Reference no: EM132426855
Question - The following information relates to forecasts of activity for Information Technology plc:
|
2008
|
Sales £000s
|
Materials £000s
|
Wages £000s
|
Expenses £000s
|
|
January
|
300
|
200
|
60
|
40
|
|
February
|
400
|
180
|
90
|
50
|
|
March
|
280
|
170
|
80
|
60
|
|
April
|
360
|
220
|
70
|
40
|
|
May
|
280
|
160
|
70
|
60
|
|
June
|
300
|
120
|
80
|
50
|
|
July
|
340
|
170
|
70
|
50
|
|
August
|
400
|
200
|
80
|
60
|
Notes -
1. Three-quarters of sales are on credit and customers are allowed one month in which to pay.
2. Wages are paid as they fall due. Suppliers of materials grant one month's credit and suppliers of expenses allow two month's credit.
3. From the capital budget it is known that a payment of £350,000 for new machinery is due to be made in June.
4. The proceeds of an issue of new shares, amounting to £500,000, will be received in August.
5. The expected cash balance at 1 March 2008 is £250,000.
6. Information Technology plc currently does not have a bank overdraft facility.
Required -
(a) Prepare a Cash Budget for the six months to 31 August 2008, by month and in total.
(b) Discuss the significant features in the Cash Budget which you have prepared for Information Technology plc.
(c) Explain why the preparation of a detailed Cash Budget is useful for management control.