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ACADEMY OF ECONOMIC STUDIES, BUCHAREST

FACULTY OF ACCOUNTING AND MANAGEMENT INFORMATION SYSTEMS

Accounting, Audit and Management Information System Master Program

The budgeting process 2018


Covalact

Nechifor Raluca

Neaga Andreea

Nastase Valentina

Group 685

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1. Presentation of the company

Covalact is one of the biggest dairy producers in Romania with over 40 years of experience in manufacturing dairies. The company has
over 500 employees working in Sfântu Gheorghe and Miercurea Ciuc factories. Along four decades the company covered several stages that
conveyed into the current development stage.
COVALACT started in 1969 as "Milk collection and industrialization company Covasna", made out of three separate sides of production,
each producing different categories. It was amongst the first companies to be constituted as a joined stock company with the majoritar
package owned by the state, in 1990. In 1993 the company’s management decided to start the privatization procedure. Starting with
November S.C. COVALACT S.A. is registered at the Commerce Register as a private company with a 417 stock holders.
In 2003 Covalact started a joint venture with the Dutch dairy producer Campina in order to start manufacturing yoghurt for the
Romanian market.
In June 2007 the majoritar Covalact stock package is taken over by SigmaBleyzer Southeast European Fund IV. Thus, the company enters
a new development stage on the Romanian dairy market.
In April 2008 Primulact and Lactate Harghita were acquired through Covalact. From take over till present day, SigmaBleyzer invested
almost 7 million EUR.
Since it was acquired by Sigma Blazer Covalact group entered a new modern stage, becoming more market and consumer oriented.
Covalact’ portfolio evolved continuously, as thus the products launched in the last three years stand for 60% of the revenue.
In 2012 Covalact opens at Sfântu Gheorghe the new dairy logistics facility, following a 5 million lei investment. The storage has a capacity
of 1.400 pallets, the equivalent of over 700 tons of products and is serving the two factories of the group, Sfântu Gheorghe and Miercurea
Ciuc.
The most recent acquisition of the group is a new production line for Branzica de casa, following an investment of more than 3 million
euros, which was inaugurated on 13 October 2016.
The Covalact Initiative aims to double the production and packaging capacity for one of the most successful products in the company
portfolio: Branzica de Casa de la Covalact de Tara, the only cottage cheese product made in Romania, made of whole Romanian milk. Branzica
de Casa is the dominant market leader with a 46% market share in modern commerce in the first half of 2016 (according to Nielsen).
The new line, which has state-of-the-art technology, now operates in the Covalact factory in Sfantu Gheorghe, Covasna County, and has
a high productivity that allows the production of 200 tons of house grenades per month and packing a volume of 11,000 glasses of cheese per
hour.
Both Covalact plants in Sfântu Gheorghe and Miercurea Ciuc hold authorizations for intra-Community trade of products issued by the
National Sanitary Veterinary and Food Safety Authority. The authorizations confirm that the milk we use in the production of the products
meets all the quality and safety requirements established by the European Union and the processing conditions of the two factories are at the

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highest European standards. The proof of these authorizations is the existence of an oval shape stamp on the packaging of each product. The
criteria on which the oval stamp is attached are quality, good production and hygiene practices, knowledge of origin and route of raw
materials and finished products, personnel training and, last but not least, the implementation of the HACCP concept (hazard analysis and
control of critical points).
The production of dairy products Covalact de Country begins with the pasteurization of milk, subject to compulsory heat treatment for
all the quantity of milk processed in the factory. After the Covalact Country Dairy Process, they cool down to be stored, transported and
delivered to cold stores (between 2 and 6 degrees C) until they are purchased by the final consumer.
Covalact has made important investments in modernizing its factories and equipping it with modern, modern machinery and technology
so that milk contact with the external environment during processing and packaging of manufactured dairy products is almost inexistent.

