9 Forecasting,

(a) Explain briefly why forecasting is a very important part of the planning and control process, and

(b) what information should be considered when producing a sales forecast.

10 Forecast financial statements. As a preliminary financial planning exercise for Icarus Publications you have been asked, making any assumptions you consider relevant, to prepare, for the coming financial year, a forecast profit and loss account and balance sheet. The financial statements for the financial year just ended are as follows:

Icarus Publications Profit and Loss Account for year ended 31 December Actual £m Sales 44.44 Cost of sales 28.89 Gross profit 15.55 Operating expenses 6.67 Depreciation 1.38 Operating profit 7.50 Interest 0.06 Profit before tax 7.44 Taxation 2.23 Profit after tax 5.21 Dividends 1.04 Retained profits for the year 4.17 Icarus Publications Balance Sheet as at 31 December Actual £m Fixed assets 5.55 Current assets Stocks 3.21 Debtors 5.56 Cash 0.44 9.21 Current liabilities Creditors 5.06 Taxation 2.23 Dividends 1.04 Net current assets 0.88 Total assets less current liabilities 6.43 Non-current liabilities Term loan 0.50 5.93 Capital and reserves Called up share capital 2.53 Profit and loss account 3.40 5.93 You have also been informed of the following:
1. Sales for the coming year have been estimated at £50 million. All sales are on credit.
2. Depreciation is calculated on a straight line basis. The balance sheet value of fixed assets at the beginning of the year was £6.93 million.
3. The interest rate on the term loan is fixed and no repayments of principal are planned during the year.
4. No changes in dividend policy or taxation rates are envisaged.
5. Assume a 360 day year.