CHAPTER 9: BUDGETING AND CASH FLOW SUGGESTED SOLUTIONS SOLUTION TO MULTIPLE CHOICE QUESTIONS 9.1 9.2 9.3 9.4 9.5
(d) (d) (b) (a) (a)
9.6 9.7 9.8 9.9 9.10
(d) (b) (d) (d) (c)
END OF CHAPTER QUESTIONS
9.1 A budget is a financial plan based on forecasts, designed to communicate goals and assist in controlling direction
9.2 Factors that should be taken into consideration when making a sales forecast, for budgeting purposes include: Sales in the previous period Expected Inflation New technology Substitute products Activity of competitors Market research Intended advertising Size of the market
9.3 This statement by the management accountant reflects the view of a budget as a tool for communication and motivation of staff to which a budget applies. A sales budget for example is an indicator to sales staff of the target that they are expected to achieve. This will have an effect on how they approach their daily tasks. If the budget is achievable it is likely to act as an incentive, whereas if it is too onerous, it may act a disincentive if it discourages them. For this reason, many budgeting processes include the staff at the time when the budget is being set, in order to achieve "buy in" from those who have to work within its targets.
9.4 Some of the main reasons for budgeting are: To enable control of the activities of the business To be able to measure performance at the end of a specified period To assist in planning and identify problem areas which would otherwise not be apparent To reduce management time by using management by exception (variances) To offer goals that staff can strive to achieve
9.5 Planning: This is the first stage and is dependent upon the mission, goals and strategies, which the business defines. The budget is then set as a measurable target, which must be achieved in order to reflect the achievement of the plans. A motor manufacturer would need to plan the types of vehicles to be produced and the expected number of units, which will be manufactured.
Communicate: Once the plan has been drafted in financial terms, the budget is communicated to all in the business who have a part to play in achieving the plan. By reading and understanding the budget, staff are then required to take responsibility for the
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actions which they take in achieving the goals of the business. A motor manufacturer would need to prepare production schedules for use by factory managers and sales representatives.
Motivation: Management have a leadership role to play in motivating people to follow the budget and strive in all their actions to achieve the targets. Production staff are likely to be set output targets which required efficiency and productivity and this should motivate them to meet the daily and monthly output requirements
Report and Control: From time to time, usually on a monthly basis, the actual performance, recorded in the accounting records is compared with the budget and corrective action taken where necessary. This would apply to all line items in any budget thus enabling a check to be kept on items like the use of raw materials, power, and other expendables.
9.6 The sales (production) budget is the starting point because it determines the main revenue flow from which all costs must be met. The cost of sales (production), also a significant figure follows from the expected sales output. Thereafter the operating expenses can more accurately be established, as many of them are dependant on the sales volume.
9.7 The most common budgets, which are set by a business, in approximate order in which they would need to be finalised, are: Sales Budget Production Budget Capital Budget Operating Expenses Budget Working Capital Budget Non-Operating Budgets Budgeted Cash Flow Statement Budgeted Income Statement Budgeted Balance Sheet It is worth noting that the budgeted Income Statement and Balance Sheet are the result of all the other budgets, If these do not reflect an adequate profit and return on investment, then the other budgets are revisited and adjusted until the required rate of return is seen to be achievable.
9.8 All forecasting is dependant upon assumptions about the future and have an element of uncertainty. It is sometimes said that budgeting is "substituting error for chaos", meaning that it better for management to have applied their minds to forecasting and planning, despite the fact that the actual numbers seldom turn out to exactly what is planned. With no planning or estimating, however inaccurate the results may turn out to be with hindsight, chaos would result. Subjective forecasts: These types of forecasts are based on the opinions of individuals or groups. Because those involved have experience in the industry and with the product, their opinion are likely to be more informed than a simple guess.
Mathematical techniques: These types of forecasts are based on models, which are built, using past data and assumptions about the future. Because the future is unknown, such models are also not accurate, but are the aggregation of information from the database. It is wise to remember that no matter how complicated or intricate a mathematical model may seem, it always contains assumptions, which may be incorrect.
