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"Country paints Ltd" have developed a new patented paint system "Rustaway" which is to be used in order to provide protection and visual appearance enhancement to steel products around the home such as railings, door handles, gates etc. This product expands on their current range of paints for garden wooden items. A project has been initiated which look to produce the "Rustaway" paint at volume. This will require a new mixing and dispensing machine to be purchased at a cost of £25,000, with a staff cost of £6000 per quarter and a materials cost of £1000 per quarter. Initially Country paints Ltd plan to put aside enough cash from their reserves to pay for the project. The product will be sold direct to the public (direct sales) and through paint retailers (Credit sales) Table Q1 shows partial cash forecast for the receipts has been made by the management of Country Paints Ltd for the next 2 years (8 quarters) Table Q1: Receipts element of the cash forecast Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 5 Qtr 6 Qtr 7 Qtr 8 Receipts Direct 2,000 4,000 5,000 7,000 6,000 5,000 4,000 4,000 (£) Sales Credit Sales 3,000 5,000 7,000 8,000 10,000 12,000 10,000 (a) State two ways in which direct sales differ from credit sales (b) Complete the payments element of the cash forecast and calculate the opening and closing balance for each quarter. Display in a tabular form following the structure in Table 1 (c) If the sales are taken as the receipts within each quarter and the cost of sales are the materials and direct labour, calculate the potential gross profit for each quarter

"Country paints Ltd" have developed a new patented paint system "Rustaway" which is to be used in order to provide protection and visual appearance enhancement to steel products around the home such as railings, door handles, gates etc. This product expands on their current range of paints for garden wooden items. A project has been initiated which look to produce the "Rustaway" paint at volume. This will require a new mixing and dispensing machine to be purchased at a cost of £25,000, with a staff cost of £6000 per quarter and a materials cost of £1000 per quarter. Initially Country paints Ltd plan to put aside enough cash from their reserves to pay for the project. The product will be sold direct to the public (direct sales) and through paint retailers (Credit sales) Table Q1 shows partial cash forecast for the receipts has been made by the management of Country Paints Ltd for the next 2 years (8 quarters) Table Q1: Receipts element of the cash forecast Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 5 Qtr 6 Qtr 7 Qtr 8 Receipts Direct 2,000 4,000 5,000 7,000 6,000 5,000 4,000 4,000 (£) Sales Credit Sales 3,000 5,000 7,000 8,000 10,000 12,000 10,000 (a) State two ways in which direct sales differ from credit sales (b) Complete the payments element of the cash forecast and calculate the opening and closing balance for each quarter. Display in a tabular form following the structure in Table 1 (c) If the sales are taken as the receipts within each quarter and the cost of sales are the materials and direct labour, calculate the potential gross profit for each quarter

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question 1. "Country paints Ltd" have developed a new patented paint system "Rustaway" which is to be used in order to provide protection and visual appearance enhancement to steel products around the home such as railings, door handles, gates etc. This product expands on their current range of paints for garden wooden items. A project has been initiated which look to produce the "Rustaway" paint at volume. This will require a new mixing and dispensing machine to be purchased at a cost of £25,000, with a staff cost of £6000 per quarter and a materials cost of £1000 per quarter. Initially Country paints Ltd plan to put aside enough cash from their reserves to pay for the project. The product will be sold direct to the public (direct sales) and through paint retailers (Credit sales) Table Q1 shows partial cash forecast for the receipts has been made by the management of Country Paints Ltd for the next 2 years (8 quarters) Table Q1: Receipts element of the cash forecast Qtr 1 Receipts Direct 2,000 (£) Sales Credit Sales Qtr 2 Qtr 3 Qtr 4 Qtr 5 Qtr 6 Qtr 7 Qtr 8 4,000 5,000 7,000 6,000 5,000 4,000 4,000 3,000 5,000 7,000 8,000 10,000 12,000 10,000 (a) State two ways in which direct sales differ from credit sales (b) Complete the payments element of the cash forecast and calculate the opening and closing balance for each quarter. Display in a tabular form following the structure in Table 1 (c) If the sales are taken as the receipts within each quarter and the cost of sales are the materials and direct labour, calculate the potential gross profit for each quarter
Transcribed Image Text:Question 1. "Country paints Ltd" have developed a new patented paint system "Rustaway" which is to be used in order to provide protection and visual appearance enhancement to steel products around the home such as railings, door handles, gates etc. This product expands on their current range of paints for garden wooden items. A project has been initiated which look to produce the "Rustaway" paint at volume. This will require a new mixing and dispensing machine to be purchased at a cost of £25,000, with a staff cost of £6000 per quarter and a materials cost of £1000 per quarter. Initially Country paints Ltd plan to put aside enough cash from their reserves to pay for the project. The product will be sold direct to the public (direct sales) and through paint retailers (Credit sales) Table Q1 shows partial cash forecast for the receipts has been made by the management of Country Paints Ltd for the next 2 years (8 quarters) Table Q1: Receipts element of the cash forecast Qtr 1 Receipts Direct 2,000 (£) Sales Credit Sales Qtr 2 Qtr 3 Qtr 4 Qtr 5 Qtr 6 Qtr 7 Qtr 8 4,000 5,000 7,000 6,000 5,000 4,000 4,000 3,000 5,000 7,000 8,000 10,000 12,000 10,000 (a) State two ways in which direct sales differ from credit sales (b) Complete the payments element of the cash forecast and calculate the opening and closing balance for each quarter. Display in a tabular form following the structure in Table 1 (c) If the sales are taken as the receipts within each quarter and the cost of sales are the materials and direct labour, calculate the potential gross profit for each quarter
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