Sweet Cupcake (SC)

Luis and Jose have set up a partnership, baking and selling cupcakes directly to consumers and supermarkets. They called the business Sweet Cupcake (SC). They used their savings of $2000 as starting capital. The partners need an overdraft agreement from the local bank. The bank manager asked for a cash-flow forecast.

Luis has forecasted the following sales and cost figures for the first six months of operation, beginning in January.

Sales

• Average selling price of one cupcake: $6.
• Sales of cupcakes: 1300 cupcakes in January and 1700 cupcakes per month from February.
• 70 % of customers who purchase cupcakes will pay in cash. The supermarkets will buy the remaining 30 % of cupcakes on credit and pay one month later.

Costs

• Rent: $5500, payable at the start of each quarter.
• Labour costs: $750 per month.
• Raw materials: 50 % of sales revenue per month, paid in cash.
• Overheads: $400 per month, paid in cash.

Questions:

(a) Prepare a monthly cash-flow forecast for SC for the first six months of operation.