2. Object of activity

At present, the Covalact Group has 560 employees and two factories at Sfantu Gheorghe and Miercurea Ciuc. The group produces 100
products representing a monthly dairy quantity of about 2500 tons.
Created in 2010, Covalact de Ţară brand was supported with TV commercial and project targeting distribution increase. From a locally
distributed brand in 2007, Covalact de Tara becomes today a national brand that can be found on the modern trade shefls but also in small
retailers. Thus, the brand’s notoriety Covalact de Ţară increased significantly thorough 2011, and it was chosen by the Romanian consumer as
Super brand, along with other 300 brands, in 16 different categories.
Currently Covalact de Țară is market leader or has top positions in several dairy categories, such as: Brânzică de Casă, Făgăraș, Brânză
proaspătă de vaci, Lapte Bătut, Sana.

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3. The budgeting process

3.1. Sales Budget


For many organizations, the principal budget factor is sales volume. The sales budget is therefore often the primary budget from which
the majority of the other budgets are derived.
Sales forecasting is complex and involves the consideration of a number of factors:
 Past sales patterns - accordingly with the Profit and Loss Account as at 31 December 2016, the turnover of the company was RON,
423,185,587 and accordingly with the Annual Report for 2016, the portfolio structure was as follows:
- Milk: 70.23%
- Yoghourt: 16.86%
- Butter: 12.03%
- Cheese: 0.88%
 Results of market research - 48% of the Romanian population is represented by men. Covalact performed several market studies and
found the fact that the male population is unsatisfied because all the yoghourt categories are especially addressed to women.
 Competition: The competitors are: Danone, Napolact, Hochland Romania, Dorna Lactate, Albalact. The company holds a market share
of 10% in the dairy industry in Romania;
 Pricing policies;
 Legislation;
 Environmental factor
Based on the previous year evolution (2017 vs 2016) and taking into consideration the factors mentioned above, we forecasted that the
sales will increase as follows: Units forecasting and selling price forecasting

Q1 Q2 Q3 Q4
Selling Units per Percentage Percentage Percentage Percentage
Products Turnover Units Weight Units Units Units Units
Price quarter of increase of increase of increase of increase
Milk 297,203,238 4.50 66,045,164 16,511,291 1L 3% 17,006,630 5% 17,856,961 6% 18,928,379 4% 19,685,514
Yoghourt 71,349,090 3.00 23,783,030 5,945,757 450g 3% 6,124,130 3% 6,307,854 4% 6,560,168 4% 6,822,575
Butter 50,909,226 6.50 7,832,189 1,958,047 200g 3% 2,016,789 2% 2,057,124 1% 2,077,696 4% 2,160,803
Cheese 3,724,033 14.00 266,002 66,501 400g 3% 68,496 3% 70,550 3% 72,667 1% 73,394
Total 423,185,587 97,926,385 24,481,596 25,216,044 26,292,490 27,638,910 28,742,286

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Revenue forecasting

Products Q1 Q2 Q3 Q4 Total
Milk 76,529,834 80,356,325 85,177,705 88,584,813 330,648,677
Yoghourt 18,372,391 18,923,562 19,680,505 20,467,725 77,444,183
Butter 13,109,126 13,371,308 13,505,021 14,045,222 54,030,677
Cheese 958,939 987,707 1,017,338 1,027,511 3,991,494
Total (Monetary Units) 108,970,289 113,638,903 119,380,569 124,125,272 466,115,032

Sales budget (units/monetary units- first quarter)

First Quarter January February March


Monetary Monetary Monetary Monetary
Products Units Price Units Units Units
units units units units
Milk 17,006,630 4.50 76,529,834 5,668,877 25,509,945 5,110,789 22,998,551 6,226,964 28,021,339
Yoghourt 6,124,130 3.00 18,372,391 2,041,377 6,124,130 1,889,444 5,668,332 2,193,309 6,579,928
Butter 2,016,789 6.50 13,109,126 672,263 4,369,709 700,455 4,552,958 644,071 4,186,460
Cheese 68,496 14.00 958,939 22,832 319,646 23,002 322,028 22,662 317,264
Total 25,216,044 108,970,289 8,405,348 36,323,430 7,723,690 33,541,868 9,087,006 39,104,991

Taking into consideration the forecasted sales budget for 2018, we acknwoledge the fact that our current production facilities are
sufficient and we don`t intend to make new investments in the production line.

