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HomeCompany AnalysisAbu Dhabi National Energy Company’s Analysis

Abu Dhabi National Energy Company’s Analysis

đź“„ Words: 2807
đź“ť Subject: Company Analysis
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✍️ Type: Essay

Background of the company

The paper analyzes Abu Dhabi National Energy Company (TAQA). The company was established in 2005. The headquarters of the company is in Abu Dhabi, UAE. The company is owned by the government and the shares of the company are listed on the Abu Dhabi Securities Exchange with the ticker symbol TAQA. The company was established in 2005 and it operates in the oil industry. Currently, the company has two subsidiaries these are TAQA North and Bratani. Further, the company has employed about 2,800 people. The company focuses on generation of power, desalination of water, manufacturing and storage of gas and oil. The first product that will be analyzed is oil and gas. Oil and gas accounts for about 47% of the total revenue earned by the company. The second product is power while the third product is water. The total of water and power accounts for 53% of the total revenues. The total loss for the year that ended on 31st December 2013 amounted AED1,768 million. The paper seeks to prepare a master budget for the company.

Master budget

A master budget is a collection of various operational budgets (Block & Hirt 2007). The components of the master budget are discussed in the subsequent section.

Sales budget and schedule of cash receipts

This section will show the expected number of units that will be sold, the selling price per unit and the total sales for each of the twelve months. The expected number of units will be estimated using percentages of total sales for the year (Collier 2010). Based on the calculations, the budgeted sales for the year amounts to AED11, 250,000 thousand in the year 2014. Also, the amount of cash that will be collected during each month will also be presented in the table below.

Abu Dhabi National Energy Company

For the year ended 31st December 2014:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year
Percent of Annual Sales 10% 5% 3% 2% 5% 1% 2% 7% 5% 10% 15% 35% 100%
Expected sales in units 75,000 37,500 22,500 15,000 37,500 7,500 15,000 52,500 37,500 75,000 112,500 262,500 750,000
Selling price per unit AED 15 AED 15 AED 15 AED 15 AED 15 AED 15 AED 15 AED 15 AED 15 AED 15 AED 15 AED 15 AED 15
Total Budgeted Sales AED 1,125,000 AED 562,500 AED 337,500 AED 225,000 AED 562,500 AED 112,500 AED 225,000 AED 787,500 AED 562,500 AED 1,125,000 AED 1,687,500 AED 3,937,500 AED 11,250,000

Schedule of cash receipts

For the year ended 31st December 2014:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year
Current month sales 55% AED 675,000.00 AED 337,500.00 AED 202,500.00 AED 135,000.00 AED 337,500.00 AED 67,500.00 AED 135,000.00 AED 472,500.00 AED 337,500.00 AED 675,000.00 AED 1,012,500.00 AED 2,362,500.00 AED 6,750,000.00
Prior month’s sales 35% 1,012,500 337,500 168,750 101,250 67,500 168,750 33,750 67,500 236,250 168,750 337,500 506,250 3,206,250
Two months prior sales 9.5% 133,875 286,875 95,625 47,813 28,688 19,125 47,813 9,563 19,125 66,938 47,813 95,625 898,875
Total cash collections AED 1,821,375.00 AED 961,875.00 AED 466,875.00 AED 284,062.50 AED 433,687.50 AED 255,375.00 AED 216,562.50 AED 549,562.50 AED 592,875.00 AED 910,687.50 AED 1,397,812.50 AED 2,964,375.00 AED 10,855,125.00

Production budget

The budget will give an estimate of the total production that is required during the year. The values will be arrived at by adding the estimated sales to the desired ending inventory. The sum of the two will give the required monthly production. The desired inventory at the beginning of the period will be deducted to obtain the number of units that must be produced (Seal, Garrison & Noreen 2011).

