Reference no: EM132561115
New Vision Trading Company Ltd. is planning to arrange for a six monthly overdraft facility with a bank. However, before finalization of any arrangement it wants to know the estimated requirements of cash. For this purpose it has hired you as consultant to make an estimate of the foreseeable cash requirements.
The following is the basic data regarding various business cycles of the company:
1. Sales forecast for the six months are as under:
Months Rs.
January 800,000
February 950,000
March 600,000
April 900,000
May 1,100,000
June 600,000
2. Purchases are made as and when required
3. No closing stock is maintained as the supplier has capability to supply any quantities at any time.
4. Gross profit ratio is maintained @ 20% of the sales price.
5. Various expenses for the six months are as under:
Rs.
Salaries and wages 390,000
Repair and maintenance 120,000
Insurance 6,000
Stores and spares 270,000
Duties 360,000
Legal Charges 24,000
6. Recoveries from the debtors are made as follows:
50% in the month of sale
30% in the month following the month of sale
20% in the second month after sales
7. Trade creditors are paid as under:
40% in the month of purchase
40% in the month following the month of purchase
20% in the second month after purchase
8. All other business expenses are paid in the month of expense. Expenses are evenly spread throughout the year.
9. The company commenced its business on 1.1.2000 with a cash balance of Rs.50,000.
Required:
Question 1: Prepare cash budget for the next six months
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