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3.2. Selling expenses budget – details the forescast for expenditure sales activity.

Forecasted costs for each period

Q1 Q2 Q3 Q4 Total
Labour 660,000 673,200 686,400 673,200 2,692,800
Supplies 267,500 299,600 278,200 224,700 1,070,000
Depreciation 1,780,621 1,929,006 2,003,199 1,706,429 7,419,254
Otherexpenses 1,296,000 1,104,000.00 1,200,000 1,200,000 4,800,000
Total 4,004,121 4,005,806 4,167,799 3,804,329 15,982,054

- the labour costs for each period have been forecasted based on an average number of 102 employees working in the sales and
distribution area (Q1 – 100, Q2 – 102, Q3 – 104, Q4 – 102) and on an average remuneration of RON 2,200;
- the cost approtionement between the main products was realized based on the percentual contribution of each product in the
company’s turnover as following: milk - 71%, yoghourt – 17%, butter – 12%, cheese – 1%;

Forecasting for geographical areas

Salaries, related items and/or


Muntenia Moldova Transilvania Total
fees
Milk 955,098 573,059 382,039 1,910,195
Yoghourt 223,702 111,851 111,851 447,404
Butter 187,285 93,642 31,214 312,141
Cheese 11,530 6,918 4,612 23,059
Total 1,377,614 785,470 529,716 2,692,800

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Supplies, depreciation and
Muntenia Moldova Transilvania Total
other expenses
Milk 4,242,158 3,299,456 1,885,403 9,427,017
Yoghourt 1,324,792 662,396 220,799 2,207,986
Butter 770,226 462,135 308,090 1,540,451
Cheese 68,280 34,140 11,380 113,800
Total 6,405,455 4,458,127 2,425,672 13,289,254

Total budget 7,783,069 5,243,597 2,955,388 15,982,054

- regarding the apportionment of the forecasted costs on geographical areas, we considered that the highest percentage should be
charged on Muntenia due to the high volumes of dairy products distributed by the company to the supermarket chains;

3.3. Administrative expenses budget

- General Note: In order to apportion between indirect production expenses and administrative expenses, we used as a starting point
their corresponding values disclosed in the notes as at 31 December 2016 and obtained the structure of total indirect expenses, as
following:

Administrative Expenses 24,331,094 73%


Indirect production
expenses 8,905,204 27%
Total 33,236,298 100%

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Inflation Rate 1% 1% 3% 4%
Total Administrative
expenses expenses
Expenses Q1 Q2 Q3 Q4 Total Notes
Q4/2016 Q4/2016 as
as per PL per PL
Wages 7,277,898 5,327,887 5,375,838 5,451,099 5,614,632 5,811,144 22,252,714 Note1
Social contributions 2,026,895 1,483,816 1,497,171 1,518,131 1,563,675 1,618,404 6,197,381 Note2
Consumables 942,481 689,957 696,166 705,913 727,090 752,538 2,881,707 Note3
Energy and water 1,462,409 1,070,577 1,080,212 1,095,335 1,128,195 1,167,682 4,471,423 Note4
Other third parties
services expenses
17,773,439 13,011,293 13,128,394 13,312,192 13,711,558 14,191,462 54,343,606 Note5
(telecom, travel,
advertising, legal etc)
Assurance and taxes 282,583 206,869 208,731 211,653 218,002 225,633 864,018 Note6
Depreciation 3,328,024 2,436,326 2,436,326 2,436,326 2,436,326 2,436,326 9,745,306 Note7
Rent for offices 494,779 362,210 365,470 370,586 381,704 395,063 1,512,823 Note8
Other expenses 244,165 178,745 180,353 182,878 188,365 194,957 746,553 Note9
Total 33,832,673 24,767,679 24,968,661 25,284,113 25,969,547 26,793,210 103,015,531

