You are employed in an accounting firm and have a corporate customer who has set up a profit budget for June 2020. The customer has budgeted a solid profit for June, but knows from previous experience that June is a month with large payments that puts pressure on liquidity in the company. The customer therefore asks you to perform the following tasks:
1) Prepare liquidity budget for June 2020
2) Prepare budgeted balance as of 30 June 2020
3) The company currently has an approved overdraft loan from the bank of NOK 1,000,000, of which they have used NOK 800,000. Will the company need to increase the overdraft facility based on the liquidity budget for June, and possibly by how much? Justify your answer (feel free to round up to the nearest 100,000).
4) The company is a group with two divisions; division East and division West. Division West wants to buy 5,000 units of the product that Division East manufactures. Division West can choose to either buy the product from Division East or in the external market. Division East sells the product for NOK 175 per unit and has a variable unit cost of NOK. 125.
a. What should the transfer price of the product be if the East division has full capacity utilization?
b. What should the transfer price for the product be if the East division has spare capacity?
|Performance budget||June 2020|
|Cost of goods||900 000|
|Other operating expenses||450 000|
|Operating profit||705 000|
|Ordinary profit before tax||695 000|
Balance pr. May 31, 2020
|Total fixed assets||1,750,000|
|Total current assets||4,200,000|
|Equity and debt||31.05.2020|
|Other equity||600 000|
|Total equity||800 000|
|Long term debt||1,600,000|
|Accounts payable||650 000|
|Due holiday pay||1,200,000|
|Due and accrued employer’s contribution||100,000|
|VAT due||550 000|
|Debt due||250 000|
|Total short-term debt||3,550,000|
|Total equity and debt||5,950,000|
You have also received the following information for June in order to set up a liquidity budget and balance sheet budget:
The third term is due for payment on 15 July 2020. Holiday pay is paid in June.