Financial Calculation Wildwood Creations Ltd

Question: Discuss about theFinancial Calculation for Wildwood Creations Ltd. Answer: Introduction: The WILDWOOD CREATIONS Ltd is involved in the business of maker, repairer and restorer of wooden outdoor entertainment furniture. The company takes charge of repairing various wooden items and if required it also makes those items. The important factor in regard to the business policy is to ensure that the company works at a pace to make create a more revenue for it. The assessment is to look into various cost aspect of the business and highlight major overruns and other factors involved in a company. The assessment will look into various segments of the business including repairing and creating new item (Duke, 2016). The business assessment is to include several other factors like assessment of salary and wages, raw materials Sam Dekkan is the owner of the company and he is aware of the fact that competition is increasing in the repair market and also in manufacturer of outdoor furniture market (Mahler, 2016). Financial Analysis: Sam Dekkan decided to have a close look in the business and the costs involved in the business to ascertain the main reason for cost overrun. He wants to understand the factors that have played important role in the business in respect of preparing flexible budget and pin pointing the variances. The company is in the business of following; Major repairs, Minor repairs, Making a variety of new outdoor furniture, like tables, bench seats, chairs, outdoor coffee tables, small storage cabinets. If the financials of the company is read properly, this would indicate that the company earns most of its revenue from repairing business. The company wants see that whether the budgetary allocation it has made is proper or not (Benge, 2016). In the next year the company has an expectation to carry out the following number of jobs; Major repairs 390 jobs Minor Repair jobs 1830 Restoration job 540 and New 520 standard outdoor tables The cost regarding completion of the jobs is allocated properly. The company also incurred some costs which are fixed in nature like salary and bonuses (Mahler, 2016). In the Books of WILDWOOD CREATIONS Schedule of Difference between Planned Out Come and Actual Results Budget Actual Variance U/F Jul-15 Jun-16 Total Revenue $947,800 $1,003,090 $55,290 F Costs: Owner Salaries - base $180,000 $180,000 Owner Salaries - bonus $47,390 $50,160 -$2,770 U Major repairs: salaries $102,480 $151,032 -$48,552 U Minor Repairs: wages employees $172,000 $172,000 - Rush Jobs: wages $4,050 $4,455 -$405 U Materials for new tables $72,800 $75,600 -$2,800 U Replacement parts $224,400 $224,945 -$545 U Transportation $44,289 $43,824 $465 F $847,409 $902,016 Contribution $100,391 $101,074 Advertising $15,000 $17,000 -$2,000 U Depreciation $6,000 $6,000 Office Rent $52,000 $54,600 -$2,600 U Miscellaneous $8,200 $7,300 $900 F $81,200 $84,900 Operating Profit $ 19,191 $ 16,174 $ (3,017) U In the Books of WILDWOOD CREATIONS Memorandum of Profit Reconciliation Account Owner Salaries - bonus $2,770 Profit As per budget $19,191 Major repairs: salaries $48,552 Revenue Increase $55,290 Rush Jobs: wages $405 Transportation $465 Materials for new tables $2,800 Miscellaneous $900 Replacement parts $545 $75,846 Advertising $2,000 Office Rent $2,600 $59,672 Profit As per Actual $16,174 In the Books of WILDWOOD CREATIONS Revised Flexible Budget Per Unit/ Hour Number of jobs Total Hours Per Unit or Hrs Cost Budget Sales Major Repairs 450 $450 $202,500 Minor Repairs 1740 $130 $226,200 New Tables 540 $680 $367,200 Rush jobs 55 $320 $17,600 Restoration Jobs 510 $320 $163,200 Total Revenue $976,700 Costs Owner Salaries - base $180,000 Owner Salaries - bonus $48,835 Salaried Employees $172,000 Major repairs: salaries 7 450 3,150 $28 $88,200 Minor Repairs: wages employees 3.1 1,740 5,394 $28 $151,032 Rush Jobs: wages 2.8 55 154 $28 $4,312 Making New Furniture 13 540 7,020 $28 $196,560 Restoration Jobs 7.5 510 3,825 $28 $107,100 Materials for new tables 540 $140 $75,600 Major Repair 450 $120 $54,000 Minor Repiar 1,740 $47 $81,780 Rush Jobs 55 $47 $2,585 Restoration Jobs 510 $47 $23,970 Transportation @35% 955.5 $38 $36,309 Contribution $1,222,283 Advertising $17,000 Depreciation $6,000 Office Rent $54,600 Miscellaneous $7,300 $84,900 Operating Profit/(Loss) $ (330,483) Some assumptions are made wile computing the flexible budget; Advertising, Depreciation Office rent and Misc. Expenses are assumed as fixed expenses. Rush job is charged at $320 a job. The indications are clear that in the company is poised make more losses in future. The break even analysis of each work has to be done separately to ascertain the breakeven point. On the company shall have to revise the rates for the jobs. Important aspect of the business is to contain the cost of the business. Here the cost of salary has increased significantly. The payment of the wages shall have to be linked to the production, so that maximum production level can be achieved if the company wants to sustain in long run. The salaries and wages are fixed or on the basis of the hours worked. Instead of Per hour calculation of wages, the company can increase output only if its shifts from the concept of wages on the basis of each job. It would have saved more man hours (Vitez, 2016). The salary to the partners is to be scraped. There should only be allocation of the profit among the partners. The salary and wages of the employees should be linked to the production. The fixed salary of the employees should be revised. The rate for major work and the rush works should have to be revised to a higher rate. The number of jobs has per man hour has to be increased. Conclusion: These policies as suggested would be the right policy for the company to sustain in the long run. The major focus should be in revision of the rates and increase of production. The comprehensive effort should be there to increase the production. The assessment factors include various side of the business (INC, 2015). References: Benge, V. A. (2016). Budgets as a Basis for Evaluating Performance. Retrieved 09 21, 2016, from smallbusiness.chron.com: https://smallbusiness.chron.com/budgets-basis-evaluating-performance-82027.html Duke. (2016). How do I create a budget? Retrieved 09 13, 2016, from personalfinance.duke.edu: https://personalfinance.duke.edu/manage-your-finances/budget/discretionary-vs-non-discretionary-spending INC. (2015, 12 06). Budgets and Budgeting. Retrieved 09 09, 2016, from www.inc.com: https://www.inc.com/encyclopedia/budgetsandbudgeting.html Mahler, D. (2016, 06 30). Zero-Based Budgeting Is Not a Wonder Diet for Companies. Retrieved 07 08, 2016, from hbr.org: https://hbr.org/2016/06/zero-based-budgeting-is-not-a-wonder-diet-for-companies Mohr, A. (2016). Reasons to Investigate a Budget Variance. Retrieved 09 21, 2016, from smallbusiness.chron.com: https://smallbusiness.chron.com/reasons-investigate-budget-variance-47924.html Vitez, O. (2016). What Is the Role of Budgets Performance Reports? Retrieved 09 21, 2016, from smallbusiness.chron.com: https://smallbusiness.chron.com/role-budgets-performance-reports-861.html