Note 1:
- The starting point represents the total wages expenses as per Profit and Loss as at 31 December 2016;
- We eliminated the direct labour expense already calculated for the Human Resources Budget;
Note 2:
- We applied the cummulated percentage of social contributions due by the employer to the wages computed as per Note 1.
Note 3:
- The starting point represents the total expenses with raw materials and consumables as per Profit and Loss as at 31 December 2016;
- Assuming that the production process is highly significant for the company's activity, we applied a haircut of 98.5%;
Note 4:
- The starting point represents the expenses with energy and water as per Profit and Loss as at 31 December 2016;

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Note 5:
- The starting point represents the expenses with other third parties services as per Profit and Loss as at 31 December 2016;
- From this amount we deducted the value of the rental agreements that we decided to present separately;
Note 6:
- The starting point represents the expenses with assurance and taxes as per Profit and Loss as at 31 December 2016;
Note 7:
- The starting point represents the depreciation expense as per Profit and Loss as at 31 December 2016;
Note 8:
- The starting point represents the rent expense and the operational lease expense as per Profit and Loss as at 31 December 2016;
Note 9:
- The starting point represents the other expenses as per Profit and Loss as at 31 December 2016;

3.4. Production budget

- In order to prepare the production budget, we identified the products to be manufactured in order to ensure the sales plan and the
inventory needs and we have chosen one of the products for which we have estimated the expected physical production and the costs
implied;

Direct costs: materials

Material usage per unit of Price per unit of Material price per
Ingredients Q1 January February March
product (l,ml,g) material (RON) unit of product
Milk 0.35 2.30 0.81 4,929,925 1,643,308 1,521,002 1,765,614
Yoghourt ferments 1.25 0.30 0.38 2,296,549 765,516 708,542 822,491
Strawberries 10.00 0.07 0.70 4,286,891 1,428,964 1,322,611 1,535,317
Total 1.88 11,513,365 3,837,788 3,552,155 4,123,422

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Direct costs: labour

Hours
Hours required per required per Rate/hour
Rate/hour for
Production units unit for production unit for for direct Total Cost Cost/unit
production process
process direct packaging
packaging
Q1 6,124,130 0.00008 6.34375 0.00007 2.71875 4,273 0.000697813
January 2,041,377 0.00008 6.34375 0.00007 2.71875 1,424 0.000697813
February 1,889,444 0.00008 6.34375 0.00007 2.71875 1,318 0.000697813
March 2,193,309 0.00008 6.34375 0.00007 2.71875 1,531 0.000697813

Production costs budget

Elements Q1 January February March


1. Indicators
- Activity volume 6,124,130 2,041,377 1,889,444 2,193,309
- Unit cost 2.39 2.39 2.43 2.37
2. Centre expenses 14,387,370 4,795,790 4,494,857 5,096,723
a) Direct costs 12,130,051 4,043,350 3,742,418 4,344,283
- materials 11,513,365 3,837,788 3,552,155 4,123,422
- labour 4,273 1,424 1,318 1,531
- other direct costs (package) 612,413 204,138 188,944 219,331
b)Indirect costs 2,257,319 752,440 752,440 752,440
- consumables 990,000 330,000 330,000 330,000
- wages/labour 364,518 121,506 121,506 121,506

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- social contributions 101,518 33,839 33,839 33,839
- energy and water 241,313 80,438 80,438 80,438
- depreciation 559,970 186,657 186,657 186,657
3. Settlement cost of benefits
274,313 91,438 91,438 91,438
received by the others centers
- mechanical workshop 274,313 91,438 91,438 91,438
4. Product cost (2+3), in which: 14,661,683 4,887,228 4,586,295 5,188,160
- variable costs 13,361,364 4,453,788 4,152,855 4,754,721
- fixed costs 1,300,319 433,440 433,440 433,440

