Meant of credit budget
The definition of dealing with bank credit:
It means the money which the company borrows from others in exchange for payment of the cost ( debit interest ) on the value of these borrowed funds until is paid this funds and income statement bears their share from this cost during the year when the income statement is prepared as this cost is discounted from the achieved revenue.
The aim of evaluation of dealing with bank credit
Knowledge of the company's ability to market the value of total sales (which include the sales value of the budget which the company is targeting to achieve, in addition to the excess value of sales and required to be marketed to cover debit interest. Is marketing manager able to market this total sales value or not? If the company is able to do that, it can deal with this credit. But if it isn’t able to do that, it should retreat from this credit.
Evaluation requirements to deal with bank credit
Data entry form includes the required elements to prepare an evaluation of dealing with bank credit on the following
In the case of preparing evaluation of dealing with bank credit for one product which benefits from this loan
1 - The value of the sale price of the product per unit
2 - The value of product cost per unit
3 - The share of the product ( for example A ) from general and administrative expenses , including depreciation for the full year
4 - The share of the product ( for example, A ) from the debit interest, which is paid annually.
5 - The share of the product ( for example, A ) from total fixed and current assets.
6 - Choose the degree of efficiency of the preparation of the budget that is targeted to achieve ( Good degree is the start point of safety - or very good degree - or high very good degree).
Example
1 - The selling price of the product ( A) = 12 pounds
2 - The cost of the product ( A) = 8 pounds
3 - The share of the product ( for example A ) from the total general and administrative expenses including depreciation for the full year , which amounted to 600,000 pounds. it estimated 200,000 pounds.
4 – The share of product ( A) from the debit interest , which amounted to 350,000 pounds yearly. it estimated at 116 666 pounds
5 - The share of the product ( for example, A ) from total fixed and current assets Which amounts to 2500000 pounds. it estimated at 833 333 pounds.
6 - The company targeted to achieve budget of good degree.
The result of evaluation of dealing with bank credit for one product which benefits from this loan
First: Budget of good degree
Sales value = 912,499.86
(-)The value of purchases= 608,333.24
===========
Gross Profit = 304,166.62
(-)Expenses = 200,000
==========
Net profit = 104,166.62
Second: the credit budget
Sales value = 349 998
(-)The value of purchases= 233 332
=========
Gross Profit = 116 666
(-)Debit interest = 116 666
=========
Net Profit = 00
Third: Total sales that required to market
1 - The value of total sales that target to sell in order to achieve budget when good degree is = 912,499.86 pounds
2 - The value of the excess sales that required to market annually to cover the debit interest is = 349 998 pounds
3 - Total sales required to sell during the year 1,262,497.86 = pounds In the case the marketing manager is able to market value of total annual sales ( 1,262,497.86 pounds ).Then the company will deal with this credit, In the case the marketing manager is not able to market value of total annual sales then the company refrain this deal
In the case of evaluation of dealing with bank credit for all products that befit from this loan
1 - The sum of the prices of these products
2 - Sum of the values of the costs of these products
3 - Total general and administrative expenses , including depreciation for the full year and for these products
4 - Total debit interest for a full year for these products
5 - Total fixed and current assets for these products
6 - Choose the degree of efficiency of the preparation of the budget that is targeted to achieve ( Good degree is the start point of safety - or very good degree - or high very good degree)
Example
1 - The selling price of the product ( A) = 12 pounds
The sale price of the product ( B) = 20 pounds
The sale price of the product ( C) = 26 pounds
Total price values of the company's products = 58 pounds ( enter in the data entry form )
2 - The cost of the product ( A) = 8 pounds
The cost of the product (B) = 17pounds
The cost of the product ( C) = 21 pounds
Total costs of the values of the company's products = 46 pounds ( enter in the data entry form )
3 - Total general and administrative expenses , including depreciation for the full year which amounted to 600,000 pounds ( This value is included in the data entry form )
4 - Total debit interest for a full year for these products amounted to 350,000 pounds ( This value is included in the data entry form )
5 - Total fixed and current assets which amounts to 2,500,000 pounds ( This value is included in the data entry form )
6 - The company targeted to achieve a good degree of budget
The result of evaluation of dealing with bank credit for all products which benefit from this loan
First: Budget of good degree
Sales value = 4,410,416.66
(-) The value of purchases= 3,497,916.66
==========
Gross Profit = 912 500
(-) Expenses = 600000
==========
Net profit = 312500
Second, the credit budget
Sales value = 1,691,666.66
(-) The value of purchases= 1,341,666.66
===========
Gross Profit = 350000
(-) Debit interest = 350000
===========
Net Profit = 00
Third: Total sales that required to market
1 - The value of total sales that target to sell in order to achieve budget when good degree is = 4,410,416.66 pounds
2 - The value of the excess sales that required to market annually to cover the debit interest is = 1,691,666.66 pounds
3 - Total sales required to sell during the year 6,102,083.32 = pounds In the case the marketing manager is able to market value of total annual sales ( 6,102,083.32 pounds ). Then the company will deal with this credit, In the case the marketing manager is not able to market value of total annual sales then the company refrain this deal