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Homework case

Case at cost Accounting

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7 views

Homework case

Case at cost Accounting

Uploaded by

Fuad Adıgözəlov
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Case study

Jane has worked as a sales representative for several years but was recently made
redundant. Now, he plans to start a business of his own, using $20,000 currently
invested with a building society. While Jane maintains a bank account with a small
credit balance, he recognizes the need for additional financing to support his startup
and expansion plans.

Jane provides the following details regarding his business and financing needs:

1. Non-Current Asset Purchase: Arrangements have been made to purchase


non-current assets worth $8,000.

2. Inventory Purchases: Initial inventory costing $3,000 will be acquired on


September 25. Monthly purchases will follow at a level sufficient to meet the
forecasted sales for the month.

3. Sales Forecast: Forecast monthly sales are as follows:

o $4,000 for October

o $8,000 for November and December


o $10,000 for January and February for 20X4

o $12,000 for each month starting from March

4. Pricing Strategy: The selling price will be set at a markup of 60% over the
cost of inventory.

5. Credit Terms: Jane will extend two months’ credit to customers but will only
receive one month's credit from suppliers for inventory purchases.

6. Loan: Jane plans to take out a $5,000 loan from the bank in December, with a
36-month repayment period and an annual interest rate of 5%. Monthly
repayments will begin in January.

7. Running Expenses: Estimated running expenses, including rent but


excluding depreciation of non-current assets, will amount to $2,000 monthly.

8. Personal Drawings: Jane intends to make monthly cash withdrawals of


$1,500 for personal use.

Required

a) Prepare a cash flow forecast for the nine months to 30 June 20X4.
b) If Jane decides to change the credit terms (will allow 1 month credit to
customers and will receive 2 months credit from suppliers), what will be an
effect on the cash budget. Prepare a new cash flow (for 9 months) based on
the credit terms change.

(Total 10 point)

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