prepare a memo from james and mike s perspective that includes 269271

REQUIRED: Prepare a memo, from James and Mike’s perspective, that includes: 1. Using the following sample or similar format, prepare a list of the different costs that the business will incur while planning and operating the business, along with the behavior of these costs, assuming the activity is defined as the total number of items sold. COST BEHAVIOR LIST Cost Item Cost Behavior Utilities Fixed, Variable or Mixed Copyright © 2012, The Ohio State University MOWA Phase 2 Page 4 2. Using the following sample or similar format, prepare a flexible cash budget, including inflows, outflows and net cash flow, for three different levels of total sales for the first year of operations: Scenario 1 – Services for 126 small lawns; 42 large lawns; and 42 “green lawns. Scenario 2 – Services for 138 small lawns; 46 large lawns; and 46 “green lawns. Scenario 3 – Services for 150 small lawns; 50 large lawns; and 50 “green lawns. Unless otherwise specified, assume all purchases made by and all services provided to the business are paid for in cash on the date the product and/or services are received. Also assume that the business will receive the bank loan on the first day of operations. In preparing the flexible budget, list each cost separately and include a clear label for every item included. Combining costs with incorrect values leads to grading complications and may result in a lower grade. FLEXIBLE CASH BUDGET Scenario 1 Scenario 2 Scenario 3 CASH INFLOWS: Item Name Item Name CASH OUTFLOWS: Item Name Item Name NET CASH FLOWS Provide a dollar value for each scenario and suitable label for each “Item Name” used in your budget. Include as many items as necessary, given the information provided in the case, which could be more or less than the number of items indicated in the example above. Copyright © 2012, The Ohio State University MOWA Phase 2 Page 5 3. James and Mike expect that for every five lawns mowed, three will be small, one will be large, and one will be “green”. Given this sales mix and the fixed and variable costs associated with the business, calculate the break even level of sales in dollars and in units for these items for the first year of operations. Use the following sample or similar format to report your break even information. BREAK EVEN SALES Total Break Even Sales Dollars $ Total Units Sold at Break Even: Small Lawns # Large Lawns # “Green” Lawns # In the case of plant, property and equipment (PPE), assume that you would like to recover their depreciable cost over the useful life. To do so, divide their cost less salvage value by the useful life to determine the fixed cost to include in the break even computation for the first year of operations. In order to effectively determine that you have identified all appropriate costs in your breakeven analysis, please provide labeled computations for all equations used in determining your break even level of sales. This includes all individual cost equations and the break even equation, itself. This information can be included as an attachment to the memo. Failure to include this information will result in a lower grade if break even computations are incorrect and individual variable components have not been specified. 4. Explain the similarities/differences between the flexible cash budgets and the break even. How can they have the same approximate sales levels and yet the net cash flows and net income not be the same? 5. Discuss the adequacy of the loan and the ownership capital that has been proposed in order to start the business. Is it too high, too low, or about right? If too high or too low, how much of a loan and/or ownership capital would you recommend? Support your conclusions by referencing work completed for other requirements of this case and/or preparing additional numerical schedule(s).

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