Do These 2 Please Budget Preparation And Incremental Analysi

Do These 2 Please Budget Preparation And Incremental Analysis Show W

Budget Preparation: The Lees believe that production and sales could double after being on Shark Tank which is scheduled in December of 20XY. They want to be prepared for this. Based on the budgeted income statement calculated above for 20XY, create a new budgeted income for 20XZ assuming that the production and sales is double the level of 20XY.

Incremental Analysis: If production does increase dramatically after their presentation on Shark Tank, the Lees will need more space for production. They have two options. Option 1 is to rent out a spacious warehouse nearby. If they pursue this option, there rent will be $1200 per month and utilities are estimated to cost an additional $350 per month. Their second option, Option 2, is to rent a smaller storefront space that is also nearby. The storefront rent is $1350 per month. However, utilities will likely only cost an additional $150 per month. They want to compare their options over one year’s time (since each rental contract is a 1-year commitment). What is the incremental analysis if the Lees choose Option 1 over Option 2?

Paper For Above instruction

The following analysis addresses two interconnected financial planning scenarios faced by the Lees: (1) preparing a projected income statement assuming doubled production and sales following their Shark Tank appearance, and (2) conducting a comparative cost analysis of two potential storage options contingent upon increased production needs.

Budget Preparation: Projected Income for 20XZ

Understanding the importance of effective financial forecasting, the Lees expect that their sales volume and production capacity will double after their Shark Tank appearance scheduled for December 20XY. Consequently, their objective is to develop a projected income statement for the subsequent year, 20XZ, assuming a twofold increase in sales and production volumes. This forecast will equip them with strategic insights into potential revenue, costs, and profitability under expanded operational conditions.

The baseline for this forecast derives from the existing budgeted income statement for 20XY. To create the projected income for 20XZ, the key step involves doubling the relevant revenue and cost components that are directly proportional to production and sales volume. Specifically, total sales revenue, cost of goods sold (COGS), variable selling, and administrative expenses are linked to sales volume and will thus be scaled accordingly. Fixed costs, which remain unchanged regardless of production levels, will be held constant unless explicitly indicated otherwise.

The projected revenue in 20XZ is calculated as:

• Projected Sales Revenue = Sales in 20XY × 2

Similarly, variable expenses such as direct materials, direct labor, and variable manufacturing overheads will be doubled. Fixed expenses—such as rent, salaries, and depreciation—are assumed to remain constant unless specified to change with increased capacity. This creates a comprehensive, scaled-up income statement that reflects the anticipated financial position of the business should sales double post-Shark Tank.

For example, if the 20XY budgeted sales were $500,000, then the 20XZ projected sales would be $1,000,000. If COGS was 60% of sales, it would be $300,000 in 20XY and forecasted to be $600,000 in 20XZ. Similarly, fixed costs like rent or administrative expenses would stay the same unless the scenario explicitly includes cost adjustments for expansion, such as increased leasing or staffing costs. These projections enable the Lees to evaluate the profitability and sustainability of their growth plans.

Incremental Analysis: Space Rental Options

Following their anticipated increase in production capacity, the Lees face an important operational decision regarding space rental. They are considering two options: (1) leasing a spacious warehouse or (2) renting a smaller storefront. An incremental analysis compares the additional costs incurred by choosing one option over the other over a one-year period, providing clarity on the financial implications of each choice.

Option 1 involves leasing a warehouse at $1,200 per month with utilities estimated at $350 per month. Therefore, total monthly costs are:

• Warehouse rent + utilities = $1,200 + $350 = $1,550

Annually, this sums to:

• $1,550 × 12 = $18,600

Option 2 involves renting a smaller storefront space at $1,350 per month utilizing utilities estimated at $150 per month, totaling:

• Storefront rent + utilities = $1,350 + $150 = $1,500

Annually, this totals:

• $1,500 × 12 = $18,000

The incremental analysis aims to assess the additional costs associated with selecting the warehouse over the storefront. The incremental cost of choosing the warehouse over the storefront is:

• Warehouse costs – Storefront costs = $18,600 – $18,000 = $600

This additional $600 represents the extra expenditure the Lees will incur annually if they opt for the larger warehouse, assuming all other factors remain constant. Such a calculation helps in decision-making by comparing the marginal costs associated with each option;

Strategic Implications and Recommendations

From a strategic standpoint, the decision between these options hinges on several factors beyond mere cost. The larger warehouse may facilitate higher production volumes, potentially increasing revenues, which might justify its higher cost. Conversely, the smaller storefront could suffice for a lower-scale operation, conserving funds for other investments.

Additionally, considering future growth, operational flexibility, and space requirements plays a vital role. If the projected increase in sales post-Shark Tank aims for substantial growth necessitating maximum production capacity, the higher space costs may be justified. Conversely, if the growth is expected to be moderate, cost efficiency may favor the smaller space.

Therefore, it is essential for the Lees to combine this incremental analysis with broader strategic considerations, including long-term plans, expected sales increases, and operational needs. Conducting a detailed cost-benefit analysis integrating projected revenues and costs will help determine the most financially prudent option aligned with their growth ambitions.

Conclusion

This analysis has provided the Lees with a detailed approach to projecting future income under expanded sales scenarios and evaluating space rental options through incremental analysis. Accurate forecasting and careful comparison of marginal costs are critical for making informed strategic decisions that can sustain growth, optimize expenses, and ensure long-term profitability. By leveraging these insights, the Lees can better position their enterprise for success after their appearance on Shark Tank.

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