James Limited, a distributor of garden ornaments, is preparing monthly Budgets for th
James Limited, a distributor of garden ornaments, is preparing monthly Budgets for the 3 months ending 31st December 2006.
Forecasts have been drawn up as follows:
MONTH (2006) SALES (£) PURCHASES (£)
AUGUST 330,000 275,000
SEPTEMBER 350,000 265,000
OCTOBER 340,000 250,000
NOVEMBER 290,000 290,000
DECEMBER 360,000 300,000
JANUARY 370,000 320,000
ADDITIONAL INFORMATION:
1. The Bank Balance on 1st October 2006 is estimated at £19,800.
2. 55% of sales are credit sales.
Payments from trade receivables are received two months after the transaction takes place.
Remaining sales are cash sales.
3. Purchases of plants are made for 50% for cash and 50% on credit. Trade payables are paid one month after the transaction takes place. The business plans to maintain stocks at their existing levels.
4. Overheads, including heating and electricity, are £31,900 per month payable by cheque.
5. The wages bill is £26,000 per month, paid by cheque.
6. Rent is £280,000 per annum and is paid quarterly in arrears.
7. Depreciation is estimated at £6,500 per month.
8. The company plans to purchase a new van to deliver plants to customers, the van will cost £42,000. Payment is due in November.
9.The company has arranged a loan of £29,000 to be received in November. No interest will be payable in 2006, but thereafter interest is to be paid at 6% per annum.
Required
Required:
a)Prepare a Cash Budget for James Limited for the 3 months ending 31st December 2006.
Submit the Cash Budget
b)What advice would you give the management of James Limited?
