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Presentation/PPT
27/08/2022
Question 1: Metropolitan Furniture (10 mark)
Peter works in the accounts unit of the Metropolitan Furniture Manufacturing. He was asked to prepare a proposed budget for the forthcoming quarter. He consults with the sales manager and finds that:
Estimated sales are as follows:
February $265,000 April $290,000
March $255,000 May $250,000
June $280,000
In consultation with the production manager he estimates that the cost of goods sold is to be budgeted at 45% of the sales figure. The salaries are expected to be $65,000 per month. When sales exceed $260,000 in any one month, the sales team is entitled to an additional 5% commission on the excess sales over this figure. Other expenses are estimated to be $35,000 per month.
The owner of the organisation is concerned about the cash flow which was not thought of before. The owner is of the opinion that the collection of cash from sales is slow and this could possibly lead to cash flow problems to the organisation. As Peter has never forecasted cash flow before he sets about collecting information on this.
Peter estimates that 80% of the total sales are going to be cash sales where the bill is settled when the goods are purchased or delivered. 10% of the months sales settle the accounts owed in the month following sales. Others (i.e. 10% of the months sales) settle in the month after.
Additional information for Cash Flow Statement:
The organisation gets a months credit on its purchases. That is, the accounts for the purchases (COGS) made in one month is settled in the following month.
All salaries are paid in the month as they are incurred. The additional commission is paid in the month after the month in which it was earned. Other expenses are paid in the month they were incurred. The bank balance at the beginning of the first month is estimated to be $40,000.
1. Show the profit and loss calculations for the April, May and June
2. Show the cash flow projection calculations for April, May and June
3. What Peter is required to advise the owner of the organisation?
4. Will the business adequate financial provision to pay tax? Why?
5. If the cash flow statement and the P & L are productive, then what are the relevant people Peter needs to communicate if he establishes a business plan?
6. If the P & L showing good profit trend and the forecasted cash flow statement returns positive results, then marketing and operational departments may tend to expand their budget and therefore the business may have cash shortage in future. How Peter can monitor financial performance on a continuous basis?
7. Does Peter require advising the owner about any immediate change in the financial plan? Why?
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