Abu Dhabi National Energy Company

For the year ended 31st December 2014:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year
Budgeted sales in units 75,000 37,500 22,500 15,000 37,500 7,500 15,000 52,500 37,500 75,000 112,500 262,500 750,000
Add desired ending inventory of finished goods 6,750 4,050 2,700 6,750 1,350 2,700 9,450 6,750 13,500 20,250 47,250 13,500 13,500
Total units needed 81,750 41,550 25,200 21,750 38,850 10,200 24,450 59,250 51,000 95,250 159,750 276,000 763,500
Less beginning inventory of finished goods 13,500 6,750 4,050 2,700 6,750 1,350 2,700 9,450 6,750 13,500 20,250 47,250 13,500
Required production 68,250 34,800 21,150 19,050 32,100 8,850 21,750 49,800 44,250 81,750 139,500 228,750 750,000

Direct materials budget and schedule for cash disbursement

This section will give an estimation of the number of units of raw materials that will be used in the production and the total amount that will be used be spent in the purchase of the raw materials. Also, the monthly amount of money that will be used for the purchase of the raw materials will be estimated (Hilton 2010).

Abu Dhabi National Energy Company

For the year ended 31st December 2014

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year
Units to be produced 68,250 34,800 21,150 19,050 32,100 8,850 21,750 49,800 44,250 81,750 139,500 228,750 750,000
Raw Materials needed per unit 8 8 8 8 8 8 8 8 8 8 8 8 8
Production needs 511,875 261,000 158,625 142,875 240,750 66,375 163,125 373,500 331,875 613,125 1,046,250 1,715,625 5,625,000
Add desired ending inventory 91,350 55,519 50,006 84,263 23,231 57,094 130,725 116,156 214,594 366,188 600,469 179,156 179,156
Total needs 603,225 316,519 208,631 227,138 263,981 123,469 293,850 489,656 546,469 979,313 1,646,719 1,894,781 5,804,156
Less beginning inventory 268,734 91,350 55,519 50,006 84,263 23,231 57,094 130,725 116,156 214,594 366,188 600,469 268,734
Raw materials to be purchased 334,491 225,169 153,113 177,131 179,719 100,238 236,756 358,931 430,313 764,719 1,280,531 1,294,313 5,535,422
Cost of raw material per unit AED 0.68 AED 0.68 AED 0.68 AED 0.68 AED 0.68 AED 0.68 AED 0.68 AED 0.68 AED 0.68 AED 0.68 AED 0.68 AED 0.68 AED 0.68
Total cost of purchases of raw material AED 227,454.00 AED 153,114.75 AED 104,116.50 AED 120,449.25 AED 122,208.75 AED 68,161.50 AED 160,994.25 AED 244,073.25 AED 292,612.50 AED 520,008.75 AED 870,761.25 AED 880,132.50 AED 3,764,087.25

Schedule for cash disbursement

For the year ended 31st December 2014

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year
Current month’s purchases 20% AED 56,863.50 AED 38,278.69 AED 26,029.13 AED 30,112.31 AED 30,552.19 AED 17,040.38 AED 40,248.56 AED 61,018.31 AED 73,153.13 AED 130,002.19 AED 217,690.31 AED 220,033.13 AED 941,021.81
Prior month’s purchases 45% 231,933 90,982 61,246 41,647 48,180 48,884 27,265 64,398 97,629 117,045 208,004 348,305 1,385,515
Two months prior purchases 35% 311,279 233,459 68,236 45,934 31,235 36,135 36,663 20,448 48,298 73,222 87,784 156,003 1,148,695
Total cash disbursements for purchases of raw material AED 600,074.70 AED 362,719.16 AED 155,511.23 AED 117,693.34 AED 109,966.84 AED 102,058.65 AED 104,175.79 AED 145,864.46 AED 219,080.70 AED 320,269.16 AED 513,477.56 AED 724,340.25 AED 3,475,231.84

Direct labour budget

The direct labour budget seeks to provide an estimation of the total direct labour cost for the year. The value is arrived at by multiplying the total hours of direct labour that is required for production and the cost of direct labour per hour (Horngren, Foster, Datar, Black and Gray 2011).

