Forsure Fisheries (Pty) Ltd is struggling to forecast

Forsure Fisheries (Pty) Ltd is struggling to forecast

Subject: Business    / Finance
Question

Question 3.Forsure Fisheries (Pty) Ltd is struggling to forecast expected sales for their fisheries business because of uncertainty in demand for fish. Past records for the company shows that if they don’t keep stock of frozen fish in any particular year, sales hit P200, 000 a year but if they keep P200, 000 of frozen fish in inventory, sales become P150, 000 a year. At the end of 2014 when they closed for business, recorded sales for the year were P150, 000.

A last year student intern for the company has compiled the following information which management has approved as reliable: Inventory forecast for 2015 will be P1, 000,000.00 and that it will increase by 5% for two years as a result of impending double dip recession and decrease by 20% in subsequent years due to rebound in the fisheries sector.
You have been retained by Forsure to estimate the annual sales for 2019.

Question 4.

Mr Bigboss is Cash Manager at Semente Pty Ltd, a producer of cement products. Mr Bigboss has been asked by the corporate treasurer to prepare a 3-month cash budget covering January, February and March 2015. Based on his preliminary investigations, Mr Bigboss has developed the following forecasts.

January

February

March

Sales Forecasts

80 000

90 000

100 000

The following additional information has been made available:

The following trends have been observed about sales:
40% of sales are collected in the month of the sale and are entitled to a 2% discount
40% of sales are collected in the month following the sale and are not entitled to any discount
20% of sales are collected on the second month after the sale.
Purchases are estimated at 35% of monthly gross sales.
40% of all purchases are paid for in cash on delivery. The remainder of the purchases are on credit basis, and are paid for in full in the month immediately following purchase.
Monthly Operating expenses constitute of:
Rental at P8 000 per month
Salaries and wages are paid at a commission of 15% of gross monthly sales
Overhead expenses are at 5% of monthly gross sales
All monthly operating expenses are due in the month in which they are incurred.
December 2010 sales were P70 000
Although its target monthly cash balance is P5 000, Semente held P3 000 in cash at the end of December 2014.
A cash dividend of P18 100 was declared and paid in January 2015

Required:

Prepare a cash budget for the months of January to March 2015 (12 marks)
Comment on the performance of the company in each of the three months (4 marks)

Having prepared and analysed the cash budget, what recommendations would you have for the company management? (4 marks)

Question 5.

DIP Motors has P45 000 debtors, Inventory of P25 000, payable deferral period of 12 days and cash conversion cycle of 30 days. Assume 360 days in a year.

Use the above information to calculate:

Annual sales of this company (3 marks)

The number of days it takes to convert credit sales into cash (1 marks)

The Operating circle ( 2 marks)

Question 6:

Payables Pty (Ltd) sells on terms of 2/10, net 30. Total sales for the year are P800, 000. 30% of the customers pay on the 5th day and take discounts; the other 70% pay, on average, after 30 days. Assume a 360-day year for this problem, and also assume that both sales and accounts receivable are recorded net of discounts, regardless of whether or not customers take discounts.

What is the effective cost of trade credit for those customers who did not take a discount?
Assume that for those customers who did not take a discount they had an alternative to borrow short term from their bank and pay 20% interest. Would it have been cost effective to borrow from their bank? (3 marks)
If Payable’s sales are constant from year to year and also during each year, how much accounts receivable does the company have? Assume that both annual sales and accounts receivable are based on net sales, regardless of whether or not all customers take discounts. (3 marks)
What is the company’s days sales outstanding (DSO), using the DSO formulae? Interpret your answer.