ACCOUNTING ANALYSIS

Management Accounting & Decision Making

Executive Summaryiii

Task 11

Budgets for a new hotel1

Cash Budget2

Budgeted Income Statement3

Budgeted Financial Position4

Task 27

Task 39

References12

Executive Summary

This report covers the case of Miranda's new hotel investment project. Task one of the report focuses on accounting budgets, illustrating cash budget, budgeted income statement, and budgeted statement of financial position of Miranda Hotel. Further, it also explains the reservations that are involved in preparing the accounting budgets of the hotel. Task 2 of the report focuses on two different scenarios provided that needs attention with respect to specifying strategies of maintaining sales and profit when disposable income and sales reduce by considerable amount, respectively. These tasks involve evaluating a situation and prepared contingencies for such situations, and let the person seek ways to maintain its profitability using various means that are accurate as well as realistic. Finally, task 3 focuses on the evaluation of an investment projects based on methods like payback period (PBP) and net present value (NPV). This part of the report provides the details of both methods, while explaining the shortcomings of payback period as compared to net present value technique. It also involves focusing on strengths of best evaluation method, herein NPV, as well as its calculation with respect to Miranda Hotel. Thus, an overall report covers an accounting analysis of the new investment project. Management Accounting & Decision Making

Task 1

Budgets for a new hotel

Investment amount

£2,000,000

Hotel Rooms

30

840

840

840

840

840

840

Open

7 days

168

252

420

672

756

504

4 week

4,500

Average spend sale

150

Depreciation

Leasehold Property

Furniture and fittings

Kitchen equipment

Laundry equipment

Gym equipment

Cost

1,600,000

150,000

50,000

25,000

15,000

Years

50

10

10

5

10

Annual depreciation

32,000

15,000

5,000

5,000

1,500

Monthly depreciation

2,667

1,250

417

417

125

4,875

Cash Budget

 

April

May

June

July

August

September

Total

Cash Inflows

Revenues

25200

37800

63000

100800

113,400

75,600

Credit sales: 30%

7,560

11,340

18,900

30,240

34,020

22,680

Credit sales: 70%

17,640

26,460

44,100

70,560

79,380

52,920

Total Revenue of the month

7,560

28,980

45,360

74,340

104,580

102,060

362,880

 

 

Cash Outflows

Purchases

5,040

7, 560

12,600

20,160

22, 680

15, 120

Credit Purchases: 20%

1,008

1512

2520

4032

4,536

3,024

Credit Purchases: 80%

4032

6048

10080

16,128

18,144

Total Purchases of the month

1,008

5544

8568

14112

20,664

21,168

71,064

 

 

Other expenses

 

Labor cost

5,040

7560

12600

20160

22,680

15,120

Overhead costs

6300

9450

15750

25,200

28,350

Miscellaneous items including toiletries

2,500

2500

2500

2500

2,500

2,500

Depreciation Method

4,875

4875

4875

4875

4,875

4,875

Loss

 

China, glass and cutlery

83.3

83.3

83.3

83.3

83.3

83.3

Bed linen and towels

83.3

83.3

83.3

83.3

83.3

83.3

Total Other expenses

12582

21402

29592

43452

55422

51, 012

213,460

 

 

Total Inflows

7, 560

28, 980

453,60

74, 340

104, 580

102, 060

Total Outflows

13,590

26, 946

38,160

57, 564

76, 086

72, 180

Net income

-6,030

2,034

7, 200

16,776

28, 494

29, 880

78,356

Cash budget basically represents an expected cash inflows and cash out flows of a company for a specific time period. Therefore, the cash budget given above shows cash inflows and outflows for Miranda's new hotel business, and provides the evaluation of whether Miranda will have enough cash to fulfill regular operations of her new hotel and ensures that there should not be much cash being left in unproductive capacities. The cash budget created above indicates that hotel's total purchases will be 71,064 and total expenses will be 213,460. This represents that total cash outflow of hotel business will be 284,524. On the other hand, total cash inflow from sales revenue will be 362,880. Thus, Miranda's net income will be 78,356, which means that the business will have sufficient cash to fulfill its regular operations. Furthermore, this cash budget is extremely significant for determining how much credit Miranda can extend to its customers before her business starts to have liquidity issues. Where, she will generate sufficient cash from its sales revenue that she can further extend credit to her customers, I she wants to, without having liquidity ...