Free Accounting Dissertations - Sales Have Increased By £162,000 In The Year 2006 Due To Expected Increase
Sales have increased by £162,000 in the year 2006 due to expected increase in number of tourists taking Danish Holidays packages.
Total expected variable costs are going to increase by £168,858 in the year 2006. Since the increase in variable costs is more than the increase in sales, overall contribution is going to decrease. Total contribution is expected to be £777,961.2 in the year 2006.
Total expected fixed costs for the year 2006 would be £1,094,700, an increase of £22,700 over the year 2005. This increase will further increase the net loss in the year 2006.
Expected net loss for the year 2006 is £316,738.8, an increase of £28,958 over the year 2005. Expected net loss is 8.6% of the expected sales in the year 2006.
So if Danish Holidays uses the same package prices per person in 2006, its loss would increase. The company would have to revise its sales price structure to earn a profit in 2006.
Budget at revised price levels
Danish Holidays expects to make a net profit of 5% in the year 2006. This could be achieved by increasing prices of its holiday packages. We can either increase the prices in each quarter by a same percentage or we can increase prices in such a way so that the absolute difference between prices in each quarter is same as that in the year 2005. The second method will result in much higher absolute price increase in Q1 and Q4, which are the quarters with less number of tourists.
The budget is driven by a desire to earn a net profit equal to 5% of sales. This is achieved by increasing holiday package prices by 15.06%. Appendix VI shows the new prices for four quarters in 2006. As expected Q2 per person package prices have gone up by £67.9 whereas Q4 per person package prices have gone up by £36.3 only.
Appendix VII shows the budget for the year 2006 with constant percentage increases in holiday packages. Annual sales are expected to increase to £4,261,067 in the year 2006. The increase is due to both higher prices per holiday package and more number of packages. The large part of increase in revenues will come from price increase as number of packages has increased by 5% only.
The total variable costs will increase by £27,878 with respect to 2006 budget prepared with sales price of 2005 an increase equal to the increase in commission paid to agents due to higher sales cost.
The new expected contribution is £1,307,650. This has increased significantly due to higher sales price per package. The differential increase in contribution with respect to year 2005 is £523,431.
The expected net profit for the year 2006 is £212,950.3 and is 5 % of the expected sales in the year.
Expected change in rates
UK inflation is expected to increase by 2.5 % in the year 2006. UK economy is growing at a stable rate. Interest rates have also stabilised more or less. It is also the policy of UK government and Bank of England to keep inflation rates at check.
Dissertations - Free Accounting Dissertations
