All sales are to customers within the
UK and the sales manager predicts sales for 2020 to be 450,000 products. The
sales are seasonal and the sales manager is optimistic that sales will grow at
2% per annum for the next five years. The selling price is expected to remain
at £35 per item.
Cost of sales includes direct labour
wages and raw materials and packaging. The swimsuits are distributed to central
warehouses and then delivered using a postal delivery service to customers.
Estimated shipping and distribution
costs in 2020 are £2 per unit. These costs are expected to inflate by 4% per
annum.
Raw material prices are expected to
increase 2% year on year.
Packaging costs are £1 per unit.
Packaging costs are expected to increase by 1% year on year.
The fixed lease for the premises of
£650,000 expires on 30th June 2021. A new 5 year lease has been
agreed at a price of £700,000 p.a. The rent is paid quarterly in advance.
Utility costs to inflate by 5% p.a.
Wages to increase by 3% p.a. and
salaries by 4% p.a.
All other overheads are expected to
increase in-line with UK inflation of 3% p.a.
Corporation tax is charged at the
rate of 20% on operating profits. The company pays tax for the 12 month period
in 4 quarterly instalments paid on the 14th day of July, October,
January and April for each 12 month reporting period to 31st
December. For the year to 31st December 2020, two payments have
already been made in July and October 2020 a further £157,125 corporation tax
for the year to 31st December is due, payable in equal instalments
in January and April 2021.
The business pays a 8% dividend
based on the profit of the previous year with a minimum guaranteed distribution
of £45,000 p.a. The dividend is paid in April each year.
There is a planned upgrade to the
online sales system to start in September 2021, there will be an initial
payment of £600,000 followed by three equal payments of £200,000 in the months
October to December.
Depreciation costs will increase by
30% in 2021 and will continue to increase by 5% p.a. in following years.
The opening cash balance at the
beginning of 2021 was £135,000.
Retained earnings were £560,000 at
the beginning of 2020.
Information relevant to the preparation of the 12 month
detailed 2021 Cash Forecast:
Sales are collected 25% in the
current month and 74.5% the month after, the remaining 0.5% relate to
uncollectable bad debts.
It is company policy to maintain
finished goods stock at 25% of the following month’s requirement. The opening
stock of finished goods is estimated at 4,500 units at the beginning of
November 2020. Each unit requires 1.25 metres. of material at a present cost of
£14 per metre. Raw material stocks are maintained at 10% of the following
month’s requirements. Opening raw material stocks were 2,100 metres at the
beginning of November 2020. Purchases
are paid for 20% in the following month and 80% the month after.
All other costs are paid in the
month they are incurred in.
Each unit takes 0.5 hours to
complete and the company estimates idle time is running at 10%. Labour is
currently paid £9 per hour in 2020.2
Ignore sales tax.
a)
Produce a DETAILED Cash Flow for JUST 2021 based on 2020’s
Financial Statements and all of the information given above. You will need to use the 12 monthly
information given above.
You will need to expand the overhead section by making
reasonable assumptions as to what other costs you would expect to be reflected
in a manufacturing business and ensure you have accurately included all of the
information given to you in Note 1. Please make sure your individual category
totals for Sales, Cost of Sales, Distribution, Overheads etc. do actually
reconcile to those given in the Financial Statements.
b)
Clearly identify all assumptions used in your model as to
how expenses or income have been inflated and translated and which costs you have treated as being fixed as
opposed to variable costs.
Last Year’s Results – from the Financial Statements and
Notes to the Accounts
Estimated Income Statement - 2020
|
|
£ |
Turnover |
15,750,000 |
|
Raw
materials |
7,875,000 |
|
Wages |
2,475,000 |
|
Packaging |
450,000 |
|
Cost of
sales |
10,800,000 |
|
Gross
Profit |
4,950,000 |
|
Shipping
& Distribution |
900,000 |
|
Overheads
|
2,478,750 |
|
Operating
Profit |
1,571,250 |
|
Tax |
314,250 |
|
Dividend
Paid |
100,560 |
|
Profit
after tax and dividend |
1,156,440 |
|
Salaried
Staff Costs (excluding Directors) |
||
Average
number of Employees |
14 |
|
Average
Salary |
30,000 |
|
Directors
|
||
Remuneration
|
450,000 |
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