Unit 11

Budgeting for a Merchandising Company

Review Question

You are a member of a student association that is considering purchasing and reselling customized 'daytimers' to students at your college. You have been asked to prepare as budget for the the operation to assist your group in deciding whether to undertake the project.

You expect peak sales at the start of the fall semester and again at the start of the winter semester. Based on enrollment figures, your expected sales in units for the first six months of the upcoming 1999/2000 term are as follows:

You expect these sales to occur evenly throughout the month. Each 'daytimer' will sell for $14.00. All your sales are for cash.

Your supplier requires 15 days from the time you place your order until they can deliver the product. You can only place one order per month, on the first day of the month. Therefore, you must have 50% of the next month's sales on hand in inventory at the end of any particular month. Payment for each month's order is due in full by the 10^th day of the following month. If you agree to undertake the project your supplier will provide you a starting inventory of 150 units for September 1^st, to be paid for in October. Your cost per 'daytimer' will be $4.00.

You will recruit students to sell the "daytimers'. They will receive a sales commission of $2.00 for each unit they sell. The payments to student will be made twice a month with a one period delay; that is student will be paid on Sept 30^th for units they sell between Sept 1^st and Sept 15^th, and so on.

1. How much revenue will the project generate over the first six months?

a. $15,400
b. $14,500
c. $8,800
d. $13,200

2. What will the project's expenses be for the first six months?

a. $2,200
b. $4,400
c. $6,600
d. none of the above

3. How much surplus will the project generate for your organization over the first six months?

a. $11,000
b. $8,800
c. $12,500
d. none of the above 

4.   What is your expected cash inflow from sales for November?

a. $700
b. $600
c. $400
d. none of the above

5. How many 'daytimers' must your order on October 1^st?

a. 50
b. 100
c. 150
d. 200

6. What will your ending inventory of daytimers be on October 31^st?

a. 50
b. 25
c. 150
d. 75

7. How much cash will you require to pay your supplier on November 10^th?

a. $800
b. $200
c. $600
d. $400

8. How much cash will you require to pay students their sales commissions in November?

a. $100
b. $300
c. $200
d. none of the above

9. What will your cash surplus or <deficit> be for November?

a. $200
b. <$100>
c. $100
d. none of the above