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Calculate the value of monthly purchases

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Question - John Jones runs a shop which makes all of its sales for cash. Forecasts for the first half of 2021 are:

Sales January to March - £60,000 per month

April to June - £70,000 per month

Purchases A gross margin of 20% on selling prices is made

Every item sold is immediately replaced

Suppliers are paid in the month following delivery

Payments Wages and other expenses £6,000 per month

Drawings £1,500 per month

New shop fittings costing £4,000: delivered 1 January and paid for in February.

Opening balances Owed to suppliers £40,000

Cash £10,000

Ignore interest on any overdraft which may arise.

Required -

(a) Calculate the value of monthly purchases.

(b) Prepare a cash forecast for John Jones for the first six months of 2021/ which shows the cash balance at the end of each month.

(c) Comment on the position shown by the forecast.

Reference no: EM133187238

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