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MB02 Accounting for Business Case Study Analysis
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- Topic: Accounting and Business Analysis
- Document Type: Assignment Help (any type)
- Subject: Accounting
- Deadline:*: As Per Required
- Number of Words: 2500
- Citation/Referencing Style: APA
Assessment 1: Case Study Analysis (60%)
Students will be presented with an accounting case study and will analyse and answer the questions related to the case study. Analysis will include analysing actual vs planned financial data and compare it with the set milestone. Provide a budget for the upcoming milestone with appropriate reasoning and calculate an appropriate value for the business.
Students will be required to provide strong recommendations in 1000 words based on their analysis in Part A of the case study. Students will take on the role of consultant providing a report to their client (business).
Case Study Information
Jimmy, Matt and Andy are business partners who own a SCARF Boutique that sells scarfs. The business wants to expand into other markets and need you to advise them on their financial position and whether they would be able to obtain a business loan for $150,000 to expansion.
Listed below is some key information about the business arrangements:
- All the partners agree that a bank loan would allow the boutique to However, the partners are having a disagreement, about the cash budget that they plan to include in their loan application package. Jimmy and Andy believe that the budget should be revised to present the bank with the most positive projected cash flows. To accomplish this expansion, they are suggesting that on the cash budget, payments for purchases be show two months after the purchases have been made, rather than one month as agreed to by Jimmy Matt Andy’s suppliers.
- Jimmy and Andy are also suggesting that cash receipts from credit customers be budgeted in the same month as the related sales rather than one month later, even though they expect these customers to wait a month before paying for their Matt thinks the budget should reflect the partners’ actual expectations. The partners have come to you for advice.
SCALF Boutique Financial Information
Scarf Boutique ended September with a cash balance of $10,000. SALRF Boutique sells Scarfs
$75 each. Table 1 summarises their sales from August to January.
Table 1: SCALRF Boutique’s Forecasted Sales
|Scarf Boutique Sales||Quantity|
Cash sales are equal to 80 per cent and Credit sales are 20 per cent—the Boutique allows credit customers to pay for their purchases the month after they have made their purchases.
The business policy is to plan to end each month with an ending inventory equal to 20 per cent of the next month’s projected sales.
- The business pays $15 for each scarf that it purchase.
- The business and its supplier have an arrangement that allows Scarf Boutiques to pay for each purchase 60 days after the purchase.
- Assume the business opening inventory for August is 100 scarfs on hand.
Scarf Boutique expects to incur the following expenses for each month of the second quarter of this financial year (See Table 2):
Table 2: Scarf Boutique Cost Allocation
|Cost Allocation||Total||Selling & Admin||Selling|
Part A Calculations, Analysis and Findings (1500 words)
- Prepare a Sales Budget for the business for the second quarter of this financial year. Include the expected cash collection schedule for the second quarter of this financial year.
- Prepare a Purchases Budget for the second quarter of this financial year for Scarf How many Scarfs should the business purchase in October?
- Prepare a Selling Expenses budget for the second quarter of this financial year.
- Prepare a General and Administrative Expenses budget for the second quarter of this financial year.
- Prepare a Cash Budget for the second quarter of this financial year.
- Prepare a Projected Income Statement for the second quarter of this financial year.
Using the information provided in Table 3, answer the following question:
Table 3: Variance Report
|Cash flow from operating activities:|
|Cash receipts from sales||18,000|
|Cash payments for:|
|General and administrative expenses||8,500|
|Net cash inflow (outflow) from Operations||- 11,625|
|Add: Beginning cash balance||10,000|
|Ending cash balance from Operations||- 1,625|
- Using the information and findings in 1.5 and Table 3 prepare the variance report and compare the actual performance against the budgeted values. In this section, explain what may have caused the variances.
- Considering the actual data for October, what impact would these changes have on the Revised Income Statement for the second quarter of this financial year? Analyse the financial impact and provide the partners with some recommendation to minimise the financial impact.
Break Even Analysis
Compute the following amounts based on the additional information provided above (show your calculations). Assume all Expenses in Table 2 are fixed.
- Contribution margin per scarf
- Break-even point of the scarfs
- The number of scarfs that must be sold to earn $50,000 profit.
- Repeat all calculations above, assuming that the partners are considering increasing the selling price per pair of shorts to $85 and that the fixed and variable costs remain the same.
PART B Analysis (1000 words)
Explain to the owner why the cash budget and variance report are important to the business.
- Use Academic Literature to justify your answer.
Revising the Cash Budget for the Bank Loan
- Using the information from Part A—If the partners make the revision, what effect will the revisions have on:
- The sales budget
- The purchases budget, and
- The cash budget?
- What ethical issues are involved in the decision to make the revision or not?
- Use Academic Literature to justify your answers.
- Since the budget represents a plan of action, how might the changed budget affect the activities of the business during the budget period?
- Provide Scarf Boutique with a strategic plan to minimise future budget variances and avoid negative cash flow from operations.