The bar chart prepared in part (c) immediately outlines that the problems of the organisation mainly rest upon its cash flow. Indeed, a net income of 14,185 is envisaged, which will lead to an enhancement to the financial wealth of the firm. However, the opening cash balance of 5,000 will diminish to -10,706 during the period under consideration. The reason behind the different figures stems from the application of the accruals concept in the income statement, which lead to the accrual of unpaid expenditure and the removal of prepaid expenses. Further more, the prudence concept contends the need of provisions, which are non-cash expenditure like depreciation (Randall 1999).
Solutions that can be adopted to minimise the envisaged cash deficiency may take two main forms. One encompasses tightening of the credit sales provided, where earlier payments are stimulated by providing a discount. The other solution encompasses using sources of finance to cater for the capital expenditure of 18,500 envisaged during the year. The organisation may opt for a short-term loan or acquire the asset through lease agreements in order to diminish the cash outflow that such investment will entail (Pike et al. 1999).
This report will be classified in three main sections. First financial information pertinent to the present operating income on per one-way flight basis will be provided. This will be followed by a financial examination of the effect of the decrease in fare selling price as suggested by the market research department. A relevant costing analysis will also be conducted at the latter section of this paper on the charter offer provided by Travel International. Such offer will be analyzed both on qualitative and financial aspects.
1. Operating Income per one-way flight
Sales Revenue (325 x 175) 56,875
Variable Costs
Fuel Costs 14,000
Food and Beverage Costs (4 x 175) 700
Commission (56,875 x 10) 5,688
Operating Income 36,487
2. Sales Revenue (280 x 212) 59,360
Variable Costs
Fuel Costs 14,000
Food and Beverage Costs (4 x 212) 848
Commission (59,360 x 10) 5,936
Operating Income 38,576
The operating income per one-way flight will increase by 2,089 if the price is reduced as instructed by the market research department. Such rise indicates that this action is financially feasible for the organization.
3.
Additional Revenue from Travel (75,000 x 24) 1,800,000
Lost Contribution from lost sales (36,487 x 24) (875,688)
Incremental Income 924,312
Financially the charter offer of Travel International is viable, because it will generate an additional income of 924,312 if undertaken. However, management should also consider qualitative characteristics before proceeding in its acceptance. For instance, the reduction in the number of flights may negatively affect the image of the company in the market. Client may switch to other competitors and commence negative word of mouth advertising. In addition, the reduction in such flights may provide asymmetric information that the company is not operating well and customers may think that it will cease operations soon. This will further diminish its respective market share.
This paper reviews subject matter of corporate tax in respect to facts, issue, analysis and conclusion. Corporate tax commonly referred to as corporation tax is tax on the profits made by companies, organizations or business entity (Fiore, 2003).
Issue
Any organization making profit is entitled to pay tax to its respective country revenue authority. Different countries charge different tax rates on the profits of the organization. For instance, in United States calculation of tax liability to any organization depends on specific provisions of accounting standards that guide in the preparation of financial statements. In 2008, Massachusetts had to adopt reforms in tax laws that led to recovery of high amounts of corporate tax that were lost in the previous period (Edwards, 2008). Many organizations tried to avoid payment of corporate taxes. The laws made it possible for revenue authority to collect high amounts of money inform of corporate tax.
Analysis
Corporate tax collected by revenue authority of any respective country is used to run government activities that lead to development of economy. Corporate tax is used to build roads, social amenities, pay civil employees, support education sector and many other economic activities (Craig, Todd, 1993). A country with good infrastructure is economically developed because there is good flow of goods from one country to another thus it benefits through foreign exchange earning. This is one way among the many ways of using corporate tax to help promote growth of economy.
In conclusion, it is the role of any organization or business entity to pay corporate tax so as to support the growth of economy. Without payment of tax, government cannot operate its activities well. Authorities concerned with collection of tax should ensure that the tax is used in a proper manner.