Abu Dhabi National Energy Company

For the year ended 31st December 2014:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year
Units to be Produced 68,250 34,800 21,150 19,050 32,100 8,850 21,750 49,800 44,250 81,750 139,500 228,750 750,000
Direct Labour time per unit (hours) 0.45 0.45 0.45 0.45 0.45 0.45 0.45 0.45 0.45 0.45 0.45 0.45 0.45
Total hours of direct labour time needed 30,713 15,660 9,518 8,573 14,445 3,983 9,788 22,410 19,913 36,788 62,775 102,938 337,500
Direct Labour cost per hour AED 13.50 AED 13.50 AED 13.50 AED 13.50 AED 13.50 AED 13.50 AED 13.50 AED 13.50 AED 13.50 AED 13.50 AED 13.50 AED 13.50 AED 13.50
Total direct labour cost AED 414,618.75 AED 211,410.00 AED 128,486.25 AED 115,728.75 AED 195,007.50 AED 53,763.75 AED 132,131.25 AED 302,535.00 AED 268,818.75 AED 496,631.25 AED 847,462.50 AED 1,389,656.25 AED 4,556,250.00

Manufacturing overhead budget

The manufacturing overhead budget gives an estimation of the amount of cash disbursement for the manufacturing overhead. The budget combines both the variable and fixed manufacturing overhead. The fixed manufacturing overhead includes items such as training and development costs, taxes, salaries for supervisors, and depreciation of equipment among others (Horngren, Harrison, Oliver, Best, Fraser, Tan & Willett 2012).

Abu Dhabi National Energy Company

For the year ended 31st December 2014:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year
Production in Units 68,250 34,800 21,150 19,050 32,100 8,850 21,750 49,800 44,250 81,750 139,500 228,750 750,000
Variable overhead rate per unit AED 1.95 AED 1.95 AED 1.95 AED 1.95 AED 1.95 AED 1.95 AED 1.95 AED 1.95 AED 1.95 AED 1.95 AED 1.95 AED 1.95 AED 1.95
Variable manufacturing overhead AED 133,087.50 AED 67,860.00 AED 41,242.50 AED 37,147.50 AED 62,595.00 AED 17,257.50 AED 42,412.50 AED 97,110.00 AED 86,287.50 AED 159,412.50 AED 272,025.00 AED 446,062.50 AED 1,462,500.00
Fixed manufacturing overhead:
Training and development 5,400 5,400 5,400 5,400 5,400 5,400 5,400 5,400 5,400 5,400 5,400 5,400 64,800
Property and business taxes 4,800 4,800 4,800 4,800 4,800 4,800 4,950 4,950 4,950 4,950 4,950 4,950 58,500
Supervisor Salaries 18,675 18,675 18,675 18,675 18,675 18,675 18,675 18,675 18,675 18,675 18,675 18,675 224,100
Amortization on equipment 22,350 22,350 22,350 22,350 22,350 22,350 22,350 22,350 22,350 22,350 22,350 22,350 268,200
Insurance 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 144,000
Other 14,700 14,700 14,700 14,700 14,700 14,700 14,700 14,700 14,700 14,700 14,700 14,700 176,400
Total fixed manufacturing overhead 77,925 77,925 77,925 77,925 77,925 77,925 78,075 78,075 78,075 78,075 78,075 78,075 936,000
Total manufacturing overhead 211,013 145,785 119,168 115,073 140,520 95,183 120,488 175,185 164,363 237,488 350,100 524,138 2,398,500
Less prepaid property tax 4,800 4,800 4,800 4,800 4,800 4,800 4,950 4,950 4,950 4,950 4,950 4,950 58,500
Less prepaid insurance 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 144,000
Less amortization 22,350 22,350 22,350 22,350 22,350 22,350 22,350 22,350 22,350 22,350 22,350 22,350 268,200
Cash disbursements for manufacturing overhead AED 171,862.50 AED 106,635.00 AED 80,017.50 AED 75,922.50 AED 101,370.00 AED 56,032.50 AED 81,187.50 AED 135,885.00 AED 125,062.50 AED 198,187.50 AED 310,800.00 AED 484,837.50 AED 1,927,800.00

Ending finished goods inventory budget

The budget for ending finished inventory will give an estimation of the value of closing stock for the entire year. The value of ending inventory will be arrived at through a multiplication of the unit cost of the product by the number of units of finished goods remaining unsold at the end of the year. It is worth mentioning that two approaches will be estimate the per unit product cost. These are absorption and marginal costing. The budgeted cost of sales will be estimated after the calculation of ending inventory. The other components of cost of sales were calculated in the section above.

