Monthly Sales, Production, and Cash Collection Budget
Sales is the main source of revenue for the organization, i.e. On The Beach, thus, it is important to consider the expected sales pattern of the organization in the future.
The graph below represents the expected sales of one piece in the coming months in 2019. As can be seen that the expected sales of one piece will be quite high at the beginning of the year only to reduce significantly as the year progresses towards the end. The expected sales of one piece however will pick up momentum from August, 2019 and will continue to rise till December of 2019. In January, 2019 the expected revenue from sales of one piece is $180,000 which will reduce constantly with each passing month till July to $40,000. However by the end of the year the organization is expected to earn revenue of $150,000 from sale of one piece (Wheelen et. al. 2017) .
Similar sales patter is expected to emerge from sale of Board shorts, towels and beach bags. The graphs provided below indicative of the expected sales revenue from sale of different products of the organization.
As can be seen from the above that the sales revenue from Board sales will be highest in the year January only to decrease till the mid-year and again pick up from there onwards till the end of the year.
Revenue from sales of towel as well as sales from beach bags showed the same trend. The graph below represents the revenue expe
As can be seen the trend in sales remain the same irrespective of the different products of the organization.
Again the revenue from sales of beach bags is expected to follow the same trend of high quantum of sales at the beginning of the year with continuous decrease in sales till July and again increase in sales from August to continue all the way till the end of the year.
The following line and points indicate the total amount of expected sales of the organization in different months of 2019. As clear from earlier that the organization is expected to earn highest amount of revenue from sales in the month of January. The sales expected to dip significantly after the month of January all the way till the month July. From August however, the expected revenue of the organization will increase and continue to increase till the end of the year (Hammer 2015).
Expected Sales Pattern for Different Products
In the month of January, 2019 the organization is expected to achieve a combined sale of $336,000 which is expected to decrease to $83,800 in the months of June and July. The sales however also expected to increase to $274,000 by the end of the year, i.e. in the month of January. If the underlying factors hold true then the organization is expected to achieve a total sales of $2,358,600 in the year 2019 (Chang 2016).
The organization has decided to manage its productions systematically, i.e. the productions shall be made as per the monthly sales requirements to minimize the amount of holding cost of finished goods as well as raw materials. This will help the organization to reduce the operating costs significantly.
As can be seen from the above graphical representation of production units in different months of 2019 it is clear that the productions have been made in accordance with expected sales. Obviously, as the productions are expected to be based on the requirements of sales in different months the material costs, cost of labour and other operating expenses will also move along the line of production units. This will help On The Beach to reduce the operating costs significantly (Hislop et. al. 2018).
Expected usage of total direct materials can be understood from the following graph:
Expected usage of total direct labour can be understood easily from the following graph:
Fixed overheads however due to its character expected to remain same throughout the year except in the months of March, June, September and December when the quarterly maintenance expenditures of $2500 will needed to be paid. Operating expenses such as utilities, insurance, admin wages and general office expenses are expected to remain same in each of the months in 2019 (Kerzner and Kerzner 2017).
|
Products |
Unit price ($) |
Unit cost ($) |
Contribution margin per unit ($) |
|
One piece |
100 |
71 |
29 |
|
Board shorts |
80 |
64 |
16 |
|
Towels |
50 |
52 |
(2) |
|
Beach bags |
45 |
52 |
(7) |
From the above table it is clear that all the products of the organization are not expected to contribute to the overall profit of the organization. In fact the towels and beach bags are expected to have a negative contribution of $2.00 and $7.00 per towel and beach bag to the overall contribution margin. Thus, the management should seriously consider whether to continue producing towels and beach bags in the future as the organization expected to incur loss for producing and selling towels and beach bags (Uhl and Gollenia 2016).
As per the budget the organization is expected to make a net income of $481,996 for the year ending on December 31, 2019. However, the net income could be increased if the organization increase the prices of towels and beach bags. The following budgeted income statement will enlighten us on the expected net income of the organization in the year 2019.
Budgeted Income Statement for the Year Ended 31 December 2019
Cash collection analysis: For an organization it is not only about earning revenue and incurring expenditures but at the same time the ability of the organization to collect cash from its operations and made payment of cash in systematic manner to maintain a stable liquidity position is equally important.
One of the positive thing noticed during the budget preparation is the fact that the organization is expected to collect significant amount of cash from business. In fact in all the months the organization is expected to collect more cash from the business than the expected amount of monthly sales. This shows the ability of the organization to collect its receivable efficiently and without much delay. The following columns show the expected monthly cash collection of the company in the year 2019 (Rosemann and vom Brocke 2015).
Expected payments of cash in the year 2019:
It is not only about expected cash collection but how an organization spends cash in the future determines the liquidity position. An organization desired to have a favourable cash position in order to have a good liquidity position. The ability of an organization to make use of cash resources can be substantially understood from its cash spending (Welford 2016).
The graph above shows how the organization is expected to make cash payments in the year 2019. As can be seen that the amount of cash payments in each months in the year 2019 is expected to significantly lower than the amount of cash collection from business. Thus, the organization is expected to have a suitable cash position in the future with significant amount of cash in hand at the end of each month and at the end of the year (Jeston 2014).
At the end of different months the organization is expected to have following cash in hands.
Each month in the year 2019 the organization expected to have surplus cash in hand. The surplus cash can be used by investing in equipment and machineries to expand the business in the future.
Conclusion:
Taking into consideration the above analysis of expected performance of the organization in the year 2019 it can be safely said that the organization is going in the right direction as per as its operating strategy is concerned. However, there are still room for improvement as the pricing of towels and beach bags seems quite less than the actual cost of production. Thus, if the management can made necessary changes in the pricing of towels and beach bags then the future performance of the organization is expected to be even better than showed in the budgeted statements.
References:
Carroll, A. and Buchholtz, A., 2014. Business and society: Ethics, sustainability, and stakeholder management. Nelson Education.
Chang, J.F., 2016. Business process management systems: strategy and implementation. Auerbach Publications.
Hammer, M., 2015. What is business process management?. In Handbook on business process management 1 (pp. 3-16). Springer, Berlin, Heidelberg.
Hislop, D., Bosua, R. and Helms, R., 2018. Knowledge management in organizations: A critical introduction. Oxford University Press.
Jeston, J., 2014. Business process management. Routledge.
Kerzner, H. and Kerzner, H.R., 2017. Project management: a systems approach to planning, scheduling, and controlling. John Wiley & Sons.
Rosemann, M. and vom Brocke, J., 2015. The six core elements of business process management. In Handbook on business process management 1 (pp. 105-122). Springer, Berlin, Heidelberg.
Uhl, A. and Gollenia, L.A. eds., 2016. Business transformation management methodology. Routledge.
Welford, R., 2016. Corporate environmental management 1: systems and strategies. Routledge.
Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2017. Strategic management and business policy. pearson.
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