Managing Financial Resources

Managing Financial Resources				7983754
A) Prepare production plan for the year 2007,				5
showing the production in each of the months. In				7983754
the plan consider the same production as it was in				18.30%
2006, i.e. 3,000 garage doors. Using the production				1461027
plan calculate direct cost for concrete months.				6522726
2007 budget plan				6
				6522726
				18.30%
				1193658
				5329066
				After the six years due to depreciation the value
				of the machine will have a value of 5329066,
				however the second hand value after the six
				years is 200000, therefore after the six years if
				the machine will be disposed there will be a loss
				after disposal valued at 5129066.
				The machine however will lead to an increase in
				production by 500 units in the first year and 2000
direct cost budget				units in the next year; the table below shows the
				production process in the next six
unit costtotal				years:production in the next six years
				4500
				5000
				5000
				5000
				5000
				5000direct cost plan


Timber				1
				2
				3
				4
3200				5
9600000				6
painting and coating materials
1000
3000000				unit cost
fittings



800
2400000
direct labor				Timber


4000				3200
12000000				14400000
total				16000000
				16000000
				16000000
				16000000
9000				16000000painting and coating materials
27000000				1000
				4500000
				5000000
				5000000
				5000000
				5000000
				5000000fittings


				800
				3600000
				4000000
				4000000
				4000000
				4000000
indirect cost budget				4000000direct labor

				4000
				18000000
				20000000
				20000000
				20000000
				20000000
				20000000
				TOTAL


Depreciation
				40500000
				45000000
3200000				45000000
				45000000
				45000000
General administration				45000000

6000000				Indirect costs

				1
Electricity				2
				3
				4
3000000				5
				6

Maintenance

				1360000
2800000				2679120
				2188841
rent				1788283
				1461027
				1193658

9000000				Depreciation
				3200000
salaries				4560000
				5920000
				7280000
				8640000
10000000				10000000
				11360000
total
				General administration
				6000000
				6000000
34000000				6000000
				6000000
				6000000
				6000000
				6000000

				Electricity
				3000000
				3000000
sales budget				3000000
				3000000
				3000000
				3000000
				3000000

unit priceunittotal				Maintenance
				2800000
				2800000
				2800000
				2800000
25416.67				2800000
3000				2800000
76250000				2800000
				rent
				9000000
				9000000
				9000000
				9000000
				9000000
				9000000
				9000000
				salaries
Above is the production plan for the year 2007,				10000000
the budget includes indirect costs and direct cost				10000000
budget for the year 2007, direct costs can be				10000000
expressed as per unit and therefore this can aid in				10000000
calculating the cost of producing one unit, the				10000000
sales price can also be achieved as shown above				10000000
and it aids in providing the sales level and the				10000000total
profit levels.
B) Prepare the proposal of price of garage door				34000000
for the year 2007. Calculate the break-even point				35360000
for the production of 3,000 doors.				36720000
The break even point is the point in which the				38080000
sales level equals the total expenses and				39440000
therefore we have zero profits, the proposed				40800000
sales price as shown in the above is 25416.67 per				42160000
garage door, the table below shows the calculation
of the break even point:break even point
				TOTAL COST
revenue = expenses

expenses
61000000revenue
61000000unit price				1
20333.33				2
The break even point of producing 3000 garage				3
doors is the point where sales equals expenses,				4
to break even the firm will sell its products at a				5
unit price of 20333.33.				6
C) The management of the company expressed				75860000
the opinion that it is possible to increase the				81720000
production of garage doors to 4,000 pcs in a year				83080000
without any increase of indirect cost. Modify the				84440000
plan of direct cost and calculate the new				85800000
break-even point for the raised production.				87160000
In the table below the indirect costs will not				SALES
increase but the direct costs of production will
increase, using the unit cost of each factor used
in the production process we can attain the new
level of expenses and hence the break even				YEAR
point, in this case the break even point for the				UNITS
production of 4000 units is at the price				PRICE
17500.increase in production to 4000direct cost				TOTAL
planunit cost				1
4000 units				4500
Timber				25416.67
3200				114375015
12800000painting and coating materials				2
1000				5000
4000000fittings				25416.67
800				127083350
3200000direct labor				3
4000				5000
16000000total				25416.67
36000000indirect cost plan				127083350
Depreciation				4
3200000				5000
General administration				25416.67
6000000				127083350
Electricity				5
3000000				5000
Maintenance				25416.67
2800000rent				127083350
9000000salaries				6
10000000total				5000
34000000total direct and indirect				25416.67
70000000break even pointrevenue =				127083350
expensessales price
17500
D) Prepare a report for the management of the
company. The report should include the results of
previous tasks A – C.				PROFITS
According to the budget plan for the firm it is
true that at 3000 units produced the firm does
not exhaust all its capacity to produce, when a
firm increases its production it experiences a				YEAR
reduction in indirect cost due to increasing returns
to scale or economies of scale, this is evident
from the fact that at 3000 units production point
the break even price is 20333 while at 4000 unit				1
production the break even price is 17500.				38515015
Form the above we can conclude that the firm
should increase its production to 4000 in order to
tap economies of scale, when the firm increases				2
its production without increasing fixed or indirect				45363350
cost, these cost will be much more divided to
many units and therefore reduce cost, when the
cost of production is reduced the firm could				3
reduce its selling price and therefore increase				44003350
sales, higher profits therefore will be achieved.
E) Appraise investment projected by the technical
development department to increase the				4
production capacity. Calculate Net Present Value				42643350
and Payback Period of the proposed investment.
Evaluate possibilities of financing the investment.
The proposed purchase of the machine whose				5
value is 16000000 will follow the following				41283350
depreciation over the years as shown in the table
below
				6
depreciation				39923350


yearmachine valuedepreciation				From the above production plan it is then possible
ratedepreciationvalue				that the project will add value to the firm, it will
1				increase production levels and therefore increase
16000000				the profit levels, it is possible that the project can
8.50%				be financed through loan or even that the
1360000				machine is payable in installments. The machine
14640000				has increased the revenue levels and at the same
2				time profit levels are high, therefore it is advisable
14640000				that the firm purchases the machine to
18.30%				experience growth and high profits.
2679120				References:
11960880				Stratton (1999) Economics: A New Introduction,
3				McGraw Hill Publishers, US
11960880				John Francis Nash and Martin Roberts (1984)
18.30%				Accounting Information Systems, Collier Macmillan
2188841				publishers, UK
9772038				Robin Wood (2001) Managing Complexity, Prentice
4				hall publishers, UK
9772038				Douglas R. and John Willingham (1979) Auditing
18.30%				Concepts and Methods McGraw-Hill publishers, US
1788283				Case study (2006)Garage doors, s.r.o.

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Managing Financial Resources

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