9.9 Source of information which should be consulted before sales forecasting include: Past sales from the business records Orders on hand from the business records Market research undertaken by the business
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Industry reports available in journals and the media Economic reports on matters such as growth expectations, expected inflation from the media
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9.10 The following items should be discussed as conditions, which assist in ensuring that the budget planning and process can be successfully implemented: Top management support and involvement Line management support and involvement Clear definition and communication of long-term objectives Structures which give authority and responsibility to individuals An effective management information system Regular revision of budgetary targets
9.11 Constraints, which may hinder the budgeting process and implementation, include:
Unrealistic budgetary estimates of volumes or prices A process, which is rigid and lacks flexibility to change with changing circumstances A climate of suspicion amongst staff that the budget is a reward and punishment tool Fragmentation the process where the impact on one budget (such as the sales budget) does not automatically, or with good communication, result in obvious required changes in another budget, such as the cost of sales or expenses budget
9.12
LAKALA LTD COST
MARKUP
SELLING
100
60
160
May Inventory and Sales
R 240,000
R 144,000
Planned June Sales
R 375,000
Reduce inventory by 30%
R 262,500
Markup policy
9.13
R 600,000
MISTY LTD Present Cash Balance
R 20,000
Cash inflows
R 362,000
Cash outflows
R 387,000 R 25,000
Net Cash outflow Increase required balance
R 2,000
Required short term loan
R 27,000
9.14
VALUTA LTD Data
JAN
FEB
MAR
APR
R 240,000
R 220,000
R 180,000
R 200,000
Cash Sales
R 48,000
R 44,000
R 36,000
R 40,000
20% 30%
Credit Sales
R 192,000
R 176,000
R 144,000
R 160,000
80% 70%
Total Sales
R 240,000
R 220,000
R 180,000
R 200,000
Budgeted Sales
Cash received in April for April Sales [20% x R200000] Cash received in April for March Sales [70% x R144000] Cash received In April for February Sales [30% x R176000] Total budgeted cash inflow for April
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R 384,000
R 40,000 R 100,800 R 52,800 R 193,600
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9.15
HYDRO LTD UNITS
Normal production
COST
?
?
39,000
Additional production Total production
6,000
R 40
R 240,000
45,000
R 100
R 4,500,000
Normal production
[R4500000-R240000]
Average full cost per unit
[R4260000/39000]
9.16
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COST P U
R 4,260,000 R 109.23
RUKETA LTD Budgeted May Sales
= R 950,000
Gross Margin %
=
Cost of Sales (60% x R950000)
= R 570,000
Gross Profit (R950'-R570')
= R 380,000
Budgeted Net operating profit
= R 168,000
Operating Expense Budget (R380'-R168')
= R 212,000
40%
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9.17
MANSTO trading as METALLIC CASH BUDGET OF METALLIC Opening Balance Cash Sales Credit Sales - current 1 month prior 2 months prior Total Cash Inflow
Dec 125 1,870 1,544 124 108 3,771
Jan 331 1,650 1,260 331 124 3,696
Feb 1,036 980 1,216 270 331 3,832
Expenses Wages and Salaries Credit Purchases Operating Expenses Equipment Purchases Interest on Overdraft Total Cash Inflow
245 2,670 325 200 0 3,440
250 1,960 400 50 0 2,660
250 1,970 380 40 0 2,640
331
1,036
1,192
331
1,036
1,192
Surplus/Shortage Overdraft Closing Balance
9.18
HUA LIEN
CASH BUDGET OF HUA LIEN
Opening Balance Cash Sales Credit Sales - current 1 month prior 2 months prior Total Cash Inflow
