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Management Accounting

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Task 2: Forecasting Techniques and Sources of Funds (LO2) Be able to apply forecasting techniques to obtain information for decision making Scenario 2 The manager of Sandyfoot Ltd is using the results of the recent period to forecast the revenues and costs for a forthcoming period. The results for the recent period to be used as a basis for forecasting are as follows: Activity Tennis Racquets..................3000 units Revenue.......................................£90000 (£30 each) Materials --------------------------£7000 Staff Salaries......................£8500 Utilities.............................£3500 Laundry.............................£3000 Rent.................................£5000 Other................................£2500 33500 Operating Profit.............................60500 The manager has ascertained the following information. - Prices of the tennis racquets will be increased by £15 from their recent period - Variable costs will be changed in direct proportion to the changes in quantities - All staff are paid fixed salary, while for the next period salary will be increased by 2% - The variable element of laundry cost will be increased by 60% in next period - Forecasted activity for the next period will be 3300 units of tennis racquets You are required to: 2.1 Apply forecasting techniques to make cost and revenue decisions for Sandyfoot Ltd and prepare a forecast profit statement 2.2Scenario 3 Cash asset of Sandyfoot Ltd is £15000 while net profit in 2014 is £17500. In regards to continue a quality program for the Tennis Racquets, the company wants to raise £50,000 while there are two options available, such as i) Bank Short Term Loan at 10% APR ii) Long Term borrowing for 5 years at 8% interest rate. You are required to recommend the company whether short term or long term borrowing will be suitable for the company by assessing the sources of funds available to Sandyfoot Ltd for this specific project.