Using Accounting InformationFor Decisions The chief financial officer (CFO) of F

Question

Using Accounting InformationFor Decisions The chief financial officer (CFO) of Flash Bulb and SeedCompany has prepared the following projections for the month ofAugust. Expectedsales                                                                       480,000 Projected monthly resources consumed: Rent                       $85,000 Utlities                        2,900 Wages                    274,000 Advetising               115,000 Repairs                     12,000 Supplies                       2,500 Total cost of resourcesconsumed                       491,400 Projectedloss                                                    $(11,400) Although Flash Bulb and Seed Company predics a loss forAugust, the CFO is confident that the sales will increase in thefuture. Why is it important that the CFO prepare a document likethis? If the company came to your bank requesting a loan, how wouldyou respond? From the data given, does the firm appear that it islikley to be able to repay the loan? Why?   Using Accounting InformationFor Decisions The chief financial officer (CFO) of Flash Bulb and SeedCompany has prepared the following projections for the month ofAugust. Expectedsales                                                                       480,000 Projected monthly resources consumed: Rent                       $85,000 Utlities                        2,900 Wages                    274,000 Advetising               115,000 Repairs                     12,000 Supplies                       2,500 Total cost of resourcesconsumed                       491,400 Projectedloss                                                    $(11,400) Although Flash Bulb and Seed Company predics a loss forAugust, the CFO is confident that the sales will increase in thefuture. Why is it important that the CFO prepare a document likethis? If the company came to your bank requesting a loan, how wouldyou respond? From the data given, does the firm appear that it islikley to be able to repay the loan? Why?  

Explanation / Answer

The given monthlycosts or resources are fixed.

They will not varywith the volume of sales .

These costs areimmaterial in deciding whether a particular product is profitableor not.

It is the variablecosts which determine the profitability of a given product.

In the abovescenario if each product is giving a positive unit contribution ,then an increase in sales volume will definitely absorb all thefixed costs & lead to a profit – making situation.

It is the variableunit costs & sales volume which help to evaluate the aboveproduct .

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