Reference no: EM133117276
Nail Co manufacture and sell glassware, they have the following predicted figures
Nov Dec Jan Feb Mar
Sales 20,000 24,000 26,000 30,000 32,000
Var Costs 6,000 7,200 7,800 9,000 9,600
Half of the sales are cash and the remainder on credit. Of the credit sales three quarters are expected to pay the month following the sale and the remainder two months after the sale. Variable costs are paid in the month they occur and fixed costs are £3,000 per month. In February interest of £500 is due to be paid and in March there is planned capital expenditure of £50,000.
At the start of January the bank balance is £3,400
Required
a) Produce a cash budget for January, February and March showing clearly the balance at the end of each month.
b) Give advice to Nail Co as to how they could manage their cash position more efficiently
Ulfield plc adapted from an ACCA question
The directors of Ulfield have decided to introduce a better cash management system. It has been suggested that the Miller - Orr model would allow them to balance liquidity and profitability. They have decided that the lower limit of cash that they require is £7,500. It has been calculated that the cost to the company of making deposits or withdrawing funds is £18 per transaction and the standard deviation of cash flows is £1,000. Interest rates on investments are currently 5.11%
Required
a) Explain how the Miller-Orr model helps to balance liquidity and profitability
b) Calculate the spread, upper limit and return point for the cash account of Ulfield using the Miller -Orr model
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