MODERN AGRICULTURAL FARM: BUDGETING FOR CONTROL Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

MODERN AGRICULTURAL FARM: BUDGETING FOR CONTROL Case Solution

INTRODUCTION

This case is about budgeting where the budgeting technique will be used, which will help Modern Agricultural Farms in decision-making. This document consists of monthly cash inflows and outflows, it also includes the suggestions on how the management of can resolve cash flows problems.

The document is also accompanied with the master budget plan from November 2011 to October 2012, which will also give a clear idea of how to control cost and how much revenue the different crops will generate throughout the year. Finally, the document also includes the overview of how the budget will help in other aspects of decision-making in longer-term, like how the budget will act as a strong control for farm business.

CASH RECEIPTS AND PAYMENTS FOR THE 6 MONTHS FROM NOVEMBER 2010 TO APRIL 2011

The modern agricultural farm will generate net receipts of 8,283,266 pkr after selling various crops in the market. On the other hand, the net payment or related cost the farm will incur during these 6 months will be 8,078,540 pkr.

*Cash position*

Net payments	8078540
Net receipts	8283266
*Remaining cash*	*204,726*	*Rupees*

CASH BALANCES AT THE END OF EACH MONTH

The farm will have both positive and negative cash flow balances at the end of each month which are as follows.

Exhibit - 1

*Cash balances*	Nov-10	Dec-10	Jan-11	Feb-11	Mar-11	Apr-11

Net payments	151883	109012	817244	119092	223446	122695
Net receipts	971500	491870	346322	113869	492785	172518
*Remaining cash at the end of each month (rupees)*	*(547332)*	*(59825)*	*2645981*	*(52226)*	*(174167)*	*498229*

Except in January 2011 and April 2011, the farm will have positive cash flows. Otherwise, in the remaining months, the farm will have negative cash flows balances.

RECOMMENDATION ON CASH BALANCES

Currently the farm is facing negative cash balances in four months out of 6 months and then facing positive cash flow in January and April. The successful business needs to bring in more cash than it spends. The best thing the management can do is to increase their sales, which will ultimately result in positive cash flows in the months where farm is having negative cash balances. Secondly, the farm should try to bring down their costs through buying seeds and fertilizers at lower prices or may be, if they can buy in greater quantity to avail discounts, which will also bring their overall costs down.

Furthermore, the negative balances also arise because of some seasonal costs, which are incurred by farm such as the seeds and fertilizers are bought in larger quantity in November as compared to subsequent month. Moreover, the farm can reduce its operating cost or labor cost to improve its cash flows, the farm can eliminate duplication of functions or elimination of unnecessary cost as well. The graph below depicts that farm is facing cash flow problems in the month of November, December, February, and March; it is evident that during these months, the company is also having difficulties in selling their crops, which is evident in the shape of net receipts in the months where farm jhas negative cash flow, refer exhibit 1......................

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