Phar 125: Pharmaceutical Accounting

1. The cash budget, consisting of cash receipts, cash disbursement, and financing, contributes more effective cash management by providing the status of a company’s cash position at any point of time, and serves as basis for managers to know when additional financing is necessary before it is requested or indicates when the company has excess cash to be used as payment with interest from debts.

2. A company with a high CMR is said to have more money available to cover the business’s overhead expenses or fixed costs, while a low CMR indicates that a company has difficulty covering its costs. A company with a large CMR can allot its excess profit on sales promotion to boost valued sales, earn more profit, and increase customer-loyalty, given that its expenses and fixed costs are sufficiently satisfied; while a company with low CMR should first focus on reducing its variable costs (ex. raw material and shipping expenses) or increase the price of its products and services after establishing a constant rate of buyers to improve financial position, before promoting its sales. Expenses incurred from sales promotion may only aggravate the current expenses and debts of the company with low CMR, resulting to ceasing of its operation.

1. Cash budget is an estimate of the cashflow of a company over a period of time. This is an important indicator for managers that aid in assessing whether or not the company has enough funds to operate for a specific period. It also allows the effective management of the funds, and can predict cash needs of a certain time period.

2. The contribution margin ratio dictates the amount of money available to cover fixed costs. Generally, it is better to have higher ratio as this would lead to having funds that can be allocated for other expenses. As such, a company with a large contribution margin ratio can allocate these funds onto sales promotion, which then can raise the consumer's awareness and recognition of the product; thus, increasing the likelihood of it being sold and earning more revenue for the company. It is not ideal for companies with small contribution margin ratio as this indicates that the product is more or less not earning enough profits. If they were to focus on sales promotion, it may even incur more loss than gain.

1. The purpose of a cash budget is to have more effective cash management since this cash budget shows managers when additional financing is needed before the actual need arises. It also shows when excess cash is available, which can be used to pay a debt that has an interest. Basically, this is possible since the cash budget shows anticipated cash flows, such as cash receipts (cash sales and collection on credit sales), cash disbursement (direct materials, direct labor, ect.) , and financing (borrowing and repayment of funds).

2. It is beneficial for a company with a large contribution margin ratio to focus on sales promotion since that a higher ratio means that there is more money available to cover the fixed cost and more money to be contributed to the income from the operation. This means that a company with a large contribution margin ratio needs to focus on improving its contribution margin ratio by increasing its prices. In order to do this, they have to increase the demand for their product by focusing on sales promotion. By focusing on sales production, more people would be informed about the company’s products increasing its demand, which increases the price, which could improve the contribution margin ratio.

1. The purpose of the cash budget is to show the anticipated cash flows of the company. It shows the expected amount of cash to be received from revenue, expected cash payments, and expected borrowings and repayments of debts plus interest.

2. A large contribution margin ratio means that the company has more money to cover its fixed costs. This is why a company with a larger CMR can allocate more money to sales promotion since it still has a lot of money left to cover its fixed costs. A company with a smaller CMR would have less money available to cover its fixed cost and so it has to be more careful in budget allocation.

1. Cash Budget can be used to estimate or anticipate the cash flow in the company. This may include the outflowing cash which will be used for payments for supplies, labors, operations, and loans; and the inflowing cash which are from the company's revenue and income, as well as the funds that the company loaned.

2. A large contribution margin ratio indicates that a company has a large amount of money to cover its fixed costs, meaning they would have a lot of funds left after paying for their fixed costs. The excess funds gives the company leeway to make use of it in other areas such as in sales promotion to further boost the sales of the company for a larger contribution margin in the future. On the other hand, a small contribution margin ratio would indicate a small amount of funds to cover for fixed costs which would indicate less leeway to invest in other areas.

1. Cash budget is used to assess whether the company has sufficient money to operate. It also shows when the company needs additional financing or when the company already has excess cash so that it can already pay its debts.

2. A company with a high contribution martin ratio (CMR) means a high percentage of sales per peso is available to cover the fixed costs or to generate net income. With this, it is advisable that the company shall use a portion of the excess profit for sales promotion. However, for a company with a small CMR, this percentage may not be able to cover the fixed costs and contribute to the net income; hence, it is not advisable to allot resources for the sales promotion when in the first place, the CMR may not be enough to provide income.

