BUDGETING (40 marks)

Sparkle Toothbrushes make plastic toothbrushes in a variety of colours which they sell through large supermarket chains. The following is an extract from Sparkle toothbrushes budgeted income statement

Nov Dec Jan Feb Mar 000 000 000 000 000 Sales 150 160 150 220 240 Less Purchases * 90 96 90 132 144 Gross Profit 60 64 60 88 96 Less expenses: Wages 20 22 20 28 30 Selling and Admin 12 12 12 12 12 Rent 6 6 6 6 6 Depreciation 3 3 3 3 3 Bad debts 2 2 5 8 10 Net profit 17 21 14 39 45

This figure is equal to the cost of goods sold; there is no opening or closing inventory (assume JIT inventories management)

Additional Information:

Wages are payable 1 month in arrears.

Selling and Administration costs are payable monthly.

Rent is 72,000 per annum payable quarterly in advance.

Customers pay in the month following sale.

Suppliers are paid two months after purchase.

The bank overdraft is expected to be 100,000 at the end of December.

Depreciation on machinery is to be 3,000 per month.

Bad debts vary per month depending on sales.

4d) Compile a cash budget for the months of January, February and March. You should clearly show the bank balance at the end of each month. (16 marks)

You may need to create tables for your workings for sales and/or purchases. You should set this up in EXCEL and practice copying and pasting.

Jan Feb Mar 000 000 000 RECEIPTS: PAYMENTS: NET CASH FLOWS OPENING BANK CLOSING BANK

4e) Show the effect on the forecast if 50% of customers pay one month late (6 marks)

Jan Feb Mar 000 000 000 RECEIPTS: PAYMENTS: NET CASH FLOWS OPENING BANK CLOSING BANK