Subject Management Accounts
International Study Centre
Management Accounts Assignment
Budget Project – SPORTS Traders
Sports Traders is a UK based trading company which is dealing with sports products.
The following is a summary of the Balance Sheet of Sports Traders as at 31 May 2014.
Fixed Assets at cost 200,000
Less Depreciation 70,000
Accounts Receivable 30,000
Accounts Payable 11,000
Accrued Expenses 4,000
Working Capital 62,000
Capital and Reserves 192,000
The company is in the process of preparing budgets for the three months ending 31 August 2014, and the following information is available:
1. Budgeted Sales
June 2014 66,000
July 2014 54,000
August 2014 57,000
September 2014 60,000
Sales provide 50% gross profit on cost. Half the sales are always paid for in full in the month in which sales are made. The remainder is always paid in full in the following month. No discount applies on sales. This policy has been in operation since January 2014.
2. Purchases are always made to ensure that stock at the end of each month exactly covers the budgeted sales for the following month. Three quarters of purchases are paid for in the month received and a discount of 2% is received for prompt payment. The remainder is paid for in full in the following month.
3. Expenses (excluding depreciation) are £12,000 per month. Two thirds are paid for in the month incurred and one third in the following month.
4. A fixed asset which originally cost £22,000 is to be sold on 1 June 2014 for £3,400 cash. This fixed asset had been depreciated by £18,000.
A new fixed asset costing £24,000 is to be purchased on 1 July 2014, with 40% payable in July 2014 and the balance three months later.
Depreciation on all fixed assets is at the rate of 10 % p.a. on cost (accruing evenly throughout the year).
For Sports Traders, prepare the Cash Flow Budget for each of the three months ending 30 June, 31 July and 31 August 2014 10 Marks
For Sports Traders, prepare the Budgeted Income Statement for three months ended 31 August 2014. 10 Marks
a. Explain why there is difference between net cash flow and net income.
b. If Sports Traders had to pay for the fixed asset in full instead of in instalments, what effect would this have on the Cash Flow? What other methods could they use to ease the cash flow problem?
The variance analysis has been prepared for the 3 month period ending May 31 2014, comparing the Actual to the Budget for that period. Expenses have been analysed by category.
Budget Actual Variance A/F %
Sales 172,500 175,800 – 3,300 F – 1.91
Purchases 115,000 117,200 – 2,200 A – 1.91
Wages and salaries 22,900 25,275 – 3,375 A – 14.73
Heating and lighting 11,200 11,840 – 640 A – 5.71
Council tax 5,200 5,200 – –
Insurance 3,100 3,100 – –
Telephone 650 1,290 – 640 A – 98.46
Sundry expenses – 674 – 674 A
a. Identify three significant variations from the budget and analyse possible causes for the variations.
b. Provide recommendations on how these variances could be avoided in future.
Total 50 marks – 50% of module
Deadline for ‘turn it in’ submission 4.00pm Friday 16 May 2014. A hard copy together with the signed front page to be submitted to the office the same day.
DO NOT include the question pages.