Estimated sales: Month 1: $230,000 Month 2: $255,000 Month 3: $289,000 Cost of g

Question

Estimated sales:

Month 1: $230,000          Month 2: $255,000          Month 3: $289,000

Cost of goods sold is to be budgeted at 45% of the sales figures.

Salary and standards commission are expected to be $75,000 per month.

When sales exceed $250,000 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 $25,000 per month.

60% of the total sales are cash sales settled on purchase. Of the credit sales, 75% (i.e. 30% of the month%u2019s sales) will be settled in the month following the sale. Others (i.e. 10% of the month%u2019s sales will settle in the month after.

The outstanding customer balances that will be collected are as follows:

Month 1: $60,000             Month 2: $20,000

The organization gets a month%u2019s credit on its purchases. That is, the accounts for the purchase made in one month are settled in the following month. All salaries and the normal commissions are paid in the month in which 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 in which they are incurred.

The purchase value of stock for the last month was $101,000 which is to be paid in month 1.

The bank balance at the beginning of the first month is estimated to be $29,500.

1) 1) Show the profit and loss calculations for the next three months of operations

2) 2) Show the cash flow projection calculations for the next three months

3) 3) Show amended figures if sales increased by 10% in each month and the cost of goods fell from 45% to 40%

Explanation / Answer

for month 1,

sale = 230000

expenses = 75000+25000+.45*230000

profit = 26500

for month 2

profit = 255000-100000-.05*5000-.45*255000 = 40000

for month 3

profit = 289000-100000-.05*39000-.45*289000= 57000

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