Decision-Making Practice

Part A) Cash Flow Forecasting:

Part B) Marginal Costing:

Part a)

1) Cash Flow Forecasting Statements

Identify two businesses/entities in two different industries that you are going to produce Cash Flow Statements for, for the months of July 2022 to Dec 2022.

1. Consider the following in creating your cash flow statements for each entity:
   1. Briefly explain the operations of the business/entity.
   2. Identify what the entity sells and ensure that the sales transactions are logical in terms of the general information you have provided above. Cash from sales needs to be received over at least three separate months and a discount must be offered at some stage it is the decision of the group as to how this would operate.
   3. Identify the materials that the entity buys. Payments should be made over at least a two-month period and a discount should be available for early payments.
   4. Identify five other types of cash receipts that the business/entity will receive and explain (in accompanying notes) the nature of the cash receipts.
   5. Identify at least seven other types of cash payments that the business/entity will have to pay and explain (in accompanying notes) the nature of the cash payments and the timing in relation to the cash payments and when the transactions occur.
   6. All necessary workings should be shown, and clear explanations provided where they are necessary.
2. Produce the following for each of the two businesses/entities
   1. Create a cash flow statement of the period July to December 2022 for both entities.
   2. Show all relevant working (and necessary accompanying notes) for both entities
   3. Write brief management reports (500 words) on each of the cash flow statement produced.

Note: You are being asked to demonstrate your in-depth knowledge of the construction of (and the resulting meaning of) cash flow statements. The greater the detail you provide the easier it is to demonstrate your understanding.

Part a)

2. Cash Flow Forecasting Reports

Produce short reports (Max 700 words per topic) for the following two

(Note: Use the maximum number of words allowed. Answers of 300 words for example (when 700 are available) means that you are missing the opportunity to deal with the topic in greater depth.)

1. Explain why a business/entity may make profits (as demonstrated in its accounts), and yet may have to cease trading within a year of making profits.

2. Explain the importance of cash flow management to all sizes of organisations (small, medium, and large).

Note: Reference all source material appropriately. Any report that does not reference appropriately will be judged to have been plagiarised. Any information taken directly from a source needs to be identified with the use of quotation marks. Any ideas, thoughts, or explanations taken from a source but expressed in the writers words needs to be cited properly.

Part B -

Marginal Costing Section.

1) Identify the potential advantages of the use of marginal costing over absorption costing. Use examples where appropriate to explain you reasoning. (800 words max)

2. Identify the types of decisions that marginal costing is particularly effective at helping organisations make. (800 Words max)

3. Identify four (4) products that your company sells.

Explain the following in relation to each product:

1. The variable costs details the different types of variable costs and explain how you arrived at the figures.
2. Identify the fixed costs for each product detail the different types of fixed costs and explain how you arrived at the figures.
3. For each product calculate the following:
   1. The contribution per unit
   2. The contribution to sales ratio.
   3. The number of units that would need to be sold to achieve a target profit of 100,000 for product 1; a profit of 70,000 for product 2; a profit of 120,000 for product 3 and a profit of 80,000 for product 4.
   4. The value of sales required to breakeven.
   5. The number of units required to be sold to breakeven.
   6. Produce a marginal costing statement for each of the four products proving that your answers to e. above are correct.
4. Produce traditional break-even charts for each of the four ( products.

4) You are given the following information in relation to the above products: (The information below is to be treated independently of any information produced in the sections above).

The units to be sold for each product are as follows:

Product 1	Product 2	Product 3	Product 4
Units sold 2,000	Units Sold 3,000	Units sold 4,000	Units Sold 2,500

You are told that the total fixed costs for each product are as follows (Ignore the fixed costs that you arrived at above): Total Fixed Costs are 200,000 and the fixed costs are apportioned to products in the following way:

Product 1	Product 2	Product 3	Product 4
20% of total Fixed Costs	50% of total Fixed costs	10% of total Fixed Costs	20% of total Fixed costs

1. Produce a marginal costing statement representing the above information.
2. Produce a marginal costing statement on the following basis and make recommendations based on the results.
   1. The product with the lowest profit (or greatest loss) will be discontinued (will no longer be produced and sold), but the fixed costs associated with the product will no longer be incurred by the organization.
3. Produce a marginal costing statement on the following basis and make recommendations based on the results:
   1. The product with the lowest profit (or greatest loss) will be discontinued (will no longer be produced and sold), but the fixed costs associated with the product will still be incurred by the organisation and the fixed costs for the discontinued section are to be divided equally among the other products.