July 100,000 528,000 1,003,200 564,300 285,000 2,480,500
August 560,500 544,500 1,034,550 601,920 376,200 3,117,670
September 90,000 575,500 1,093,450 620,730 401,280 2,780,960
Expenses Wages and Salaries Credit Purchases Operating Expenses Equipment Purchases Interest on Overdraft Total Cash Inflow
270,000 1,200,000 450,000 0 0 1,920,000
270,000 1,620,000 600,000 650,000 0 3,140,000
270,000 1,700,000 780,000 0 2,247 2,752,247
560,500
-22,330 112,330 90,000
28,713 61,287 90,000
Surplus/Shortage Overdraft Closing Balance
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560,500
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9.19
VALVCO
(a) & (b)
PRODUCTION COST BUDGET OF VALVECO (PTY) LTD FOR FEBRUARY 20.2 Raw materials Opening inventory Add Purchases Less Purchases returned
4,040 1,090 3,000 50
Available for manufacture Less Closing inventory
2,950 4,040 0
Direct labour PRIME COST
500 4,540
Overheads Indirect labour Indirect material
240 170 70
Opening balance Add Purchases
0 770
Available for use Less Closing inventory
770 700
PRODUCTION COST
4,780
Work in progress
1,000
Opening balance Less Closing balance
2,250 1,250
COST OF COMPLETED UNITS
5,780
BUDGETED TRADING STATEMENT OF VALVECO (PTY) LTD FOR FEBRUARY 20.2 SALES Less Cost of Sales Opening inventory Add Cost of Manufacture Less Closing inventory GROSS PROFIT Non-manufacturing Expenses NET PROFIT
©
10,000 5,280 3,000 5,780
8,780 3,500 4,720 100 4,620
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9.20
NUVOU LTD (a) to (d) Projected Sales
Cash sales Credit sales Purchases
1,000 1,000 1,000 SALES BUDGET April May 40% 400 400 60% 600 600 1,000 1,000 60% 600 600 OPERATING BUDGET ITEMS April
Cost of sales Salaries Variable Expenses Fixed expenses Depreciation
60% F 10% F F
600 120 100 70 10
May 600 120 100 70 10
1,000
1,000
June 400 600 1,000 600
Total 1,200 1,800 3,000 1,800
June
Total
600 120 100 70 10
1,800 360 300 210 30
WORKING CAPITAL BUDGET Debtors Previous month Previous 2 month Inventory Bank Trade Creditors Other Creditors Short-term loan
100% 0%
60%
April 600 600 0 600 210 600 0
May 600 600 0 600 320 600 0
June 600 600 0 600 430 600 0
1,800
BUDGETED CASH FLOW Cash sales Debtors Month following Remaining Cash inflow Cash outflow Creditors Salaries Variable expenses Fixed expenses Capital repayments Month surplus (deficit) Bank: beginning Bank:end
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April 400 600 600 0 1,000
May 400 600 600 0 1,000
890 600 120 100 70 0 110 100 210
890 600 120 100 70 0 110 210 320
June 400 600 600 0 1,000 890 600 120 100 70 0 110 320 430 =
Total 1,200 1,800 1,800 0 3,000 2,670 1,800 360 300 210 0 330 100 430
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(e)
Budgeted Income Statement
BUDGETED INCOME STATEMENT OF NUVOU LTD Sales Cost of sales Gross margin Operating Expenses Salaries and wages Variable expenses Fixed expenses Depreciation Profit before interest
(f)
April 1,000 600 400 300 120 100 70 10 100
May 1,000 600 400 300 120 100 70 10 100
June 1,000 600 400 300 120 100 70 10 100
Total 3,000 1,800 1,200 900 360 300 210 30 300
Budgeted Balance Sheet
BUDGETED BALANCE SHEET OF NUVOU LTD
Shareholders’ equity Capital Retained profit Long Term Loan Fixed assets Equipment Accumulated Depreciation Net working capital Current assets Inventory [Op+COS-Cl] Debtors [Op+CrSls-Pay] Cash Current liabilities Creditors [Op+COP-Pay]
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1 APRIL 700 200 500 300 1,000 500 600 100 500 700 400 200 100 200 200 1,000
30 JUNE 1,000 200 800 300 1,300 470 600 130 830 1,030 400 200 430 200 200 1,300
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9.21
MODULUS
(a) % Growth in sales Projected Sales