- Taking into consideration that the production process is highly automatized, we presumed that the labour cost is not significant for the
production budget;
- In order to compute the hours required for 10.000 units we consider the following:
 directly involved workers: 10;
 hours/month/worker: 160;
 total hours: 1,600;
- For the rate/hour computation we took into consideration an average monthly wage of 1.450 RON, due to the fact that the workers
involved into production are both qualified and non qualified workers;
- The main presumption consisted in the fact that the entire production units will be sold, not taken into consideration the opening
balances for inventories;
- the other direct costs representing main packages were estimated to represent 10% of the activity volume expresed in monetary units;
- indirect costs such as: consumables, energy and water, depreciation, settlement cost of benefits received from the mechanical workshop
(equipment maintenance) had as starting point the balance as at 31 December 2016 to which was applied the percentage of the
contribution to the turnover (16.5%);

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3.5. Purchases budget

Milk (L) Yoghourt (g) Butter (g) Cheese (g) Total Q1 Q2 Q3 Q4 Total 2018
Units 17,006,630 6,124,130 2,016,789 68,496 25,216,044
Milk 39,115,248 4,929,925 22,265,346 472,620 66,783,139
Yoghourt ferments - 4,133,788 - 41,097 4,174,885
Fruits - 4,286,891 - - 4,286,891
TOTAL 39,115,248 13,350,604 22,265,346 513,717 75,244,915 75,320,160 75,470,800 75,697,213 301,733,088
- For the evolution from Q1 to the following periods we took into consideration that the company should improve its negotiation policy
with the suppliers in order to be able to obtain lower prices for greater orders for the same quality raw materials;

3.6. Human resources budget

Projections on working hours and hourly rates


Direct labour:
Total hours/Worker-Quarter 480
Total hours/Quarter 69,600

No of
Direct Direct
Portfolio's hours per No of hours
Product labour labour Q1 Q2 Q3 Q4 Total
structure product per unit
expense rate/hour
type
Milk 70% 584,030 48,880 12 0.00100 203,199 213,359 226,160 235,207 877,925
Yoghourt 17% 140,207 11,735 12 0.00015 10,976 75,368 78,382 81,518 246,243
Butter 12% 100,041 8,373 12 0.00049 11,808 12,044 12,164 12,651 48,666
Cheese 1% 7,318 612 12 0.00025 205 211 217 219 852
Total 100% 831,596 69,600 0.00189 226,187 300,981 316,924 329,594 1,173,686

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- The starting point for the direct labour expense represents the total personnel expenses from Profit and Loss as at 31 December 2016
(RON, 32,437,977). We applied the proportion of direct workers from total workers (145/507) and then we applied a haircut of 50% due to
the fact that the management and other administrative personnel's wages affects the total personnel expenses by increasing it;

3.7. Manufacturing overheads budget

Inflation Rate 3% 3% 4% 3%
Total Administrative
expenses expenses
Expenses Q1 Q2 Q3 Q4 Total Notes
Q4/2016 Q4/2016 as
as per PL per PL
Wages 7,277,898 1,950,012 2,008,512 2,068,767 2,151,518 2,216,064 8,444,861 Note1
Social contributions 2,026,895 543,078 559,371 576,152 599,198 617,174 2,351,894 Note2
Consumables 942,481 252,525 260,101 267,904 278,620 286,978 1,093,602 Note3
Energy and water 1,462,409 391,832 403,587 415,695 432,322 445,292 1,696,896 Note4
Other third parties
services expenses
17,773,439 4,762,146 4,905,010 5,052,160 5,254,247 5,411,874 20,623,292 Note5
(telecom, travel,
advertising, legal etc)
Assurance and taxes 282,583 75,714 77,986 80,325 83,538 86,044 327,893 Note6
Depreciation 3,328,024 891,698 918,449 946,002 983,842 1,013,358 3,861,651 Note7
Rent for offices 494,779 132,569 136,546 140,643 146,268 150,656 574,113 Note8
Other expenses 244,165 65,421 67,383 69,405 72,181 74,346 283,316 Note9
Total 33,832,673 9,064,994 9,336,944 9,617,053 10,001,735 10,301,787 39,257,518

