Reference no: EM132955272
Question - ABC Limited is planning to start operations on the first of July 2021 selling different types of electronic devices. The following details were made available for you to assist the company's management in planning its cash needs.
The following additional information is also available:
-It is estimated that approximately 70% of the sales is going to be received in cash at the time of the sale and 30% is going to be received one month later.
-The full cost of purchases is paid to the suppliers in the month following the purchase.
-Staff salaries are budgeted at £900,000 per year payable every month.
-ABC management is planning to rent a property for which it will pay £50,000 monthly. The rent is due on the first day of each month. According to the rental agreement, the company will have to pay an initial deposit of £75,000.
-ABC aims at commencing the promotion of its products through running an advertising campaign starting July 2021. It is expected that the monthly cost of the campaign will be £60,000.
-Administration expenses are budgeted to be £60,000 per month, 50% of which is paid in the same month and the rest is paid the following month.
-The company is planning to purchase new equipment to meet the increase in demand on their products costing £480,000. The equipment will be paid for in twelve equal instalments beginning in July 2021.
-On the first of July 2021, management intends to have £20,000 cash in the company's bank account.
Required -
a) Prepare the cash budget by month and in total for the three months period July to September of 2021.
b) Make suggestions to ABC's management to help it deal with any shortfalls in cash in any of the three months included in the budget.