Cash budgets form the core components of financing activities within Masson Corporation. The cash budgets enable the company to plan properly, and give direction and focus to the business. In addition, the cash budgets benefit the company and its management by incorporating proper allocation of funds to investments, divestitures and on-going projects, which generate more revenue to the firm. As a result, the employees of the firm are paid bonuses and other benefits out of the company’s budgeted income. It is necessary to emphasize that a company, which operates proper budgets is able to plan for its growth and expansion. Besides, the management would not have a difficult task in explaining the variances and anomalies that arise in the course of business operation. For instance, a manager can easily tell why a company’s budgeted expenditure differs from the actual expenditure, and this will enable the company to put in place appropriate mechanisms to correct the variance. Moreover, the cash budgets lead to proper management of the company’ resources and funds, and put emphasis on areas, which need some special attention of the firm’s activities (Ross, Jordan & Westerfield, 2010).
Options Open to Masson Company
Options that are open to Masson Corportation can be listed as folows: make use of forecasting techniques to select appropriate budgetary targets, appropriate costing system, improve on both the existing costing and pricing systems, and use forecasting techniques to make cost and revenue decisions.
In order to improve the cash budget deficit of $60 million dollars, the following can be recommended for Masson Corporation:
- Masson Corporation should implement a mastery budget for its business expansion.
- The company should price its products/services below the competitors.
- The corporation should review its pricing model.
- The company should use qualitative/quantitative techniques to forecast its future price changes.
Reasons for the Recommendations
Masson Company will require a mastery budget for the expansion project. A mastery budget will be considered as summary of an organization plans that set sales target, production and distribution as well as financing activities. It consists of budget income statement, cash budget and budget balance sheet. It usually encompasses future management plans as well as how these plans are to be realized. The budget selected for Masson Company is important since it will indicate where the firm aspires to be as well as what it requires to attain its financial goals. The mastery budget will also be important as it will allow Masson Corporation to project future cash flows that will enable it to get certain types of financing.
Due to high competition present in manufacturing industry, Masson Corporation should consider pricing its products/services below the competition. Through this pricing strategy, Masson Corporation will be at a better position to compete with other international firms. This pricing strategy will entail setting the prices for its products and services at a price below that of substitute products from its competitors. In order for business to be in a position to price their products/services below the competition, they should be in a position to save their costs per unit. One method Masson Corporation can be able to adopt this pricing strategy is by keeping its operating costs down. This is because pricing below the competition reflect small profit margins. In essence, economies of scale can enable the company to generate more profits due to increased cash stream earnings. In order for Masson Corporation to enjoy good profits, it should put a tight regulation on its inventory. For instance, although excess finished goods inventory offers cushion in an occasion of an unexpected demand, it is important to note that considerable costs accompany the goods. In addition, accounting management notes that excessive finished goods inventory is associated with high defects that can lower anticipated profits. Therefore, Masson Corporation should avoid excess inventory. Besides, it should maintain its rental as well as labor expenses down. Moreover, Masson corporation should borrow from its strategy it uses in other countries to ensure that most of its stock (possibly, over 90%) remain the most competitive in the market. Masson Corporation should also adopt its long-term strategies of establishing long-term vendor suppliers, bulk buying, as well as ensuring efficiency in the manufacturing to enable it to offer its products at a reduced price. Apart from using its past strategies, Masson Corporation should consider looking for economical suppliers to supply it with, for instance, aluminum building materials. This will help in reducing high costs incurred in outsourcing for raw materials supplies (Ross, Jordan & Westerfield, 2010).
Masson Corporation should review its pricing model. Even though it is important for it to price its products and services below the competition, Masson Corporation should also consider adjusting its prices above the competitions in instances of economic booming in order to enhance its profit realization to facilitate its subsequent expansions as well as maximize the shareholders wealth. For instance, Masson corporation is famous in cutting down on its prices to enhance the sale of its products. In this regard, Masson Corporation cut down the costs of more than half of its listed prices to increase its sales. Masson Corporation opted to cut down its prices when it realized that people were withholding spending because of unfavorable financial conditions (Ross, Jordan & Westerfield, 2010). Therefore, the company should consider increasing its prices during the booming period to offset the low profits realized during economic crisis.
It is evident that companies that are able to succeed in their financial goals are those ones that are able in accurately project their future performances in order to lay appropriate foundations in advance. Masson Corporation can opt to use either qualitative or quantitative techniques to forecast its future price changes. The use of qualitative methods entails gathering data from primary/secondary sources and attempting to predict the demand level in the future. Qualitative method of forecasting is mainly used to generate future prices of commodities and services through the use of creativity methods. This strategy is mainly employed by few people who are skilled and have wider understanding on the demand trends. The quantitative method is another strategy that is highly employed to project future prices of goods and services. Quantitative methods are well known for analyzing future developments of numerical data. Trend projection method is a very effective quantitative method that can be used to project future prices of goods and services for Masson Corporation (Ross, Jordan & Westerfield, 2010).
A Revised Cash Budget
In conclusion, the above recommendations, quantitative forecasting techniques can be used to improve Masson Corporation’s Cash Budget (excel workings attached). Therefore, it is evident from the calculations that Masson Corporation will not need to arrange for $60 million that result from the cash flow deficit to finance its business operations. This is because the company had surplus cash revenue by the end of the last quarter (Q4).