Cash sales Credit sales Purchases
20.0% 16.7% 2,500 3,000 3,500 SALES BUDGET
14.3% 4,000
4,500
April May 30% 900 1,050 70% 2,100 2,450 3,000 3,500 60% 2100 2400 OPERATING BUDGET ITEMS
June 1,200 2,800 4,000 2700
Total 3,150 7,350 10,500 7,200
April
June
Total
Cost of sales Salaries Variable Expenses Fixed expenses Depreciation
60% 1,800 F 400 10% 300 F 500 F 50
May 2,100 400 350 500 50
2,400 400 400 500 50
6,300 1,200 1,050 1,500 150
WORKING CAPITAL BUDGET Debtors Previous month Previous 2 month Inventory Bank Trade Creditors Other Creditors Short-term loan
80% 20%
60%
April 1,680 1,400 280 2,100 30 2,100 0
May 2,030 1,680 350 2,400 -240 2,400 0
June 2,380 1,960 420 2,700 -360 2,700 0
7,200
BUDGETED CASH FLOW
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Cash sales Debtors Month following Remaining Cash inflow
April 900 1,680 1,400 280 2,580
May 1,050 2,030 1,680 350 3,080
June 1,200 2,380 1,960 420 3,580
Cash outflow Creditors Salaries Variable expenses Fixed expenses Capital repayments Month surplus (deficit) Bank: beginning Bank:end
3,000 1,800 400 300 500 0 -420 450 30
3,350 2,100 400 350 500 0 -270 30 -240
3,700 2,400 400 400 500 0 -120 -240 -360
6,090
6,300
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(b)
BUDGETED INCOME STATEMENT OF MODULUS LTD FOR THE MONTHS ENDED Sales Cost of sales Gross margin Operating Expenses Salaries and wages Variable expenses Fixed expenses Depreciation Profit before interest
April 3,000 1,800 1,200 1,250
May 3,500 2,100 1,400 1,300
June 4,000 2,400 1,600 1,350
Total 10,500 6,300 4,200 3,900
400 300 500 50 -50
400 350 500 50 100
400 400 500 50 250
1,200 1,050 1,500 150 300
150.0% (c )
BUDGETED BALANCE SHEET OF MODULUS LTD
Shareholders’ equity Capital Retained profit Long Term Loan Fixed assets Equipment Accumulated Depreciation Net working capital Current assets Inventory [Op+COS-Cl] Debtors [Op+CrSls-Pay] Cash Current liabilities Creditors [Op+COP-Pay]
31 MARCH 2,000 500 1,500 100 2,100 1,450 1,900 450 650 1,150 200 500 450 500 500 2,100
30 JUNE 2,300 500 1,800 100 2,400 1,300 1,900 600 1,100 2,500 1,100 1,760 -360 1,400 1,400 2,400
(d) The company shows increasing profitability each month off a low base. Fixed costs ensure that with growth in monthly sales revenue, profitability will continue to increase, but monthly percentage growth will slow down (e) The liquidity problems are a result of the relatively small proportion of cash sales, the debtors collection period and the creditors settlement period. The company should aim to generate a higher proportion of cash sales, reduce the debtors collection period and increase the creditors settlement period. Any, or all of the three strategies will improve liquidity. If these strategies are not possible without damaging growth, then a short-term loan should be considered until the liquidity problem eases.
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9.22
HUNKYDOR (a) HUNKYDOR INC # MANUFACTURING COST BUDGETS Q1 15,000
Q2 5,000
Q3 10,000
Q4 20,000
TOTAL 50,000
PRODUCTION BUDGET Sales Ending Inventory Total required Opening Inventory UNITS TO PRODUCE
15,000 500 15,500 1,500 14,000
5,000 1,000 6,000 500 5,500
10,000 2,000 12,000 1,000 11,000
20,000 1,500 21,500 2,000 19,500
50,000 5,000 55,000 5,000 50,000
DIRECT MATERIAL BUDGET Material required Ending Inventory Total required Opening Inventory Metres of Material required
21,000 825 21,825 2,100 19,725
8,250 1,650 9,900 825 9,075
16,500 2,925 19,425 1,650 17,775
29,250 7,500 36,750 2,925 33,825
75,000 12,900 87,900 7,500 80,400
TOTAL COST OF MATERIAL
39,450
18,150
35,550
67,650
160,800
DIRECT LABOUR BUDGET Total direct labour hours Cost per hour TOTAL COST OF LABOUR
2,800 10 28,000
1,100 10 11,000
