Solved by verified expert :Angelo Diaz has decided to go into business selling colourful
scarves which are popular among university students. He will operate the
business out of a flea market, mostly on weekends. He is trying to get
himself organised for the start of the first quarter. In order to do so,
he will have to prepare a few budgets. Use the following information to
help him achieve his goal.
Angelo estimates expected sales for January
to be £800, February £1200, March £2000 and April £3,000. Gross profit ratio is
0.4. Sixty percent of the next month’s sales should be kept in ending
finished goods inventory.
Angelo has decided to pay himself a monthly
salary of £150. He will pay his best friend £60 to help him with miscellaneous
errands. He estimates that general operating costs will be £130 monthly. In
addition, since his cousin is the owner of the flea market, he will only pay
£100 per month in rent. Upgrading of the space will cost £500, of which £200
will be paid in January and £300 in February. All other costs must be paid for
as incurred. He will begin January with £400 in the bank. Forty percent of
sales are paid for in cash. The rest is put on credit: 5% of credit sales will
not be received, 30% will be paid in the month of sale and 10% of those who pay
in the month of sale will qualify for a 20% discount. Another 20% will be
received the month following the sale and 5% the second month following the
sale.
Thirty percent of the payments for
merchandise are made in the month of purchase and the remaining 70% are made in
the month following the purchase.
Interest is charged at a rate of 24% per year and payments of interest only are
due at the end of each quarter. All loans are borrowed at the very beginning of
the month and payments are made at the very end of the month. Angelo must
maintain a minimum cash balance of £1,000.
Complete the following:
Help Angelo by completing the following:
Prepare a schedule of cash receipts for the first quarter.
Prepare a schedule of inventory purchases for the first
quarter.
Prepare a schedule of cash disbursements for the first
quarter.
Prepare a cash budget for January and February.
How much interest is owed on February 28?
Hand-in Assignment Question
The income statement for ABC’s 2012 fiscal
year is presented below. ABC manufactures one type of street lamp used on
municipal roads.
Sales
2,400,000
Variable cost of goods sold
1,680,000
Variable sales commissions
120,000
Contribution margin
600,000
Selling expense
105,000
Sales commissions expense
48,000
Administrative expense
212,000
Net income
235,000
Variable costs per unit are £6.
Complete the following:
Please note:Round all answers to two decimal places.
Calculate break-even in pounds.
Calculate break-even in units.
Calculate break-even in pounds if the sales price increases by
10% and fixed costs increase by £12,000.
Calculate break-even in pounds if total sales increases by 10%
and fixed costs increase by 10%.
Calculate sales (in pounds) to achieve £600,000 after tax. (Note:Thetax
rate is 40%.)