Absorption costing

Abu Dhabi National Energy Company

For the year ended 31st December 2014:

Item Quantity Cost/unit Total
Production cost per unit:
Direct materials: 7.50 Unit 0.68 5.10
Direct Labour 0.45 Hr. 13.50 6.08
Manufacturing overhead 1.00 Unit 3.20 3.20
Unit product cost 14.37
Budgeted finished goods inventory:
Ending finished goods inventory in units 13,500
Unit product costs (see above) AED 14.37
Ending finished goods inventory in AED AED 194,035.50
Budgeted cost of goods sold:
Beginning finished goods inventory 221,738
Plus cost of goods manufactured 10,779,750
Less: ending inventory 194,036
Budgeted cost of goods sold in AED: 10,807,453

Variable costing

Abu Dhabi National Energy Company

For the year ended 31st December 2014:

Item Quantity Cost/unit Total
Production cost per unit:
Direct materials: 7.50 Unit 0.68 5.10
Direct Labour 0.45 Hr. 13.50 6.08
Manufacturing overhead 1.00 Unit 1.95 1.95
Unit product cost 13.13
Budgeted finished goods inventory:
Ending finished goods inventory in units 13,500
Unit product costs (see above) AED 13.13
Ending finished goods inventory in AED AED 177,187.50
Budgeted cost of goods sold:
Beginning finished goods inventory 130,977
Plus cost of goods manufactured 9,843,750
Less: ending inventory 177,188
Budgeted cost of goods sold in AED: 9,797,540

The budgeting ending inventory and cost of sales using absorption costing yielded higher results than marginal costing approach. The result is consistent with the study materials (Noreen, Brewer & Garrison 2014).

Selling and administrative expense budget

The budget will give an estimate of the amount that will be spent on selling and administrative expense. The budget combines both the fixed and variable selling and administrative expenses. Some of the items that will be included in the budget are bad debts and amount spent on renting premises such as warehouses (Abraham, Glynn, Murphy & Wilkinson 2010).

Abu Dhabi National Energy Company

For the year ended 31st December 2014:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year
Budgeted sales in units 75,000 37,500 22,500 15,000 37,500 7,500 15,000 52,500 37,500 75,000 112,500 262,500 750,000
Variable selling and administrative expense per unit AED 0.65 AED 0.65 AED 0.65 AED 0.65 AED 0.65 AED 0.65 AED 0.65 AED 0.65 AED 0.65 AED 0.65 AED 0.65 AED 0.65 AED 0.65
Variable expenses AED 48,750.00 AED 24,375.00 AED 14,625.00 AED 9,750.00 AED 24,375.00 AED 4,875.00 AED 9,750.00 AED 34,125.00 AED 24,375.00 AED 48,750.00 AED 73,125.00 AED 170,625.00 AED 487,500.00
Fixed selling and administrative expenses 66,870 66,870 66,870 66,870 66,870 66,870 66,870 66,870 66,870 66,870 66,870 66,870 802,440
Bad Debts 16,875 8,438 5,063 3,375 8,438 1,688 3,375 11,813 8,438 16,875 25,313 59,063 168,750
Warehouse rental – – – – – – – – 30,000 30,000 30,000 30,000 120,000
Total budgeted selling and administrative expenses AED 132,495.00 AED 99,682.50 AED 86,557.50 AED 79,995.00 AED 99,682.50 AED 73,432.50 AED 79,995.00 AED 112,807.50 AED 129,682.50 AED 162,495.00 AED 195,307.50 AED 326,557.50 AED 1,578,690.00
Less: non-cash items
Bad debt expense AED 16,875.00 AED 8,437.50 AED 5,062.50 AED 3,375.00 AED 8,437.50 AED 1,687.50 AED 3,375.00 AED 11,812.50 AED 8,437.50 AED 16,875.00 AED 25,312.50 AED 59,062.50 AED 168,750.00
AED 115,620.00 AED 91,245.00 AED 81,495.00 AED 76,620.00 AED 91,245.00 AED 71,745.00 AED 76,620.00 AED 100,995.00 AED 121,245.00 AED 145,620.00 AED 169,995.00 AED 267,495.00 AED 1,409,940.00
Variable rate per unit: Total Costs Units
High AED 1,022,460.00 750,000
Low AED 778,710.00 375,000
Change AED 243,750.00 375,000

Cash budget

The cash budget is quite significant because it combines all the output of the other budgets discussed above. The budget seeks to determine whether the company will have adequate cash that meet all the running expenses. Therefore it will reveal whether the company will require additional funding and to what extent (Brigham & Michael 2009; Williams, Haka, Bettner, & Carcello, 2010).

