The Gift Wrapper Company manufactured corporate gifts for various companies and supplied them to retailers in spread across the state of Maharashtra and Karnataka. It had recently (2017) signed agreements with a few event management companies hosting corporate events, Conferences or workshops to push their sales by offering them 20% discounts on gift items. For retailers, the margin was 15%.

The sales showed seasonal trend with maximum revenue generated in January through sales of New Year's diaries, calendars and other gift items. The next best season was during Diwali when sales picked un significantly specially in North India. However, with these the ups with event planners as well as the business going online, there has been a change in their seasonal sales patterns in since 2017 with all the months faring similarly well.

One of its best-selling items was card holder with an MRP of 200. They procured these card holders from Kanpur, Uttar Pradesh at 100 cach including transportation, customized it and then sup plied it at 170 to the retailers. This was available at the same price on their online portal. For the year 2018-19, the sales of card-holder had shown a growth of 20% compared to the previous year in which they could sell 90,000 card holders. For the year 2019-20, the company had forecasted an increase of 18% over the sales of 2018-19 taking into account good reviews of its products on its online portal.

The estimated sales quantity forecasted for the year 2019 20 classified on the basis of mode of sales month-wise was given as below:

Sales in Number of Units Online Sales

Month	Retail Sales	Online Sales	Sales through Event Management
April	3150	2600	3200
May	4500	3200	3000
June	3900	3100	2600
July	4000	3050	2400
August	4500	4000	3000
September	4200	3300	2800
October	4800	4100	3800
November	4700	3000	2500
December	6500	2500	3500
January	5100	3800	4000
February	4000	3300	2500
March	3540	2800	2500

Customers (retailers) used to pay for the goods, on average, two months after the sales were made, whereas Event Management Companies took on an average, one month to pay back. Online sales generated revenue in the same month. The materials (10% over the estimate for the month) were bought and customized in the month before sales took place; customization charges were treated as an expense in the month that the card-holders were sold and they were paid for one month after the purchase (ie. In the month in which sates took place), Creditors for purchase were paid two months after the purchases were made. The cost of customization made to card-holders was estimated at 15 per unit.

There was a basic labor force costing 1,50,000 each month except in the months where units to be customized were more than 10,000. For those months, wages were 22,50,000.

The only other expense was depreciation that amounted to 30,00K) a month. One of the machines (depreciation-3000 p m.) was getting towards the end of its useful life and was needed to be replaced by a new one, costing 26,00,000, which was to be paid for in October 2019. Depreciation on the new machine was to be charged at 10% per annum on a straight-line basis. The old machine was to be sold in the same month and expected to fetch 95,000 (its net book value) at the end of the year (in March 2020). The other fixed costs were 2,40,000 per month.

Taxation of 50,000 was payable in March 2020, and dividends of 22,80,000 was to be paid in May 2019. Purchase for the month of March 2020 was expected to be 8,000 units. Creditors to be paid in April and May 2019 amounted to 10,15,000 and 79.65,000 respectively, Collection from the debtors (retailers or event management companies) for the sales made before April 2019 were 12,35,000 and 11,10.500 for the month of April and May 2019 respectively.

The owner wanted to know if there would be enough cash available in the month of October 2019 so that the new machine could be purchased. Or should be postpone the purchase for the future! There was 750,000 in the company's bank account as on April 1. 2019.

QUESTIONS FOR DISCUSSION:

1. Prepare monthly sales budget for the year 2019-20.

2. Prepare the cash budget for the coming year 2019-20, showing receipts and payments for month: the net cash surplus or deficit for the month; and the bank balance at the end of each month.

3. Prepare the income statement for the coming year 2019-20, showing sales, expenses and profit in total.

4. After examining the cash budget, what changes in plan would you suggest to the owner about the purchase of machinery?

Answer rating: 100% (QA)

Quiz 1 The sales budget for the year 201920 is given below Month Retail Sales Online Sales Sales through Event Management April 3150 2600 3200 May 450... View the full answer