1. The purpose of a cash budget is to provide estimated details and give an overview of the cash flow of the business. Through this, the business is able to monitor where their cash is being allocated and how it is being used by the business. It is also able to somewhat indicate the financial position of the business.
2. Having a large contribution margin ratio means that the business is able to gain more available money to be able to cover the fixed costs. Sales promotion or advertising is an additional expense for the business and since the business is able to generate more income based on having a large contribution margin, then they are able to cover the expenses for the sales promotion. A business with a small contribution margin ratio won't be as beneficial because there is a smaller money gained by the business so they might have ta harder time to cover the expense for sales promotion.

1. Cash is very important, as it is very liquid. It can be, and it often is, spent quickly. It is important for covering acquired costs that need to be settled fast. One of the purposes of cash budgets is establishing and planning a level of liquidity for the business, so that it knows how much credit it can extend to their clients. Additionally, it also establishes from which sources their cash comes from, and where it plans to spend the cash in the future. Planning new expenses will need a big picture of the sources of cash; the company will want to know if their cash sources are sufficient to meet their future targets.

2. The contribution margin ratio is basically a measure of how much of your sales is available for paying bills, usually of the regular (fixed) kind, like monthly bills. The larger this ratio, the more room there is to squeeze in another a sales cost like promotion, while still having enough to break-even or likely profit. Companies with small CM ratios do not have that luxury.

1. The purpose of cash budgeting is to asses and give an estimation of the cash flow of the company in a specific period of time. It is used to manage a business’ finances by projecting how much the company would need to continue operations, how much the company is earning through income/revenue and how to properly manage its loans as well.

2. It is more beneficial for a company with a large contribution margin ratio to focus on sales promotion because they would have more financial funds to do so. Unlike for companies with smaller contribution margin ratios, a majority of their contribution margin will focus on covering the fixed costs for production and may not have enough left over to go into sales promotion without generating a loss for the company.

1. The cash budget is a budget or plan of predicted cash outflow to be made in a period. This is an essential part in financial management in a company. The creation of a cash budget not only sets the limit to not overspend but it also is a goal to be as precise as possible. Overspending is an obvious issue since it would entail more expenses that were not accounted for. However, coming short of the budget, especially by a significant amount is also an issue. Although this means that they were able to save in some areas this also means that there was cash that was allocated into the budget that was not utilized for the year. There was an opportunity loss by allocating not the budget and by not using it then it becomes an opportunity wasted. The cash budget has to be as accurate as possible which is why all possible expenditures for projects and all the opportunities to save must be predicted and accounted for to ensure maximization of the resources of a company.

2. The contribution margin ratio is essentially a ratio that determines the percentage of revenue from sales which can shoulder the fixed expenses. It is ideal to have a high ratio because this indicates that there is more money earned per product sold to be able to cover the other expenses. The reason why companies with low contribution margin ratios should not be focused on sale promotion even though it will increase their number of sales is because when addressing issues, it is important to first determine what can be solved internally. A company with a low contribution margin means that they have a high variable expense. Variable expenses, as opposed to its fixed expense counterpart, varies as suggested by its name. Therefore, it can be lessened through changes that would help optimize the operations of the company and decrease expenses. Addressing the issue internally would be a much more efficient solution to increasing the revenue from sales rather than focusing on the promotion of the product. It is only when the variable expenses of a company have been minimized to an optimum level can they begin to allocate resources into other means of increasing revenue such as product promotion.

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The primary purpose of a cash budget is to help plan and strategize to cover upcoming expenses. The anticipated values of expenses and cash on hand are compared to foresee where expenses may come up short, and it provides a time frame for developing a solution.
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It is not beneficial for a company with a small contribution margin ratio to allocate budget for sales promotions since they can barely cover its fixed cost. For a company with high contribution margin ratio, they can afford to improve its sales through promotion since they are still able to cover the income from the operation and fixed cost. Through promotion, they may drive audience to push for higher sales which is beneficial for the company.

1. A cash budget is an estimate of the cash flows over a particular period of time for a business. A cash budget is used for the purpose of assessing whether the company or business has enough money to operate and it evaluates the future projection of the cash position of the business.
2. Contribution margin ratio measures the amount of available money in the company to cover the fixed costs. A company with a large contribution margin ratio has the ability to cover its sales promotion and will therefore benefit the company as this marketing strategy can attract more customers and market new products. On the other hand, it is not advantageous for a company with a small contribution margin ratio to have a sales promotion because their available money is not sufficient to cover their fixed costs.

