BUDGETING 213
Table 14.3 Sports stores co-operative sales and expenses estimate
Jan Feb Mar Apr May Jun TotalSales (in £’000) 75 80 85 70 65 90 465
Average cost of sales 40% 30 32 34 28 26 36 186
Gross profit 45 48 51 42 39 54 279
Less: expenses
Salaries 10 10 10 8 7 10 55
Rent 15 15 15 15 15 15 90
Insurance 1 1 1 1 1 1 6
Depreciation on shop fittings 2 2 2 2 2 2 12
Advertising and promotion 8 8 8 9 9 8 50
Electricity, telephone etc. 5 5 5 5 5 5 30
Total expenses 41 41 41 40 39 41 243
Net profit 4 7 10 2 0 13 36
goods or services needed to satisfy the sales forecast and maintain agreed levels
of inventory.
The first problem to consider is stock, which is shown in the following example.
Retail budget example: Sports Stores Co-operative Ltd.............
Sports Stores Co-operative (SSC) is a large retail store selling a range of sportswear.
Its anticipated sales levels and expenses for each of the next six months are shown
in Table 14.3.
Although there are several hundred different items of stock and the product
mix does fluctuate due to seasonal factors, SSC is only able to budget based on an
average sales mix and applies an average cost of sales of 40%.
SSC carries six weeks’ inventory, i.e. sufficient stock to cover six weeks’ sales (at
cost price). At the end of each month, therefore, the stock held by SSC will equal
all of next month’s cost of sales, plus half of the following month’s cost of sales.
This is shown in Table 14.4.
Table 14.4 Sports Stores Co-operative inventory calculation
In £’000s Jan Feb Mar Apr May Jun
Inventory required at end of month 49 48 41 44 54 53
Inventory at beginning of month 45 49 48 41 44 54
Increase/-decrease in inventory 4 − 1 − 7310 − 1
Sales during month (at cost) 30 32 34 28 26 36
Total purchases 34 31 27 31 36 35