Question

In 2012, Barney and Co. saw a decrease in sales of 20%. The company had also recently purchased equipment to increase productivity, but has incurred the additional expense of paying back the loan for equipment. The loan makes up for 5% of the company's total expenditures for the period (1 year).

Include how the company plans to accommodate for the decrease in sales.

CREATE A BUDGETING PLAN FOR 2014

Give one suggestion for maximizing the budget in response to the eqipment purchase.

Answer 1

Q1: Include how the company plans to accommodate for the decrease in sales?

Solution: The company can accommodate for the decrease in sales through the following factors:-

(a) See the major and minor causes of the decrease in sales i.e. socio-economic factors, political factors and technological factors etc.

(b) Implementing the desired modifications in the market segmentation.

(c) Revision in the base of competitors and competition.

(d) Resetting of goals and objectives in proportion to environmental dynamics.

From the above factors, the company can accommodate the decrease in sales.

Q2: Creating a budget plan with respect to equipment purchase.

Solution:

Step 1: Determining the expected capital outlay and operational expenses during the life of the equipment.

Step 2: Determining the expected capital inflows from the equipment by considering various internal and external factors.

Step 3: Computing the net flows i.e. cash inflows minus cash outflows to determine the minimum payback period and expected returns later on to measure overall productivity of the investment.

Q3: One suggestion for maximizing the budget in response to the equipment purchase.

Solution The identification of expected operational expenses can be reduced or optimized if the company is able to make a well-educated guess about the routine expenses which are related to the maintenance and operations of the equipment. Controlling the cost facilitate an increase in margins.