Question

Kalistos Shoes has been in existence for the past three years. It was formed to buy leather and process them to the specific needs of the customers. The business has fixed assets costing $350,000. The fixed assets are expected to have a five-year life with $5,000 residual value at the end of that time.

Sales were forecasted at 7000 units for the first two months with 15% increase month on month for the rest of the year.

The selling price of each unit will be $60 for the first four months with a 20% increase for the two months after.

The cost of production of each unit is specified as follows:

	$
Cost of leather purchased	20
Direct Labour	16
Fixed Overhead	12
	48

The fixed overhead per unit includes an allocation of depreciation. The annual depreciation is calculated on a straight-line basis and is allocated on monthly basis.

Suppliers allow for a month’s credit for 45% of each month’s purchase with the remaining paid in the month of purchase. Customers are expected to pay 50% in the month of sale and the remaining will be received in the following month whilst 2% of the total sales amount is expected to go bad.

Wages are paid as they are incurred in production. Fixed overhead costs incurred are paid a month later.

The stock of finished goods at the end of each month will be sufficient to satisfy 15% of the planned sales of the following month. The stock of leather at the end of each month remains constant. It may be assumed that, the year is divided into months of equal length and that, sales, production and purchases are spread evenly throughout any month.

You are required to prepare for six months of trading next year:

1. Sales Budget
2. Production Budget
3. Schedule of receipts from debtors
4. Schedule of payments to suppliers
5. Cash Budget

Answer 1

Sales Budget Months B 3 4 5 6 7 8 Forecasted Sales unit 7000! 7000 8050 14081 16193 9258 10647 12244 15% increase every month 1389 1597 1837 Opening Inventory 1050 1208 2112 2429 1050 15% * 7000 (sales of 1st month ) 1050 Closing Inventory 2112 2429 2793 1208 1389 1597 1837 15% of sales of following month Prduction 7000 7158 8234 12519 14398 16557 8231 9466 10887 Closing + Sales- Opening Material Cost per unit 20 20 20 20 20 20 20 20 Total Material Cost 140000 250380 287960331140 143160 164620 189320 217740 Material cost per unit * production Payment to Suppliers Cash Credit (45%) 77000 63000 78738 64422 90541 74079 104126 85194 119757 97983 137709 112671 158378 129582 182127 149013

Selling Price per unit 60 60 60 60 72 72 72 72 Revenue 420000 881568 1013832 1165896 420000 483000 555480 766584 Sales units * Selling Price per unit Receipt from Customer cash Credit (50%) 210000 210000 210000 210000 241500 241500 277740 277740 383292 383292 440784 440784 506916 506916 582948 582948 Schedule for Receipt from Debtors Cash Receipt Bad Debts 210000 8400 210000 8400 241500 277740 9 660 11110 2% of total sales 383292 15332 440784 506916 1763120277 582948 23318 Credit Receipt 0 201600 201600 231840 266630 367960 423153 * assuming there were no debtors 486639 at the end of previous month of 1 st month Credit sales of last month- bad debts of last month Total Cash Receipt 210000 411600 443100 509580 649922 808744 930069 1069587

Schedule for Payment to Creditors cash 77000 78738 90541 104126 119757 137709 158378 182127 Credit payment* * assuming there were no creditors at the end of previous month of 1 st month 0 63000 112671 129582 64422 7407985194 97983 Creditors of last month paid Total cash payment 77000 141738 154963 178205 204951 235692 271049 311709 84000 85896 98772 113592 130644 150228 172776 198684 Fixed Overheads (production * 12 ) Depreciation per month ( 350000-5000)/ (5*12) Fixed Overheads excluding depreciation 5750 78250 5750 80146 5750 93022 5750 107842 5750 124894 5750 144478 5750 167026 5750 192934 Payment of Fixed Overheads 78250 80146 93022 107842 124894 144478 * assuming there were no Fixed 167026 Overheads outstanding at the end of previous month of 1 st month payment of last months Overheads

Cash Budget Opening Balance 0 21000 98084 174379 261276 424213 * assuming there were no cash at 672067 956241 the end of previous month of 1 st month 930069 1069587 210000 411600 443100 509580 649922808744 Debtors Less Creditors Direct labour production * 16 ) Fixed Overheads 77000 112000 141738 114528 78250 154963 131696 80146 178205 151456 93022 204951 174192 107842 235692 200304 124894 271049 230368 144478 311709 264912 167026 Closing Balance 21000 98084 174379 261276 424213 672067 956241 1282181