2,200 10 22,000
3,900 10 39,000
10,000 10 100,000
OVERHEAD BUDGET Variable costs Fixed Costs Depreciation Total Overheads
14,000 22,500 15,000 51,500
5,500 22,500 15,000 43,000
11,000 22,500 15,000 48,500
19,500 22,500 15,000 57,000
50,000 90,000 60,000 200,000
118,950 15,000 103,950
72,150 15,000 57,150
88,275 15,000 73,275
129,825 15,000 114,825
409,200 60,000 349,200
PROJECTED SALES
TOTAL MANUFACTURING COST Depreciation Cash out for Manufacturing
(b)
INCOME STATEMENT FOR THE YEAR ENDED Material Opening Inventory Material purchased Less Closing Inventory Direct Labour Manufacturing Overheads COST OF GOODS MANUFACTURED Number of units manufactured Cost per unit
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150000 2,100 160,800 -12,900 100,000 200,000 450,000 50,000 9.00
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9.23
MAJUBA STORES LTD (a) MAJUBA STORES LTD Projected Sales
Cash sales Credit sales Purchases
Cost of sales Salaries Variable Expenses Fixed expenses Depreciation Interest
50,000 60,000 SALES BUDGET
60,000
90,000
70,000
April May 24,000 24,000 36,000 36,000 60,000 60,000 50% 30000 45000 OPERATING BUDGET ITEMS
June 36,000 54,000 90,000 35000
Total 84,000 126,000 210,000 110,000
June 45,000 17,000 4,500 7,500 4,000 156
Total 105,000 45,000 10,500 22,500 12,000
40% 60%
April 50% 30,000 F+ 14,000 5% 3,000 F 7,500 F 4,000 173
May 30,000 14,000 3,000 7,500 4,000 136
WORKING CAPITAL BUDGET Debtors Previous month Previous 2 month Inventory Bank Trade Creditors Other Creditors Short-term loan
70% 30%
50%
April 28,200 21,000 7,200 30,000 2,700 30,000 0 17,300
May 34,200 25,200 9,000 45,000 13,700 45,000 0 13,600
June 36,000 25,200 10,800 35,000 8,000 35,000 0 15,600
110,000
BUDGETED CASH FLOW April 24,000 28,200 21,000 7,200 52,200
May 24,000 34,200 25,200 9,000 58,200
June 36,000 36,000 25,200 10,800 72,000
Cash outflow Creditors Salaries Variable expenses Fixed expenses Capital repayments Month surplus (deficit) Bank: Beginning Bank: End Min bal required Loan/Investment req Existing loan/invest Month end loan bal
59,500 30,000 14,000 3,000 7,500 5,000 -7,300 10,000 2,700 10,000 -7,300 -10,000 -17,300
54,500 30,000 14,000 3,000 7,500 0 3,700 10,000 13,700 10,000 3,700 -17,300 -13,600
74,000 45,000 17,000 4,500 7,500 0 -2,000 10,000 8,000 10,000 -2,000 -13,600 -15,600
Interest on inv/loan
-173.00
-136.00
-156.00
Cash sales Debtors Month following Remaining Cash inflow
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98,400
105,000
5,000
-465.00
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(b)
BUDGETED INCOME STATEMENT OF MAJUBA STORES Sales Cost of sales Gross margin Operating Expenses Salaries and wages Variable expenses Fixed expenses Depreciation Profit before interest Interest Net Profit after Interest
April 60,000 30,000 30,000 28,500 14,000 3,000 7,500 4,000 1,500 173
May 60,000 30,000 30,000 28,500 14,000 3,000 7,500 4,000 1,500 136
June 90,000 45,000 45,000 33,000 17,000 4,500 7,500 4,000 12,000 156
Total 210,000 105,000 105,000 90,000 45,000 10,500 22,500 12,000 15,000 465 14,535
(c)
MAJUBA STORES LTD BUDGETED BALANCE SHEETS 20.6 Shareholders’ equity Store capital Retained profit for the quarter Fixed assets Fixed assets Less: Depreciation Net working capital Current assets Inventory [Op+COS-Cl] Debtors [Op+CrSls-Pay] Bank Current liabilities Creditors [Op+COP-Pay] Loan/investment
31 MAR 190,000 90,000 100,000 190,000 100,000 120,000 20,000 90,000 150,000 60,000 80,000 10,000 60,000 50,000 10,000 190,000
30 JUNE 204,535 90,000 114,535 204,535 88,000 120,000 32,000 116,535 182,600 65,000 107,600 10,000 66,065 50,000 16,065 204,535
(d) Both liquidity and profitability will improve in the forthcoming months.
