings about dissatisfaction since administrators will surrender and make an
effort not to accomplish the ridiculous targets. On the off chance that it is excessively free,
smugness will emerge and laborers may mess about. In every organization motivated employee’s
leads to good reputation of the company. So in wise ltd they can reward employees with
monitory and non-monitory prizes to motivate them. As CEO of this organization Johnson has
responsibility to keep their employees motivated. Motivated employees increase the productivity
of the company and it gains profit to the company. Its also helps to achieve organizational goals.

Controlling
 Controlling activities
Control Budgets are useful in the control process because they provide a basis for evaluating
performance. To control a company-to make sure it is heading in the proper direction and
operating efficiently-it is essential to assess the performance of managers and the operations for
which they are responsible. Often performance evaluation is carried out by comparing actual
performance with planned or budgeted performance. Significant deviations from planned
performance are associated with three potential
1. It is possible that the plan or budget was poorly conceived.
If a budget is not carefully developed, it should not be surprising that actual results are different
from planned results.
2. It is possible that although the budget carefully developed, conditions have changed.
For example, if the economy were to take a sudden downturn, actual sales might be less than
budgeted sales.
3. It is possible that managers have done a particularly good or poor job managing
operations.

If this is case, the managers will be rewarded for good performance (e.g. given a bonus
or a promotion) or punished for poor performance (eg- given reduced responsibility or even
fired).

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Evaluating
 Evaluating the performance of managers.
Assessing execution through spending investigation gives the executives data expected to modify
creation, transportation, stock and different zones of business the board to improve client
assistance. Evaluating execution propels the board to assemble better correspondence channels
both inside the business association and with providers and clients. Assessing execution through
spending investigation makes it workable for the executives to gauge the expenses of explicit
items and administrations against the real benefits earned for the specific items and
administrations.

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Question 02

(a)

Variable cost
Variable costs are corporate costs that shift in direct extent to the amount of yield. In
contrast to fixed costs, which stay steady paying little mind to yield, variable expenses
are an immediate capacity of creation volume, rising at whatever point creation grows
and falling at whatever point it contracts. Instances of normal variable costs incorporate
crude materials, bundling, and work legitimately associated with an organization's
assembling procedure.

 Total variable cost = the number of units produced × variable cost per unit

Fixed cost

A fixed cost is the other expense brought about by organizations and partnerships. In
contrast to the variable cost, an organization's fixed cost doesn't change with the volume
of creation. It continues as before regardless of whether no merchandise or
administrations are created, and along these lines, can't be stayed away from.

Ex: lease and rent payments

Utilities, insurance, certain salaries
Interest payments

Contribution

Contribution is the measure of income staying after every single direct expense has been
subtracted from income. This leftover portion is the sum accessible to pay for any fixed
costs that a business brings about during an announcing period. Any overabundance of
commitment over fixed costs rises to the benefit earned.

Direct expenses are any costs that change straightforwardly with incomes, for
example, the expense of materials and commissions.

 Contribution = selling price per unit- variable cost per unit

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Breakeven point

The breakeven point is the original investment point is the creation level where all out
incomes rises to add up to costs. At the end of the day, the breakeven point is the original
investment point is the place an organization delivers indistinguishable measure of
incomes from costs either during an assembling procedure or an accounting period. Since
incomes equivalent costs, the total compensation for the period will be zero. The
organization didn't lose any cash during the period, yet it additionally didn't increase any
cash either. That called as BEP.

 Breakeven point(units) = fixed cost ÷( revenue per unit – variable cost per unit)

Margin of Safety

The margin of safety is the distinction between the measure of expected benefit and the
equal the breakeven point. The margin of safety recipe is equivalent to current deals short
the breakeven point separated by current deals.