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Note 1:
- The starting point represents the total wages expenses as per Profit and Loss as at 31 December 2016;
- We eliminated the direct labour expense already calculated for the Human Resources Budget;
Note 2:
- We eliminated the direct labour expense already calculated for the Human Resources Budget;
Note 3:
- The starting point represents the total expenses with raw materials and consumables as per Profit and Loss as at 31 December 2016;
- Assuming that the production process is highly significant for the company's activity, we applied a haircut of 98.5%;
Note 4:
- The starting point represents the expenses with energy and water as per Profit and Loss as at 31 December 2016;
Note 5:
- The starting point represents the expenses with other third parties services as per Profit and Loss as at 31 December 2016;
- From this amount we deducted the value of the rental agreements that we decided to present separately;
Note 6:
- The starting point represents the expenses with assurance and taxes as per Profit and Loss as at 31 December 2016;
Note 7:
- The starting point represents the depreciation expense as per Profit and Loss as at 31 December 2016;
Note 8:
- The starting point represents the rent expense and the operational lease expense as per Profit and Loss as at 31 December 2016;
Note 9:
- The starting point represents the other expenses as per Profit and Loss as at 31 December 2016;

3.8. Cash flow budgets

Elements Q1 Q2 Q3 Q4 Total
1 Cash beginning balance 11,769,172 14,585,319 27,022,737 38,795,657
2 Cash receipts
3 Sales 2 months ago 5% 6,560,791 5,526,325 5,777,640 6,048,107 23,912,862
4 Sales last month 20% 24,018,612 22,416,540 23,493,336 24,508,741 94,437,228

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5 Sales current month 75% 81,727,716 85,229,177 89,535,427 93,093,954 349,586,274
6 Receivables from bad debts 14,233,836 5,100,000 - - 19,333,836
7 Other receivables 3,863,229 1,545,291 1,545,291 772,646 7,726,457
8 Total receipts, VAT excluded 130,404,184 119,817,333 120,351,694 124,423,447 494,996,657
9 Cash payments
10 Direct materials 95,671,083 75,320,160 75,470,800 96,123,380 342,585,423
11 Direct labour 226,187 300,981 316,924 329,594 1,173,686
12 Consumables 956,267 973,816 1,005,710 851,382 3,787,175
13 Energy and water 1,483,799 1,511,029 1,560,517 1,321,053 5,876,399
14 Rent 502,016 511,229 527,972 508,056 2,049,272
15 Indirect wages 2,008,512 2,068,767 2,151,518 2,216,064 8,444,861
16 Indirect wages - social contributions 559,371 576,152 599,198 617,174 2,351,894
Other third parties services expenses
18,033,405 18,364,352 18,965,805 16,055,471 71,419,032
17 (telecom, travel, advertising, legal etc)
18 Assurance and taxes 286,716 291,978 301,541 311,677 1,191,912

19 Other expenses 247,737 252,283 260,546 269,304 1,029,869

20 Administrative wages 5,375,838 5,451,099 5,614,632 5,811,144 22,252,714

21 Administrative wages - social contributions 1,497,171 1,518,131 1,563,675 1,618,404 6,197,381


22 Total payments, VAT excluded 126,848,099 107,139,978 108,338,837 126,032,703 468,359,617
23 VAT paid - - - - -
24 Income tax 739,937 239,937 239,937 239,937 1,459,748
25 Total payments 127,588,036 107,379,915 108,578,774 126,272,639 469,819,365
26 Net increase/decrease in cash 2,816,147 12,437,417 11,772,920 (1,849,192) 25,177,292
27 Cash ending balance 14,585,319 27,022,737 38,795,657 36,946,464

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- For the year 2018, we estimated cash receipts especially from sales. In the current month it receives 75% of revenues, the rest of 25%
are credit sales that will be received as follows: 20% in the next month; 5% in the next 2 months;

Q1 Q2
January February March Total April May June Total
Sales 2 months ago 5% 2,372,310 2,372,310 1,816,171 6,560,791 1,816,171 1,816,171 1,893,982 5,526,325

