Calculate the divisional margin for the year calculate the

Assignment: Budgeting & Performance Evaluation

In approximately 950 words respond to Part 1 and Part 2 accordingly:

Part 1

Preparation of receipts from accounts receivable schedule and cash budget

Rainbow Enterprises has presented the following estimates relating to 2016 activities:

Quarter ending

31 March 30 June 30 September 31 December

Sales revenue \$600,000 \$700,000 \$800,000 \$850,000

Purchases 385,000 410,000 390,000 420,000

Cost of sales 300,000 350,000 400,000 425,000

Marketing and administration expenses 150,000 150,000 150,000 150,000

Occupancy expenses 68,000 68,000 68,000 68,000

Depreciation expense 12,500 12,500 12,500 12,500

Sales in the December quarter of 2015 were \$500,000. All sales are on credit, of which 70% are collected in the quarter of sale and 30 per cent in the following quarter. Purchases are on credit, and entity policy is such that all purchases are paid for in the same quarter. The marketing and administration expenses incurred and paid are the same. Occupancy expenses incurred and paid are usually the same, except that the electricity bill (estimated to be \$510) for December 2016 will not be paid until January 2017. A major IT hardware acquisition of \$25,400, to be paid for in cash, is expected in the December quarter. The bank balance at 31 December 2015 was \$18,260.

To complete Part 1:

• Prepare a schedule of receipts from accounts receivable showing cash collections for each quarter of 2016.

• Prepare a cash budget (on a quarterly basis) for the 12 months ending 31 December 2016.

• Assess the cash position of the entity for 2016. Justify your response.

Part 2

Global Resources is a division of an international conglomerate. The following information relates to its performance:

Target profit margin 15%

Target asset turnover 1.5 times

Charge for capital 13%

Weighted average cost of capital 11.7%

Income tax rate 30%

Investment \$9,500,000

Total assets \$12,825,000

Current liabilities \$475,000

Sales \$11,400,000

Variable costs \$ 4,560,000

Fixed costs \$ 5,130,000

Allocated common and corporate costs \$ 817,000

To complete Part 2:

• Calculate the divisional margin for the year.

• Calculate the DuPont ROI, and evaluate the performance of Global Resources in relation to the expected performance.

• Calculate the residual income.

• Calculate the EVA.

• Why are the residual income and EVA different?

• Discuss the appropriateness of the use of ROI, RI and EVA as performance measures. Justify your response.

Note: This assignment must adhere to the following:

• Include a cover sheet that contains your course name, your first and last name and student number.

• Clearly indicate question number and part thereof for each of your answers.

• Begin a new part on a new page.

• Submit as a Word document only; we will use track changes to provide feedback and grade your submission. Do not submit a pdf.

• To keep the size of your file small, minimise the number of pictures (if any) to a minimum.

• Do not take a screen shot of your Excel file (if used) and insert as a picture; please create a table within your Word document by copying and pasting over your Excel table.

• References use APA style as per text guide. If you use hyperlinks for referencing information, please include the hyperlink and name of site in your reference list.

• In text referencing, reference list, appendices and calculations not included in word count.

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