Question 1: Metropolitan Furniture
Peter works in the accounts unit of the Metropolitan Furniture Manufacturing.
asked to prepare a proposed budget for the forthcoming quarter.
He consults with the sales
manager and finds that:
Estimated sales are as follows:
In consultation with the production manager he estimates that the cost of goods sold is to
be budgeted at 45% of the sales figure.
The salaries are expected to be $65,000 per month.
When sales exceed $260,000 in any one month, the sales team is entitled to an additional
5% commission on the excess sales over this figure. Other expenses are estimated to be
$35,000 per month.
The owner of the organisation is concerned about the cash flow which was not thought of
before. The owner is of the opinion that the collection of cash from sales is slow and this
could possibly lead to cash flow problems to the organisation.
As Peter has never forecasted
cash flow before he sets about collecting information on this.
Peter estimates that 80% of the total sales are going to be cash sales where the bill is settled
when the goods are purchased or delivered.
10% of the month’s sales settle the accounts
owed in the month following sales.
Others (i.e. 10% of the month’s sales) settle in the
Additional information for Cash Flow Statement:
The organisation gets a month’s credit on its purchases.
That is, the accounts for the
purchases (COGS) made in one month is settled in the following month.
All salaries are paid in the month as they are incurred.
The additional commission is paid in the month after the month in which it was earned.
Other expenses are paid in the month they were incurred.
The bank balance at the beginning of the first month is estimated to be $40,000.
Show the profit and loss calculations for the April, May and June
Show the cash flow projection calculations for April, May and June
What Peter is required to advise the owner of the organisation?
Will the business adequate financial provision to pay tax? Why?
If the cash flow statement and the P & L are productive, then what are the relevant people
Peter needs to communicate if he establishes a business plan?