Reference no: EM133186076

Question - Mr. Protap Mitra is proposing to start his own small business, commencing on 1st January 2022, following redundancy.

Mr. Protap Mitra has made the following estimates in order to establish his liquidity position over the first 6 months of trading. This is for the purpose of obtaining a short-term bank loan, or other means of further funding the business the business startup, if required.

(1) The business will commence with RM80,000 in the bank, made up of Mr. Protap Mitra's savings totaling R60,000 plus a loan that will be taken form the bank of RM 20,000. Half of the loan is to be repaid on 30th July 2022. Mr. Protap Mitra is also buying property, requiring a deposit of RM90,000 to be paid on 1st January followed by monthly repayment of RM 6,000 commencing in February.

(2) Equipment and a motor van will be purchased, to be paid in January, for RM80,000 and RM90,000 respectively.

(3) Purchases of raw materials on credit, paid for one month after purchase will be:

January February March April May June July

RM60,000 RM75,000 RM90,000 RM60,000 RM50,000 RM40,000 RM55,000

(4) Sales, in units are forecast to be:

February March April May June July

4,000 6,000 7,000 6,000 8,000 6,000

30% of the units sold each month will have a selling price of RM9 per unit, paid for in the month after sale. The remaining units (70%) will be sold for RM10 per unit, paid for 2 months after sale.

(5) Six staff will be employed, from 1st Jan, each paid RM1,000 per month gross on the last day of each month. Mr. Protap Mitra will withdraw RM5,000 per month for his own living expenses.

(6) Inventory of other materials costing RM5000 will be purchased in January, payable one month later. Inventory is expected to cost RM4,000 per month commencing in February, with payment one month later.

(7) Advertising will be RM4,000 per month from January to March, followed by advertising of RM5,000 per month from April, paid for in the month incurred.

(8) Interest on the loan is 1% per month, payable on the 15th of each month commencing in January 2022.

Required -

(a) Determine monthly cash budget for the period January to June 2022.

(b) Advice Mr. Protap Mitra what, if any, additional funding is indicated by the cash budget and what action you would recommend him taking.