454 ACCOUNTING FOR MANAGERS
Table A3.8 Carsons Stores Ltd
In £’000 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year total
Sales 100 110 110 120 440
Cost of sales 40 44 44 48 176
Grossprofit 60666672264
Expenses:
Salaries 1010101040
Rent 20 20 20 20 80
Depreciation 5 5 5 5 20
Promotional expenses 10 11 11 12 44
Administration expenses 5 5 5 5 20
Total expenses 50 51 51 52 204
Net profit 10 15 15 20 60
Table A3.9 Carsons Stores Ltd
In £’000 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year total
Cash inflow from sales 100 110 110 120 440
Purchases 40 44 44 128
Expenses 50 51 51 52 204
Capital expenditure 20 20
Income tax 20 20
Dividends 15 20 25 60
Cash outflow 50 126 135 121 432
Net cash flow 50 − 16 − 25 − 18
Cumulative cash flow 50 34 9 8
A cash forecast has also been prepared (see Table A3.9).
What are the questions you would want to ask the trainee accountant in order
to satisfy yourself that the budget was realistic and achievable? Can you identify
any errors that have been made in the budget or cash forecast? If so, make any
corrections that you think are necessary and comment on any problems you
have identified.
This question particularly relates to an understanding of Chapter 14.
Case study 8: White Cold Equipment PLC
White Cold Equipment (WCE) makes refrigeration equipment for the domestic
market. It sells all its production wholesale to a large retail chain. WCE’s budget
versus actual report for a recent month was as in Table A3.10.
Management was concerned about the significant shortfall in profits of £8,550
and asked the finance director for more information. The finance director produced
a revised report (Table A3.11) based on a flexible budget.