Farah, a young graduate of Neoma BS, and Julien, a dynamic, self-taught young man, have decided to create Bioticrem, a company producing a day cream for the face, made only from organic ingredients. This cream will initially be marketed exclusively via the Internet. This is September N-1. The company will be created in December N-1 but will start its activity on 1/1/N.

Organisation of the company :

The company will be organised into two main functions: - Production and associated purchasing - Sales and administrative management. Farah plans to focus mainly on administrative functions, managing the website and customer orders, and shipping products to customers. Julien will focus on the purchasing of raw materials and the production of cream, packaged in tubes. Farah and Julien are each contributing 2,000 of capital, for a total of 4,000. In addition, their families and friends are lending them 10,000 at zero interest, repayable at 500 per month from the 13th month of activity (January N+1). They have also obtained a bank loan of 12,000 repayable over 3 years. All of these funds will be available in the company's bank account in December N-1.

The fixed assets needed to start the business cost 24,000. They will be purchased in December N-1 and depreciated on a straight-line basis over 5 years from the time they are put into service, i.e. officially on 1 January N. They will be paid for 50% in January N and 50% in April N.

To be able to start the activity at the very beginning of January, Julien has also planned to buy 300 worth of raw materials. The suppliers of these raw materials will be paid in January N.

For simplification purposes, the fixed assets acquired in December and the purchases of raw materials constituting the initial stock are considered to be exempt from VAT.

In view of this information, the balance sheet as at 1 January N will be as follows

ASSETS LIABILITIES Gross fixed assets - Depreciation 24 000 0 Capital Loan from family and friends Bank loan Supplier of fixed assets Suppliers of raw materials 4 000 10 000 12 000 24 000 300 Net fixed assets Raw materials stock Bank 24,000 300 26 000 50 300 50 300

Farah, who is particularly overloaded because of the start-up of the company, has contacted you to help her produce a forecast for the first quarter of the year. More specifically, she asks you to present : - the budgets of the two functions (commercial and administrative function, production and purchasing function) monthly for the first quarter N, providing all the necessary explanations on the necessary upstream calculations; - the financial summary of the budgeting for the first quarter N.

General data :

Employers' social charges represent 40% of gross salaries. Employee social charges represent 20% of gross salaries. All social charges are paid in the month following the one they concern.

The VAT rate is 20%. For simplicity, "miscellaneous commercial and administrative expenses" (see below) and "other manufacturing expenses" (see below) are considered to be exempt from VAT. All other external purchases during the quarter are subject to VAT. If there is a VAT credit (negative VAT payable), this is to be deducted from the VAT payable of the following months until the VAT credit is exhausted.

The data in the text are all given exclusive of tax.

Cash receipts and payments are made on a cash basis, unless specifically stated otherwise in the statement.

Commercial and administrative function :

Farah plans a gradual start to sales:

January February March Number of tubes 300 400 650

The selling price is 15. Customers pay cash.

Farah accepts a low salary for the first year, i.e. 1,700 gross per month.

Of the fixed assets purchased in December N-1, 40%, i.e. 9,600, are dedicated to the commercial and administrative function. They are depreciated on a straight-line basis over 5 years from the date they were put into service, in January N.

Miscellaneous commercial and administrative expenses represent 600 per month.

The loan taken out in December N-1 generates constant monthly payments of 350 per month, with 26 of interest in January, 25 in February and 24 in March N.

Production of tubes of cream and purchase of raw materials:

Like Farah, Julien agrees to receive a gross salary of 1,700 per month in the first year.

As the business only starts in January N, there is no initial stock of finished product (the tubes filled with cream). Julien then wishes to have a safety stock of 100 tubes of cream from the end of January, which he wishes to maintain at this level throughout the quarter. The stock of cream tubes is valued at a unit cost of 12 (corresponding to the standard production cost).

A machine for printing the tubes will be purchased at the beginning of January for 4,800. It will be depreciated on a straight-line basis over 4 years. It will be paid for half in January and half in April. The printing time for a tube is 5 minutes and Julien will be able to run the machine for a maximum of 50 hours per month. Beyond 50 hours, Julien would use a subcontractor who would charge 2 for the printing of a tube. This subcontractor would be paid on a monthly basis.

Before the purchase of the printing machine, the depreciation of the fixed assets of the production function amounts to 240 per month.

Consumption of raw materials (cream ingredients, empty tubes, etc.) amounts to 4 per tube of cream, whether the tubes are printed in-house or subcontracted (if the subcontractor is used to print the tubes, Bioticrem would supply the tubes to the subcontractor). The company always aims to have a stock of raw materials at the end of the month representing 25% of the planned production for the following month. The planned production for April is 800 tubes. It is assumed that the purchase costs are negligible and that the raw material stocks can therefore be valued at the purchase price of the raw materials.

Raw material suppliers are paid with a one-month delay.

Other manufacturing costs (energy for the machines, water, various consumables) represent 0.50 per tube of cream produced.