## Case study (1) - profit and cash flow

A company produces and sells DVD's to the Retail Trade. The firm sells packs of 10 DVD's, at a cost of \$100 per pack. The cost to the company, per pack, are summarised below:

Labour \$10 per pack

Materials \$15 per pack

Overheads and expenses \$25 per pack

All costs are paid in cash as they are incurred. Sales may be made for cash or on 4 weeks credit.

At the start of the period the firm has \$100,000 in the bank, and has built up a profit of \$250,000.

#### Question 1

Calculate the profit made on the sale of a pack of DVD's.

Examine the actions described below and calculate the effect of them on the firm's cash flow and profit position. You are advised to use the pro-forma stock chart and cash book by clicking on this link: [Pro-forma].

#### Question 2

In month 1 the firm makes 10,000 packs, but sells 5,000 packs for cash. Show the impact of these transactions on cash, profit and stock levels.

#### Question 3

In month 2, the firm makes another 15,000 packs, but sells 7,000 packs on one month free credit.

#### Question 4

In month 3, the firm makes another 15,000 packs, but sells 10,000 packs for cash and 5,000 on one month free credit.

#### Question 5

In month 4, the firm makes another 10,000 packs, but manages to sell only 7,000 packs, then only on one month free credit.

#### Question 6

In month 5, the firm makes another 15,000 packs, but sells 5,000 packs for cash and 10,000 on one month free credit.

#### Question 7

In month 6, the firm makes only 5,000 packs, but sells 7,000 packs on one month free credit, and 13,000 packs for cash.