Question

In: Accounting

Write an email to your manager/supervisor explaining one transaction in your Gross Income and Exclusions Cumulative...

Write an email to your manager/supervisor explaining one transaction in your Gross Income and Exclusions Cumulative Problem that you wanted to run by him/her.  Explain the transaction, your best solution to the tax issue and presentation, anything you are not sure of, and ask her/him to confirm agreement with your solution or explain why another way would be preferred.

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Expert Solution

Here I am considering gross income of Business (Manufacturing Organisation).

Gross income, which measures the profitability of organization, however it does not include selling & administrative expenses.

The components of gross income (GI), which includes all direct expenses. I would like to consider one of factor like Raw material.

Proposal:

Dear Mr./Mrs.........

One of major factor of decrease in trend of gross income is "Raw material cost". Summarized analysis & action plan is noted herewith for your kind reference & further review please.

1. The increase in cost of Raw material is due to price variance, which is almost 10 to 12% comparing to last two years price trend

2. Quality of raw materials, which leads to adding cost of raw material consumption

Further analysis of market & price band, we have explored, the inflationary factor has contributed max 5%, however we have option to negotiate & reduce the price upto another 5 to 7% of our existing buying rate. This may be possible by following options:

· Inviting quotations from the new suppliers

· Exploring Import procurement process, considering the lead time factor & payment terms, exchange rate factors    

Price in USD/MT

Supplier Name X

Supplier Name Y

Supplier Name Z

Raw Material A

105

100.5

99.5

Terms of payment

25 days Credit

25 days Credit

25 days Credit

Delivery Terms

Ex-warehouse

Ex-warehouse

Ex-warehouse

Note : "X" is the existing supplier since last 3 years. However we may have quality test of Raw material from Y & Z. Based on quality certification we may negotiate with the price & issue purchase order to the supplier.

One important factor, being X is associated with us since last 3 years and we have not explored the market, in case any delay or non response by “X”, our production will go on hold. Hence its most advisable to have back up plan.

As far as tax factor is concerned, we are now & in future also shall be able to take input tax benefit against purchase of raw materials, which is used in our production process.

Import option:

Price in USD/MT

Supplier Name XYZ

Raw Material A

85.00

Shipping Charges

5.00

Expenses relating to Importation

5.00

Financing Charges

2.50

Freight from Port to Warehouse

1.00

Landing Cost

98.50

Although the price is lower (USD 1/MT) however the lead time of importation is most crucial factor. We may opt import of raw materials to cope up with the shortages & looking at the forex movement.

I would look forward your valuable time to review the above proposal & suggest. We may accordingly schedule a meeting with procurement team & plant production head to conclude over the proposal.

If there is saving in USD 1/MT, then our production cost will get reduced by USD 5 per unit of product (USD 1 * 5 units).

Thanks & Regards,

……………


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