1. A cash budget is used to create a projection for the expected inflows and outflows of cash; in other words, it shows in advance where cash would be coming from (cash receipts) and where it would be spent on (cash disbursements) given a period of time. Usually, these cash budgets are based on transactions recorded in the previous accounting cycle, and on other documents related to budgeting that were created for the current cycle.
It is used by managers to evaluate the company's financial position and to determine if it needs to borrow cash or if it is necessary to arrange for cash investments; this includes deciding if it is sensible to do so.

2. First, the contribution margin is used to see if a certain product is, from the term itself, "contributing" well enough to make up for the fixed costs of a company; that is, if the revenue that is available for fixed costs, with variable costs taken into account, is high or low.
As a ratio, a higher contribution margin means that a larger portion of cash being brought in by the product can be used to cover for these fixed costs. For instance, if the contribution margin ratio calculated is 90%, it means that 90% of the sales (minus the variable costs) is available to use for paying back fixed costs. This is why a company with a larger contribution margin ratio can focus on sales promotion, while a company with a small contribution margin ratio cannot. Typically, companies with a small contribution margin ratio may have other issues that they need to address, such as cost of labor, which is a variable cost. They also normally have to remove certain products or product lines that are not beneficial anymore, or adjust the sales price (generally upward) of the products their selling.

1. A cash budget is basically a prediction of cash inflows or outflows that may take place at an incoming financial period. From here, we can plan around whether or not to apply for a loan, or when would be the best time to collect receivables, to name a few. It can give us an idea on what to expect if the business ends up having cash flow surplus or deficits.

2. In the context of CVP Analysis, for as long as the contribution margin can fully cover a company's fixed costs, then the company is deemed profitable. In small-scale productions, the contribution margin fails to cover fixed cost as it tends to overwhelm variable cost, making a loss. It would be beneficial for a company with a large contribution margin ratio to focus on sales promotion since they have the ability to produce and put out more units, gain higher revenues that even when variable costs are lessened from it, the contribution margin will still be able to fully cover all fixed costs, even gaining profit from it.

1. The cash budget illustrates a company's proactive approximation of their cashflow over a specific period of time. It is important to detail such as it serves as an indicator of the company's financial health, and whether or not they will be equipped with sufficient financial resources for future periods. Additionally, cash budgets are made in order to facilitate critical decisions that the company in terms of where cash would be allocated, in an effort to make the ensure that cash is being spent productively.

2. Contribution margin ratio could be considered as a measure of the ability of a company to satisfy expenses and fixed costs, while still maintaining sufficient income which could then be used for other matters that would hopefully serve to improve the company's reach, such as sales promotion for example. Proceeding with sales promotion entails some degree of financial risk, as actual resources would be spent for an effort that to some extent still holds uncertainty in terms of the how the consumers would respond to such. That being said, having a large contribution margin ratio means would permit the company to not only allocate funds for such an effort, but to also look into a variety of sales promotion strategies that would increase the odds of a better response from potential consumers. On the other hand, proceeding with sales promotion with a small contribution margin ratio would be like putting all of the company's eggs into one basket. It does not appear to be wise because the company would be investing in an effort that still holds uncertainty, with their current situation (of having a small CMR) even further limiting them.

1. The purpose of a cash budget is to provide an estimate of the future cash flows of the company. It can serve as an indicator of potential problems so that managers can be prepared for such situations.
2. Given that a company has a large contribution margin ratio, this means that it has enough money to cover fixed costs and has excess for additional expenses. With the excess money that the company has, it can be utilized for other expenses such as sales promotion. On the other hand, a company with a low contribution margin ratio would have less amount to cover for fixed costs, and therefore should they must be cautious in allocating any extra expenses.

1. To provide the status of the company’s cash position. This helps make decisions like creating cash reserves for projected shortages.
2. If sales volume increases, the total variable cost will also increase. For a company with small contribution margin ratio, the variable cost is high and less money to cover for fixed costs.

The cash budget of a company can be utilized as one of the many available metrics that can be used as a basis in making sound business plans and decisions. It is a tool that can serve as a guide in terms of internal expenditures, movements, and coordination of the different parts of the company. It can also be used for planning strategies for future growth.

Investing in sales promotion is essential in companies with a large contribution margin ratio as the nature of these businesses is based on sales. The higher the sales these companies make, the lesser the effects of increased variable costs. It is more dangerous for companies with a small contribution margin ratio to invest in sales promotion, as these investments will be a factor to a decreased contribution margin ratio in the future. In order for these companies to increase their contribution margin ratio, reasonable measures to decrease variable costs must be performed.