 Margin of safety = (current sales levels- breakeven point)÷current sales × 100

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(b) i) TFC

Electricity

Marketing and distribution

Other fixed cost

Total Fixed Cost = 2,100 +2,000 +43,000 $

= 47,600 $

ii) Variable cost

Electricity

Marketing and distribution

Fruit

Other material

Direct labor

Variable cost =

62,900 $ per moth

Variable cost per unit

= $ 1.34 per unit

iii) Contribution = (2.50 -1.34) = 1.16 per unit

iv) Break-Even Point =

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 BEP in units = 41,034.48 units

v) Margin of Safety = Target Sales – Break-Even Point

= 47,000 – 41034.48

= 5,966 units

C) Revenue Total revenue

and cost
($)

Total cost

Total variable
cost

47,600 Fixed cost

Margin of safety

Units
BEP units 47,000
41,034

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d)

Current situation

Income = (selling price no of units) – (variable cost per unit no of units) – fixed cost

= (2.5 $ 47,000) – (1.34 47,600 $

= (117,500 $ – 62,980 – 47,600 $)

= 6,920 $

After price reduction

When reduced the current price in to 2.3 $; sales units increases by 25 percent. That means total
units are increased by 125 percent.

47,000 125% = 58,750 units

Income = (selling price no of units) – (variable cost per unit no of units) – fixed cost

= (2.3$ ) – (1.34 47,600 $

= 8,800 $

Difference of income = 6,920 $ – 8,800 $ = -1880 $

Income difference as a percentage (%) =

= 27.62 %

e)

Total number of units = 47,000 + 2,500 = 49,500 units

TFC

Electricity 2,100 $

Marketing & distribution 400 $ (1,000 $ 40%)

Other fixed cost 43,500 $

= 46,000 $

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Variable cost

Fruit 16,000 $

Other material 19,000 $

Direct labor 20,000 $

Electricity 4,900 $

Marketing & distribution 600 (1,000 $ 60%)

Delivery cost 5,940 (49,500 0.12 $)

= 66,440 $

TC = FC+ VC

= 46,000 + 66,440

= 112,440 $

If the selling price equals to the X

TC = FC+ VC

112,440 = 46,000 + (49,500 X)

X = 1.34 $

Celling price = 1.34 $

F) Assume that sales prices are constant at all levels of output.

Assume production and sales are the same.

It can only apply to the single product or single mix of product

Break even chat may be time consuming to the prepare

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References

 Maher, Lanen and Rahan, Fundamentals of Cost Accounting, 1st Edition (McGraw-Hill
2005).

 Horngren, Datar and Foster, Cost Accounting - A Managerial Emphasis, 11th edition
(Prentice Hall 2003).

 Kaplan, Robert S. and Bruns, W. Accounting and Management: A Field Study

Perspective (Harvard Business School Press, 1987)

 John Francis Deems Rohrbach. Cost accounting. New York: Ronald Press, 1919.

 Blocher, Stout, Juras and Cokins,Cost Management - A Strategic Emphasis, 7th Edition
(McGraw-Hill 2016).

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Group contribution
TEAM MEMBERS CONTACT DETAILS

MOBILE EMAIL

1 G.D.E.I.Jayawardhana +94768915158 imesha96721@gmail.com

2 M.W.S.Dulshani +94764842903 samadhidulshani1998@gmail.com
3 J.M.H.P.Jayasundara +94766069313 hansinipiyumik24@gmail.com
INFORMAL COMMUNICATION

1. First we talking to friends in class and formed a group

2. We created “whatsapp” group to discuss the further information regard to the group
assignment
3. We appointed one member as a group leader

MEETINGS

1. We met up a one day and we gathered information from NSBM Library which is relevant to
the theoretical parts of the assignment.
2. We analyzed those information and developed answers as suitable.
3. Another day we are done calculation parts of the assignment.

MAKING DECISIONS

We have agreed

1. We divided assignment parts among the team members and required word documents of
each part.
2. We comply with all the guide lines which provided by the UCD
3. We can able to complete this report on due date

SANCTIONS

We hope to work in harmony together. We have different strengths. We accept that this is a group piece
of work and we are all responsible for doing our best. However we agree now that

 If individuals have difficulties in working with the team or on the task, we will try to sort them
out promptly by talking with each other
 We will seek advice - as soon as is possible - from our tutor for those serious problems which we
cannot resolve ourselves.

SIGNED

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