the

CASE STUDY :

The management board of an organization want to start a project that can generate income in order to get a better financial position and better quality of services it is rendering to the community. The Board of Directors asked you to help in sitting an operating budget including a cash budget for the six months ending 31/12/2018. The Board of Directors has promised to secure $100,000 for this project if it proves to be profitable.

Their accountant gathered theses data:

• $100,000 is expected to be secured by the Board of Directors and the project will start on 1/7/2018.
• A building will be rented at an annual rent fee of $24,000. It is expected that the rent of the first three months will be paid in advance.
• Equipment will be purchased for $79,200. 50% will be paid at the time of purchase i.e. in July 2018 and 50% in October 2018. The estimated useful life of this equipment is 4 years.
• It is expected that utilities will be $5,000 per quarter payable at the beginning of the following quarter.
• Furniture will be purchased for $4,080 in July 2018. The estimated useful life of this equipment is 2 years.
• A vehicle will be purchased for $8,160 in July 2018. Annual insurance is $1,500 payable in July 2018. The estimated useful life of the vehicle is 4 years.
• It is estimated that raw materials usage will average $25,000 monthly. It is also estimated that purchases of raw materials will be $50,000 in July 2018, $60,000 in September 2018, and $60,000 in November 2018.
• It is expected that the payment of supplies will be made in the month following the purchase.
• Salaries are expected to be $2,000/month for the first quarter and $3,000 per month for the second quarter.
• Other operating expenses are estimated at $2,500 per month.
• Market analysis showed the following sales estimates. Sales will be on credit with collections after 2 months of sales.

	July 16	Aug 16	Sept 16	Oct 16	Nov 16	Dec 16
Estimated Sales in $	0	20,000	30,000	50,000	100,000	100,000

*** you were asked to Prepare in good form

a. A profit and loss budget for the 6 months ending 31/12/2018.

b. A balance sheet budget as at 31/12/2018

c. A cash flow budget for the 6 months ending 31/12/2018.

d. As a Board of Director Member would you approve to fund the project. Why?