Leaving Cert Accounting BUDGETING - Cash: Din Ltd, a successful retailer i

Question

Din Ltd, a successful retailer is planning to open a new store in a new shopping centre in Cork on 01/07/2012 and has made the following forecast for the first six months of trading:

Sales

| Month | €       |
|-------|---------|
| July  | 520,000 |
| August| 630,000 |
| September | 660,000 |
| October | 800,000 |
| November | 1,050,000 |
| December | 1,750,000 |

Purchases

| Month | €       |
|-------|---------|
| July  | 220,000 |
| August| 240,000 |
| September | 270,000 |
| October | 280,000 |
| November | 360,000 |
| December | 1,750,000 |

(i) The expected selling price is €50 per unit.

(ii) The cash collection pattern from sales/debtors is expected to be:

Cash Customers
40% of sales revenue will be for immediate cash and cash discount of 5% will be allowed.

Credit Customers
60% of sales revenue will be from credit customers. These debtors will pay their bills 50% in month after sale and the remainder in the second month after sale.

(iii) The cash payments pattern for purchases is expected to be:

Credit Suppliers
The purchases will be paid for 50% in the month after purchase when a 2% cash discount will be received.
The remaining purchases will be paid for in the second month after purchase.

(iv) Expenses of the business will be settled as follows:

Expected Costs
Wages €50,000 per month payable is incurred.
Variable overheads €10 per unit payable as incurred.
Fixed overheads (including depreciation) €60,000 per month payable as incurred.

Capital Cost
Equipment costing €54,000 with an estimated useful life of 5 years and no residual value will be purchased in July. This will be partially financed by a loan of €24,000 repayable in 2 years commencing on 1 August. The interest for the first month will be charged based on the amount of the loan outstanding that month.

Required:
(a) Prepare a cash budget for six months July to December 2012.
(b) Prepare a budgeted profit and loss account for the six months ended 31/12/2012.
(c) What factors should be taken into account by Din Ltd in arriving at the expected sales of €3,600,000 for the six months of 2012?

Month	Cash Sale Receipts (€)	Credit Sales (1 Month) (€)	Credit Sales (2 Months) (€)
July	197,600	0	197,600
August	205,000	156,000	0
September	231,800	0	361,200
October	239,200	0	549,600
November	332,000	0	584,400
December	631,000	0	0

Month	Purchases (1 Month) (€)	Purchases (2 Months) (€)	Wages (€)	Variable Overhead (€)	Fixed Overhead (€)	Equipment (€)	Loan Instalment (€)	Interest (€)
July	107,800	0	50,000	10,000	60,000	54,000	0	0
August	117,600	107,800	50,000	10,000	60,000	0	2,000	200
September	132,300	117,600	50,000	10,000	60,000	0	2,000	200
October	137,000	132,300	50,000	10,000	60,000	0	2,000	200
November	180,000	137,000	50,000	10,000	60,000	0	2,000	200
December	875,000	0	50,000	10,000	60,000	0	2,000	200

Month	Net Cash (€)	Bank Loan (€)	Opening Balance (€)	Closing Balance (€)
July	(69,440)	48,000	(21,740)	0
August	34,470	0	0	34,470
September	88,810	0	196,000	280,810
October	94,790	0	299,790	394,580
November	130,610	0	394,580	525,190
December	476,290	0	525,190	1,001,480

Description	€
Sales	3,600,000
Less Cost of Sales
- Purchases materials	1,750,000
- Labour	300,000
- Variable Overhead	720,000
- Fixed Overhead	60,000

Gross Profit	475,400

Less Operating Expenses
- Depreciation – Equipment	5,400
- Fixed Overhead Discount	72,000

Net Profit	410,410

Prepare a cash budget for six months July to December 2012.

Cash Budget July to December

Receipts

Payments

Net Cash

Prepare a budgeted profit and loss account for the six months ended 31/12/2012.

Budgeted Profit & Loss Account

What factors should be taken into account by Din Ltd in arriving at the expected sales of €3,600,000 for the six months of 2012?

Factors to Consider for Expected Sales

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