Sales last month 20% 9,489,240 7,264,686 7,264,686 24,018,612 7,264,686 7,575,927 7,575,927 22,416,540
Sales current month
27,242,572 27,242,572 27,242,572 81,727,716 28,409,726 28,409,726 28,409,726 85,229,177
75%

Q3 Q4
July August September Total October November December Total
Sales 2 months ago 5% 1,893,982 1,893,982 1,989,676 5,777,640 1,989,676 1,989,676 2,068,755 6,048,107

Sales last month 20% 7,575,927 7,958,705 7,958,705 23,493,336 7,958,705 8,275,018 8,275,018 24,508,741
Sales current month
29,845,142 29,845,142 29,845,142 89,535,427 31,031,318 31,031,318 31,031,318 93,093,954
75%

- At 31 december 2016 the company has a balance of RON 47,446,199 on credit sales account. 30% are received in Q1, the rest of 70%
(RON 33,212,339) represents bad debts. Another amount of RON 5,100,000 is received in Q2;

- At 31.12.2016 the company has a balance of RON 40,852,335 RON on trade payables account, paid during the year 2018 as follows:
50% in Q1 and 50% in Q4;

- We assumed that the liabities from Q4 were paid in proportion of 75%, excluding wages that were paid 100%;

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3.9. Budgeted income statement

Expenses functions
Result
Result according Cost of Admin Selling
Expenses nature according to Notes
to the nature goods sold Expenses Expenses
the function
Revenue 466,115,032 466,115,032
Raw Materials -301,431,130 301,431,130 Note 1
Third party expenses -83,222,153 22,894,301 60,327,852 Note 2
Wages and social
-41,939,649 10,796,755 28,450,094 2,692,800 Note 3
contributions
Taxes and assurance -1,191,912 327,893 864,018 Note 4
Operating depreciation -21,456,586 3,861,651 10,175,681 7,419,254 Note 5
Consumables -5,045,309 1,093,602 2,881,707 1,070,000 Note 6
Other operating expense -5,829,869 283,316 746,553 4,800,000 Note 7
Cost of sales 340,688,648 -340,688,648
Administrative expenses 103,445,906 -103,445,906
Selling expenses 15,982,054 -15,982,054
Result from operating
5,998,423 5,998,423
activities
Income tax 959,748
Profit of the year 5,038,675

Note 1:
- This balance represents the amount of the purchases performed during 2018;
Note 2:

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- Please refer to Indirect Production budget and Aministrative Budget (Other third party expenses and Rent expense);
Note 3:
- The sources of cost of goods sold balance are: Human Resources Budget and Indirect production budget;
Note 4:
- Please refer to Indirect Production budget and Aministrative Budget;
Note 5:
- Please refer to Indirect Production budget, Aministrative Budget and Selling Expenses Budget;
Note 6:
- Please refer to Indirect Production budget, Aministrative Budget and Selling Expenses Budget;
Note 7:
- Please refer to Indirect Production budget, Aministrative Budget and Selling Expenses Budget;

3.10 Bugeted balance sheet

Elements 2017 2018 Budgeted Notes


ASSETS
Current Assets 740,000,000 804,492,626
Cash 30,000,000 36,946,464 From Cash Flow Budget
Accounts receivable 430,000,000 466,115,032 From Sales Budget
Raw materials inventory 280,000,000 301,431,130 From Direct Materials Budget
Activating in FMCG market we won`t be working with inventory
Finished goods inventory 0 0 goods. We intend to sell everything we produce without taking into
consideration opening and closing inventories.
Property, Plant and Equipment 390,445,000 390,379,319

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The tangible assets are presented at net value, by deducting the
Plant and equipment 400,555,000 390,379,319
depreciation recorded in 2017 as it is a fixed amount charged anually;

Less: Acc. depreciation 10,110,000 10,175,681 From factory overhead


Total Assets 1,130,445,000 1,194,871,945

Liabilities 300,500,000 301,431,130


Current liabilities 300,500,000 301,431,130
Accounts payable 300,500,000 301,431,130 From Direct materials Budget
Interest payable 0 0
Notes payable 0 0
Stockholders` equity 1,100,000 1,200,000
Common stock 500,000 500,000
Retained earnings 600,000 700,000
Total liabilities and equity 301,600,000 302,631,130

