PGBM 01 Financial Management & Control Additional Question

By

Andy Turton.

andy.turton@sunderland.ac.uk

Calculate the cash receipts for February & March. (Remember 75% of sales are for cash, 25% are on one month’s credit)

Establish what the cost of sales is for each month. (Remember purchases are sold at cost plus 33.33%)

Calculate the closing stock at the end of December, January & February – these are the only months we need (Closing stock is calculated as 50% of next months sales and should be based on cost price)

Calculate the purchases budget for January & February as purchases of one month are paid in full the next month (Calculation used is Closing Stock + Cost of Sales – Opening Stock = Purchases)

Develop the Cash Budget for February & March

Suggested tips to answering the question

Cash Receipts in February

£

75% of February Sales (cash) 75% x 60,000 45,000

25% of January Sales (credit) 25% x 40,000 10,000

55,000

Cash Receipts in March

75% of March Sales (cash) 75% x 160,000 120,000

25% of February Sales (credit) 25% x 60,000 15,000

135,000

Sales Calculations

According to the question, the mark-up is 33.33%. This means that:

Sales 4

Less: Cost of Sales 3

Profit 1

So cost of sales represents 75% of sales value.

Closing Stock is calculated as follows : (50% of next months sales)

For December = 50% x £40,000 x 75% = £15,000 (will be opening stock for Jan)

For January = 50% x £60,000 x 75% = £22,500(will be opening stock for Feb)

For February = 50% x £160,000 x 75% = £60,000

Purchases Calculations

Purchases Budget

January February

Closing Stock £22,500 £60,000

Add : Cost of Sales £30,000 £45,000

£52,500 £105,000

Less : Opening Stock £15,000 £22,500

Purchases £37,500 £82,500

According to the question, purchases of one month are paid in full in the next month. Therefore, purchases in January (£37,500) will be paid in February, and purchases in February (£82,500) will be paid in March.

Purchases Calculations (cont.)

February (£) March (£)

Receipts:

Cash Sales 45,000 120,000

Debtors 10,000 15,000

55,000 135,000

Payments:

Creditors 37,500 82,500

Wages 3,000 5,000

Expenses 2,000 4,000

Purchase of Equipment 18,000

Dividend 20,000

Total Payments 60,500 111,500

Cash Surplus/ (Deficit) (5,500) 23,500

Opening Balance 1,000 (4,500)

Closing Balance (4,500) 19,000

Cash Budget