1.Produce your budget for the year to 31st January 2022 using the format given in the appendix below.
2.Comment on the behaviour of sales and costs during the year to 31st January 2021. You should describe how sales and costs have fluctuated over the financial year and provide an explanation as to why you think they have behaved in this way.
Trendfitters Ltd is a small company that manufactures and sells only one product; a standard face mask for the construction industry. During the last financial year, which ended on 31st January 2021, sales considerably exceeded budget due to increased demand from the general public as a result of Covid-19. Trendfitters Ltd supported this increased demand by selling masks online (which they had not previously done) and this incurred additional costs for the company to employ staff to administer and deliver the online sales. You are the management accountant at Trendfitters Ltd and you have been asked to prepare the budget for the year to 31st January 2022. You have collected the following data related to the operations of the business for the year to 31st January 2021; Month Normal Sales Normal variable costs Normal fixed costs Online Sales Online variable costs Online fixed costs ('000s) ('000s) ('000s) ('000s) ('000s) ('000s) February 2020 587 290 75 0 0 0 March 2020 203 98 78 0 0 0 April 2020 196 112 78 63 32 24 May 2020 312 168 52 272 142 32 June 2020 426 236 51 312 175 28 July 2020 301 178 56 261 141 28 August 2020 312 181 63 107 53 26 September 2020 720 384 81 97 49 34 October 2020 890 492 76 92 51 29 November 2020 759 391 72 241 136 37 December 2020 512 267 75 366 201 32 January 2021 671 383 82 326 168 34 Normal sales and costs relate to those customers who have regularly traded with Trendfitters Ltd, whilst online sales and costs relate to the new business that has been generated due to the additional Covid-19 demand. The company has some general ideas about future economic conditions in their market place, but these are particularly uncertain given the continuing issues relating to Covid-19. The firm anticipates that general price inflation will be 2.5% but that if demand for online masks continues at current levels then these products will be sold at a 10% higher selling price than in the year to 31st January 2021. The company expects the construction industry to grow by about 15% in the next year, although this may be lower if strict Covid-19 restrictions are imposed during the year. The Board of Directors has indicated that it would like the firm to achieve a net profit margin of at least 35% in the year to 31st January 2022. The CEO has expressed an expectation that the company will build a new display area in its existing premises to promote normal sales over the next five years at a total cost of 250,000. Requirements you The company has asked to make a presentation to the staff liaison committee which consists of a wide range of employees from the business, most of whom have little understanding of accounting terminology or practices. You are required to prepare but not to deliver a Powerpoint presentation to the committee that shows your budget for sales, variable costs and fixed costs for the financial year to 31" January 2022. Appendix You should use the following format for the presentation of your budget; Year to January 2022 Sales Variable costs Fixed costs Profit ('000s) ('000s) ('000s) ('000s) Normal business Online business Total