Abu Dhabi National Energy Company

For the year ended 31st December 2014

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year
Cash balance, beginning (AED) 125,047.50 636,746.55 819,112.39 757,977.41 616,325.33 544,923.49 374,798.59 189,746.55 46,529.59 157,333.61 296,635.28 767,497.84 125,047.50
Add receipts:
Collections from customers 1,821,375 961,875 466,875 284,063 433,688 255,375 216,563 549,563 592,875 910,688 1,397,813 2,964,375 10,855,125
Total cash available before financing 1,946,423 1,598,622 1,285,987 1,042,040 1,050,013 800,298 591,361 739,309 639,405 753,354 1,101,177 2,196,877 10,980,173
Less disbursements:
Direct materials 600,075 362,719 155,511 117,693 109,967 102,059 104,176 145,864 219,081 320,269 513,478 724,340 3,475,232
Direct labour 414,619 211,410 128,486 115,729 195,008 53,764 132,131 302,535 268,819 496,631 847,463 1,389,656 4,556,250
Manufacturing overhead 171,863 106,635 80,018 75,923 101,370 56,033 81,188 135,885 125,063 198,188 310,800 484,838 1,927,800
Selling and administrative expenses 115,620 91,245 81,495 76,620 91,245 71,745 76,620 100,995 121,245 145,620 169,995 267,495 1,409,940
Tax remittance 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 90,000
Tax payable – – – 32,250 – – – – – – – – 32,250
Prepaid insurance – – – – – – – – 144,000 – – – 144,000
Prepaid property and business tax 59,400 59,400
Capital asset purchases – – – – – – – – – – 137,903 168,548 306,450
Dividend payment – – 75,000 – – 75,000 – – 75,000 – – 75,000 300,000
Total disbursements 1,309,676 779,509 528,010 425,715 505,089 425,500 401,615 692,779 960,707 1,168,208 1,987,138 3,117,377 12,301,322
Excess (deficiency) of cash available over disbursements 636,747 819,112 757,977 616,325 544,923 374,799 189,747 46,530 – 321,302 – 414,854 – 885,960 – 920,499 – 1,321,149
Financing:
Borrowing (at the beginning of the month) 165,000 120,000 121,000 406,000
Repayment (at the end of the month) 259,000 259,000
Interest expense (paid monthly) – – – – – – – – 1,031 1,781 2,538 2,538 7,888
Total financing – – – – – – – – 163,969 118,219 118,463 – 261,538 139,113
Cash balance, ending AED 636,746.55 AED 819,112.39 AED 757,977.41 AED 616,325.33 AED 544,923.49 AED 374,798.59 AED 189,746.55 AED 46,529.59 -AED 157,333.61 -AED 296,635.28 -AED 767,497.84 -AED 1,182,036.84 -AED 1,182,036.84
Running total – – – – – – – – 165,000 285,000 406,000 147,000

References

Abraham, A, Glynn, J, Murphy, M & Wilkinson, B 2010, Accounting for managers, South­-Western Cengage Learning, USA.

Block, S & Hirt, G 2007, Foundations of financial management, McGraw-Hill/Irwin, USA.

Brigham, E & Michael, J 2009, Financial management theory and practice, South-Western Cengage Learning, USA.

Collier, P 2010, Accounting for managers, John Wiley & Sons, USA.

Hilton, R, 2010, Managerial Accounting, McGraw Hill/Irwin, USA.

Horngren, C, Foster, G, Datar, S, Black, T and Gray, P 2011, Cost accounting: A managerial emphasis, Prentice Hall, United Kingdom.

Horngren, C, Harrison, W, Oliver, S, Best, P, Fraser, D, Tan, R & Willett, R 2012, Accounting, Pearson, Australia.

Noreen, E, Brewer, P & Garrison, R 2014, Managerial accounting for managers, McGraw-Hill, USA.

Seal, W, Garrison, R & Noreen, R 2011, Management accounting, McGraw Hill, New York.

Williams, J, Haka, S., Bettner, M., & Carcello, J. (2010). Financial & managerial accounting: The basis for business decisions. USA: Mc Graw-Hill.

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