Budgeting and control

Hera sales

Background: These are the sales data of Hera, a winter sportwear manufacturer which manufacturers skis. You are Hera sales manager. You have to prepare a 12-month forecast for Year 5 in units and euros. You have the monthly unit sales data for the last 4 years; your average unit price to distributors has been 105€ last year and you do not think it is possible to increase it. Cash collection is as follows: 80% of sales of month M are collected in M+1 19% of sales of month M are collected in M+2 1% of sales is never collected

Forecast

Sales budget

Cash Collection Expectations 80% of sales of month M are collected in M+1 19% of sales of month M are collected in M+2 1% of sales is never collected

S&A Exp Budget

Selling and Administrative Expenses Sales salaries & benefits: 20 sales persons at average 100'000€/yr . Sales commissions: 10% of salary & benefits paid quarterly if quarter sales > 7.5M€ (Starting in March.) Selling expenses: Travel, meals and lodging of the 20 sales persons (Historical data indicate about 1K€/month.sales person) Advertising expenses: None in May to Aug. 100K€ in Jan, Mar, Apr & Sept; 300K€ in Feb and Oct; 500K€ in Nov and Dec Promotions: Sell-in promotions of 50K€ in Jun and Jul, of 60K€ in Aug and Sell-out promotions of 500K€ in Mar and Dec. Administrative salaries: 15 persons with average salary and benefits of 60K€/yr General management: Salaries &n benefits of the CEO (200K€), CMO (180K€), CFO (180K€) and a secretary (80K€) Shipping expenses: 150€ per 100 pairs of skis Office rent: 240K€/yr Office utilities: Historical data indicate average monthly expenses of 1K€ Telecom expenses: Fixed monthly expenses: 1K€; Variable expenses : 0.003€ /Sales amount IT expenses: 65€ per person employed (exluding CEO; CMO; CFO and secretary) Insurance: 80K€ paid quarterly at the begining of quarter

Direct Mat Budget

Inventory Desired ending inventory = 20% of following month units forecast to be sold Direct Material Budget: Fiber glass 30€ per pair of skis Polymers 5€ per pair of skis Steel 7€ per pair of skis Plastic 1€ per pair of skis Glue 1€ per pair of skis Cash disbursement: Suppliers are paid the amount of material used in month M in M+1 Closing inventory on Dec. 31, Year 4 was 5'027 pairs of skis Accounts payable on Dec. 31, Year 4 were 910'000€

Direct Labor Budget

Direct Labour Expenses: Direct salaries & benefits: 56 workers with a fixed salary & benefits of 25K€/yr on average. A worker produces on average 25 pairs of skis per labor day. Direct labor overtime costs: 15€ per overtime hour. 3 pairs of skis can be produced per hour. Direct supervision s&b: 8 foremen lead the 8 7-member teams. Each foreman costs 35K€/yr on average. Supervision overtime costs: 21€ per overtime hour. Engineers' salaries & benefits: 2 engineers at 50K€/yr each. They maintain the 8 production lines, supervise the ski test process and ensure the material incoming inspection

Mfg OVH Budget

Manufacturing Overhead Expenses: Depreciation of plant & equipment: 10% per year on plant and machinery worth 22M€ (not part of the cash outflow) General Production Management s&b: Salaries & benefits of COO (170K€), manufacturing accountant (90K€), purchaser (90K€), secretary (60K€) Insurances: 200K€/yr paid in advance quarterly, starting in January Plant Utilities: Historical data indicate a monthly average of 50K€ for electricity, energy (fuel, gas) and water plus 10K€ when production runs over 29'400 pairs/month External services: Miscellaneous services from plumbing to recruiting agency. Historical data put these services at 5K€/month Maintenance expenses: Maintenance contracts are worth 250K€/yr plus extras for special maintenance and repairs for 110K€/yr (historical data) IT expenses: Updates and upgrades of software and hardware of IT equipment. Contracts and historical data indicate a monthly average of 10K€.

Production Budget

Cash Budget

Cash budget elements: Minimum closing cash balance: 100'000€ Opening cash balance: 889'113€ Equipment purchases: 1'480'000€ in March and 1'800'000€ in October Taxes: 980'800€ in April and 1'300'000€ in October Dividend: 500K€ at each quarter starting in February Interests on ST debt: 12% per annum payable monthly Interests in LT debt: 6% per annum on 8M€ paid at each quarter end, starting in March

Proforma IS

Proforma BS

Plant & machinery as of Dec. 31 of Year 4: 22'000'000€ Land value: 2'000'000 € Equity as of Dec. 31 of Year 4: 17'143'079€