Cash Budget And Break-even Analysis For Garden Supply Company For Quarter Ending September 2018

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For the quarter ending 30-September-2018
Particulars		Amount Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
Cash balance 01-July-2018		$106,826
Receipts
Cash Sales	$122,104
Receipts from Accounts Receivable	$97,546
Receipt of Loan	$20,000	$239,650
Payments
Wages	-$60,080
Office Furniture	-$12,109
Prepayments	-$4,722
Administrative Expense	-$18,818
Payments of Accounts Payable	-$69,110
Prepayments – Other	-$1,597	-$166,436
Cash balance 30-September-2018		$180,040

Solution 

Particulars	1 year old	2 years old	3 years old
Selling price	$15	$25	$40
Variable cost/unit	10	16	25
Contribution margin	$5	$9	$15

Sales mix      = 245,000:125,000:75,000

                   = 0.55:0.28:0.17

Particulars	1 year old	2 years old	3 years old
Sales mix (a)	0.55	0.28	0.17
Contribution margin (b)	$5	$9	$15
Weighted average contribution margin for each product (a x b)	$2.75	$2.53	$2.53

Total weighted average contribution margin        = $2.75 + $2.53 + $2.53

                                                                   = $7.81

Total contribution margin     = (245,000 + 125,000 + 75,000) x $7.81

                                      = 445,000 x $7.81

                                      = $3,475,000

Total profit                        = Total contribution margin – Fixed assets

                                      = $3,475,000 – $351,900

                                      = $3,123,100

Weighted average cost margin for each product   = Total profit / Total sales

                                                                   = $3,123,100 / 445,000

                                                                   = $7.02

Break-even point (in units)  =       Fixed costs / 7.81

                                      =       351900 / 7.81

                                      =       45,058

Break-even point (in units) product wise

=       (Fixed costs / Total weighted average contribution margin) x (Sales / total sales)               

 1 year old     =       (351900 / 7.81) x (245000 / 445000)

                   =       24,807                  

2 years old     =       (351900 / 7.81) x (125000 / 445000)

                   =       12,657                  

3 years old     =       (351900 / 7.81) x (75000 / 445000)

                   =       7,594

(b)

Total profit                        = Total contribution margin – Fixed assets

                                      = $3,475,000 – $351,900

                                      = $3,123,100

New sales mix for 1 year old          =       40% x 445000

                                                =       178000                  

New sales mix for 2 years old         =       30% x 445000

                                                =       133500                  

New sales mix 3 years old             =       30% x 445000

                                                =       133500

New fixed cost         =       Old fixed cost + additional costs

=       351900 + 60000

                             =       $411,900

Particulars	1 year old	2 years old	3 years old
Sales mix (a)	178,000	133,500	133,500
Contribution margin (b)	$5	$9	$15
Total contribution margin (a x b)	$890,000	$1,201,500	$2,002,500

Total contribution margin     = $890,000 + $1,201,500 + $2,002,500

                                      = $4,094,000

Total profit                        = Total contribution margin – Fixed costs

                                      = $4,094,000 – $411,900

                                      = $3,682,100

Increase in profit due to change in sales mix        =       $3,682,100 – $3,123,100

                                                                    =       $559,000

Change in sales mix leads to increase in profit. Therefore, management should accept this new initiative.

Solution 3

Cost of small truck             =       $126,500.00

Salvage value of truck        =       $17,400.00

Year	Cash flows	Present Value Factor @ 5%	Present Value of cash flows
0	-$126,500.00	1.00000	-$126,500.00
1	$63,400.00	0.95238	$60,380.95
2	$57,400.00	0.90703	$52,063.49
3	$47,000.00	0.86384	$40,600.37
4	$57,300.00 (39900 + 17400)	0.82270	$47,140.85
			$73,685.66

NPV    =       $73,685.66

Year	Cash flows	Present Value Factor @ 8%	Present Value of cash flows
0	-$126,500.00	1.00000	-$126,500.00
1	$63,400.00	0.92593	$58,703.70
2	$57,400.00	0.85734	$49,211.25
3	$47,000.00	0.79383	$37,310.12
4	$57,300.00	0.73503	$42,117.21
			$60,842.28

NPV    =       $60,842.28

NPV is positive in both of above cases. Therefore, management should purchase trucks in both of above cases.

(d)

Year	Cash flows	Cumulative Cash flows
0	-$126,500.00	-$126,500.00
1	$63,400.00	-$63,100.00
2	$57,400.00	-$5,700.00
3	$47,000.00	$41,300.00
4	$57,300.00	$98,600.00

Payback period                  =       2 + (5700 / 47000)

                                      =       2.12 years

Actual payback period is 2.12 years whereas requirement is to have payback period of maximum 2 years. Therefore, based on this criteria, management should not purchase truck.