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Derek Gorton is self-employed and manufactures car mats. After trading for six months he was very satisfied with the progress of his business. He produced sets of car mats at a cost of £6.00 a set, and sold them to car accessory shops for £8.00 a set.
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Scenario Derek Gorton is self-employed and manufactures car mats. After trading for six months he was very satisfied with the progress of his business. He produced sets of car mats at a cost of £6.00 a set, and sold them to car accessory shops for £8.00 a set. Derek kept enough finished goods in stock to last for 30 days of trading, paid all his bills immediately, and allowed his customers 30 days credit. On January 1st his working capital situation was: Cash £8,000 Stock £6,000 Debtors £8,000 In January he produced and sold 1,000 sets of car mats (on credit) for £8,000, they cost him £6,000 to make (paid out immediately). His profit for the month was therefore £2,000. He also collected £8,000 from his December sales. Customer feedback was favourable, and Derek could reliably forecast that sales would increase over the next few months. Predicted Sales are forecast to be: * February 1,500 sets * March 2,000 sets * April 2,500 sets * May 3,000 sets (sold on...
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