3.11 Cost-Volume-Profit Analysis

Total Milk Yoghourt Butter Cheese


Total Fixed Cost 5,338,335.00 1,334,584.00 1,334,584.00 1,334,584.00 1,334,584.00
Total vartiable cost 317,018,468.00 222,642,070.00 53,449,314.00 38,137,322.00 2,789,763.00
Variable cost by unit 3.03 2.07 4.59 9.78

In order for us to calculate the indicators it was necesary to establish the variable cost / unit.

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Activity indicators Milk Yoghourt Butter Cheese Total
Quantity units 73,477,484 25,814,728 8,312,412 285,107 107,889,731
Price 4.50 3.00 6.50 14.00
Variable Cost 3.03 2.07 4.59 9.78
Fixed Cost 5,338,335
Turnover 330,648,678 77,444,184 54,030,678 3,991,498 466,115,038
Variable cost -Total 222,642,070 53,449,314 38,137,322 2,789,763 317,018,469
Contribution margin per unit 1.47 0.93 1.91 4.22
Contribution margin Global 108,006,608 23,994,870 15,893,356 1,201,735 149,096,569
Contribution margin Average 1.38
Net Income 143,758,234
Contribution margin ratio 33% 31% 29% 30% 32%
Break-Even in units 2,630,664.00 923,243.00 297,447.00 11,589.00 3,862,943
Break-Even in mu 16,689,037
Margin of safety ratio 96%
Margin of safety 449,426,001

To obtain the equilibrium structure of the Break-Even in units we computed the weight of the amount of each product in the total
production.

Weight in
Product total Quantity
production
BE_milk 0.681 2,630,664.00
BE_yogurt 0.239 923,243.00
BE_butter 0.077 297,447.00
BE_cheese 0.003 11,589.00

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When manufacturing and selling the 4 products, the total quantity of 3,862,943 units is enough for operating income to be 0.

For revenues to be equal to costs we need to produce 2.630.664 units of Milk, 923.243 units of Yogurt, 297.447 units of Butter and
11.589 units of Cheese

The sales value at Break Even point is 16.689.037 LEI.


For all 4 products the Contribution margin ratio has a positive value.

Increase selling price and decrease variable cost by 0.5 mu


Activity indicators 2018 Milk Yoghourt Butter Cheese Total
Base Modified Base Modified Base Modified Base Modified Base Modified
Quantity units 73,477,484 73,477,484 25,814,728 25,814,728 8,312,412 8,312,412 285,107 285,107 107,889,731 107,889,731
Price 4.50 5.00 3.00 3.50 6.50 7.00 14.00 14.50
Variable Cost 3.03 2.53 2.07 1.57 4.59 4.09 9.78 9.28
Fixed Cost 5,338,335 5,338,335
Turnover 330,648,678 367,387,420 77,444,184 90,351,548 54,030,678 58,186,884 3,991,498 4,134,052 466,115,038 520,059,904
Variable cost -Total 222,642,070 185,903,328 53,449,314 40,541,950 38,137,322 33,981,116 2,789,763 2,647,210 317,018,469 263,073,604
Contribution margin per unit 1.47 2.47 0.93 1.93 1.91 2.91 4.22 5.22
Contribution margin Global 108,006,608 181,484,092 23,994,870 49,809,598 15,893,356 24,205,768 1,201,735 1,486,842 149,096,569 256,986,300
Contribution margin Average 1.38 2.38
Net Income 143,758,234 251,647,965
Contribution margin ratio 33% 49% 31% 55% 29% 42% 30% 36% 32% 49%
Break-Even in units 3,862,943 2,241,176
Break-Even in mu 16,689,037 10,803,121
Margin of safety ratio 96% 98%
Margin of safety 449,426,001 509,256,783

Overall increase in net income of 43%

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