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9.24
LEKTRON WHOLESALERS (a) LEKTRON WHOLESALERS Projected Sales
Cash sales Credit sales Purchases
Cost of sales Salaries Variable Expenses Fixed expenses Depreciation Interest
1,500 2,400 2,600 SALES BUDGET JAN 40% 960 60% 1,440 2,400 60% 1560 OPERATING BUDGET 60% F+ 10% F F
JAN 1,440 330 240 400 10 7
3,000
3,000
FEB 1,040 1,560 2,600 1800 ITEMS
MAR 1,200 1,800 3,000 1800
Total 3,200 4,800 8,000 5160
FEB 1,560 350 260 400 10 9
MAR 1,800 390 300 400 10 12
Total 4,800 1,070 800 1,200 30
WORKING CAPITAL BUDGET Debtors Previous month Previous 2 month Inventory Bank Trade Creditors Other Creditors Short-term loan
80% 20%
60%
JAN 900 720 180 1,560 -540 1,560 0 660
FEB 1,332 1,152 180 1,800 -188 1,800 0 948
MAR 1,536 1,248 288 1,800 -144 1,800 0 1,192
5,160
BUDGETED CASH FLOW Cash sales Debtors Month following Remaining Cash inflow
JAN 960 900 720 180 1,860
FEB 1,040 1,332 1,152 180 2,372
MAR 1,200 1,536 1,248 288 2,736
Cash outflow Creditors Salaries Variable expenses Fixed expenses Capital repayments Month surplus (deficit) Bank: Beginning Bank: End Min bal required Loan/Investment req Existing loan/invest Month end loan bal
2,500 1,440 330 240 400 90 -640 100 -540 100 -640 -20 -660
2,660 1,560 350 260 400 90 -288 100 -188 100 -288 -660 -948
2,980 1,800 390 300 400 90 -244 100 -144 100 -244 -948 -1,192
-6.6000
-9.4800
-R 11.9200
Interest on inv/loan
©
3,768
4,800
270
-28.00
FLYNN D K: UNDERSTANDING FINANCE AND ACOUNTING: 2ND EDITION: SUGGESTED SOLUTIONS
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(b) BUDGETED INCOME STATEMENT OF LEKTRON WHOLESALERS Sales Cost of sales Gross margin Operating Expenses Salaries and wages Variable expenses Fixed expenses Depreciation Profit before interest Net Interest Net Profit after Interest
60.0% 40.0%
JAN 2,400 1,440 960 980 330 240 400 10 -20 6.600
FEB 2,600 1,560 1,040 1,020 350 260 400 10 20 9.480
MAR 3,000 1,800 1,200 1,100 390 300 400 10 100 11.920
Total 8,000 4,800 3,200 66.7% 3,100 1,070 800 1,200 30 100 R 28.0000 R 72.0000
(c)
BUDGETED BALANCE SHEET OF LEKTRON WHOLESALERS 31 DEC 20.6 Shareholders’ equity Store capital Retained profit for the quarter
800 300 500 800 100 150 50 700 800 300 400 100 100 80
872 300 572 872 340 420 80 532 2,192 660 1,432 100 1,660 440
20
1,220
800 Liquidity is set to improve while profitability will stabilise
872.00
Fixed assets Fixed assets Less: Depreciation Net working capital Current assets Inventory [Op+COS-Cl] Debtors [Op+CrSls-Pay] Cash Current liabilities Creditors [Op+COP-Pay] Loan/investment (d)
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31 MAR 20.7
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9.25
GILDER ELECTRONICS LTD (a) GILDER ELECTRONICS LTD Projected Sales
Cash sales Credit sales Purchases
Cost of sales Salaries Variable Expenses Fixed expenses Depreciation
240,000 480,000 320,000 SALES BUDGET
380,000
220,000
April May 40% 192,000 128,000 60% 288,000 192,000 480,000 320,000 50% 160000 190000 OPERATING BUDGET ITEMS
June 152,000 228,000 380,000 110000
Total 472,000 708,000 1,180,000 460,000
April
May
June
Total
160,000 15,000 16,000 25,000 3,000
190,000 15,000 19,000 25,000 3,000
50% 240,000 F 15,000 5% 24,000 F 25,000 F 3,000
590,000 45,000 59,000 75,000 9,000
