Contents

Introduction. 1

Discussion/Analysis. 1

Income Statement and Cash Flow.. 1

Appointment of Manger 2

Increase in Purchase Price. 2

Conclusions/Recommendations. 3

References. 4

Ronald W. Hilton (2008), Managerial Accounting: Creating Value in a Dynamic Business Environment 4

James Jiambalvo  (2009), Managerial Accounting. 4

Introduction

The budget financial report for Ozzie Amazon trading has been prepared and for the purpose of preparing the budget reports the dialed information on the various aspects of the business including, costs, salaries being made, purchases and sales expectation etc. Based on the given information the complete financial budget for Ozzie Amazon trading has been prepared. Based on the given information the complete financial budget for Ozzie Amazon trading has been prepared.

The basic objective of this task is to evaluate the requirements for the company based on the forecasting and future expectations.(Siegal,2009) Also it is important to figure out the key areas that will be of high priority for the given period and the steps that need to be taken. It is also important to evaluate the performance and steps that might have to be taken to achieve the desired level of profitability. In the subsequent sections the discussion and analysis with respect to the income statement and the price variation of the purchase goods is being done.

Discussion/Analysis

This discussion is based on the outcomes from the model that has been prepared for the budget preparation. The various aspects of the budget will be discussed and analysis will be made based on the model that has been prepared.

Income Statement and Cash Flow

The income statement shows that the net income before tax is $53,250.00. The net cash outflow is $15,630.00. The given figures are for the quarter. Thus there is difference in the cash flow and the profit for the company. This is so because the cash flow has got three components, namely, Cash Flow from Operating Activities, Cash Flow Investing Activities and Cash Flow Financing Activities. Thus the income statement is just one part of the cash flow. These different components of cash flow are actually resulting in the difference in the two heads wherein the cash flow from investing activities and Cash Flow financing activities are resulting in the reduction of the cash flow (Jiambalvo, 2009). This is to say that the cash inflow from the operating activities is being used in the investment and financing of the company. This is a good sign for the company as they are having future plans that needs investments and planning a part of which is being implemented by Ozzie.

Appointment of Manger

By the appointment of manager the expenses of the company will reduce as the salary for the manager is $5,500 and Ozzie was actually drawing $6,000 per month for personal expenses. Since with the appointment of manager Ozzie would not be able draw any money on his own behalf, this will probably have two implications. Firstly the expense for the company will reduce and thus result in more quarterly profit (Jiambalvo, 2009). Secondly it will also have an impact on the cash flow statement which will show a decrease in the outflow of cash.

Increase in Purchase Price

An increase in purchase price of the goods that are imported from China because of the fluctuations in the foreign exchange market will have huge impact on CVP, the cash flow and net profit of the business. With the increase in price the breakeven point will be shifted and will occur for increased number units that have to be sold. Thus there will be more cost associated with the advertising and marketing costs. Thus this consideration has to be made by Ozzie.

The cash flow of the company will also be impacted as the cash flow due to operating activities will be reduced and thus the net cash flow will reduce also the profit will have a great impact as there will be additional cost of $ 0.50 per unit. Thus there is an increase of 25% in the cost. Thus the profit margin of the company will reduce and thus will impact the financial statements (Hilton, 2008).

In order to protect it from such fluctuations and risks in the market Ozzie may go in for multiple suppliers from different regions. This will help in diversifying the risk and thus will bring in stabilization in the costs that will not vary much over the period of time. Secondly with the expected sales to be in the range as given Ozzie can go in for the bulk order at constant price of the base country.(Kieso,2007) This will help in reducing the impact of the variation in the foreign exchange market.

Conclusions/Recommendations

Looking at the financial budget it can be said that the profitability of the company will be good enough to go beyond the breakeven point and generate profit for the company. However there can be different scenarios for the company at different times. Thus the impact of foreign exchange variation and the investment strategy of the company play an important role.

The company needs to take into consideration the factors that have been discussed above and develop strategies accordingly. Also the company will have to look into the credit policy. Currently they are having 75% for their sales on credit. This has to be reduced as this will have impact on the income generated in the current year or quarter as part of the income is being realized in the coming period and thus in the current period these values are reduced (Hilton, 2008).. The framework if developed to reduce the credit from 75% to around 50% would be beneficial for the company as this will have more cash flow for the company.

The company must look for other suppliers in different region like Singapore, Thailand and India where the economy is also developing and thus provide more opportunities for the company for the supply. This will also reduce the risk due variations that are there in the market and will also provide support in case the policy in a particular country changes and impacts the business as a whole.

On the whole the budget report has provided with a positive outlook for Ozzie and a little consideration may help in growing the business. A few steps in this respect have been shown in the report as there are investment activities being taken up to have growth in the business.

References

Jae K. Shim, Joel G. Siegel (2009,2000). Modern Cost Management and Analysis 3rd Ed. Barron’s Education Series, Inc

Charles T. Horngren, Srikant M. Datar, George Foster (2007). Cost Accounting: A Managerial Emphasis. Prentice Hall.

Donald E. Kieso , Jerry J. Weygandt , Terry D. Warfield (2007). Intermediate Accounting

Ronald W. Hilton (2008), Managerial Accounting: Creating Value in a Dynamic Business Environment

 James Jiambalvo  (2009), Managerial Accounting

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