WORKING CAPITAL BUDGET Debtors Previous month Previous 2 month Inventory Bank Trade Creditors Other Creditors Short-term loan
60% 40%
50%
April 124,800 86,400 38,400 160,000 -2,200 160,000 0
May 230,400 172,800 57,600 190,000 140,200 190,000 0
June 230,400 115,200 115,200 110,000 273,600 110,000 0
460,000
BUDGETED CASH FLOW
©
Cash sales Debtors Month following Remaining Cash inflow
April 192,000 124,800 86,400 38,400 316,800
May 128,000 230,400 172,800 57,600 358,400
June 152,000 230,400 115,200 115,200 382,400
Cash outflow Creditors Salaries Variable expenses Fixed expenses Capital repayments Month surplus (deficit) Bank: beginning Bank:end
304,000 240,000 15,000 24,000 25,000 0 12,800 -15,000 -2,200
216,000 160,000 15,000 16,000 25,000 0 142,400 -2,200 140,200
249,000 190,000 15,000 19,000 25,000 0 133,400 140,200 273,600
585,600
590,000
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(b) BUDGETED INCOME STATEMENT OF GILDER ELECTRONICS Sales Cost of sales Gross margin Operating Expenses Salaries and wages Variable expenses Fixed expenses Depreciation Profit before interest
April 480,000 240,000 240,000 67,000 15,000 24,000 25,000 3,000 173,000
May 320,000 160,000 160,000 59,000 15,000 16,000 25,000 3,000 101,000
June 380,000 190,000 190,000 62,000 15,000 19,000 25,000 3,000 128,000
Total 1,180,000 590,000 590,000 188,000 45,000 59,000 75,000 9,000 402,000
(c)
BUDGETED BALANCE SHEET OF GILDER ELECTRONICS 31 MAR 30 JUNE 20.5 20.5 Shareholders’ equity 439,000 841,000 Store capital 200,000 200,000 Retained profit for the quarter 239,000 641,000 Long Term Loan 0 0 439,000 841,000 Fixed assets 350,000 341,000 Fixed assets 400,000 400,000 Less: Depreciation 50,000 59,000 Net working capital 89,000 500,000 Current assets 369,000 650,000 Inventory [Op+COS-Cl] 240,000 110,000 Debtors [Op+CrSls-Pay] 144,000 266,400 Cash -15,000 273,600 Current liabilities 280,000 150,000 Creditors [Op+COP-Pay] 280,000 150,000 439,000 841,000 (d) The liquidity issue is that the company is becoming a "cash cow" and the surplus cash needs to be milked and returned to the shareholders in the form of a special dividend, or new expansion projects need to be initiated in order to generate a return on the cash that is lying idle.
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9.26
AL ARABIQUE REFINERIES Al Arabique Refineries Inc CASH BUDGETS FOR THE QUARTER ENDED 31 MARCH January February CASH INFLOWS Cash sales 108,000 144,000 Card sales 144,000 72,000 Loan repayment Investment income 4,900 4,900 Total receipts 256,900 220,900 CASH OUTFLOWS Previous month creditors 67,500 90,000 Current month creditors 90,000 78,750 Salaries 21,600 28,800 Other expenses 18,000 24,000 Repayment of short-term loan Repayment of long-term loan 4,000 Payment on refrigerator 12,000 12,000 Staff bonus 52,500 Company tax Total payments 253,600 236,550 ANALYSIS OF CASH REQUIRED Opening cash balance 28,700 32,000 Net cash flow for the month 3,300 -15,650 Ending cash balance 32,000 16,350 Minimum cash balance 20,000 20,000 Cash surplus (Deficit) 12,000 -3,650
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March 126,000 96,000 6,000 4,900 232,900 78,750 90,000 25,200 21,000 3,000 4,000
14,000 244,950 16,350 -12,050 4,300 20,000 -15,700
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