**PART B. Extended Calculation and Analysis**### Fit for the Future LimitedEmma Richards is a qualified personal trainer. Before the pandemic, she offered 1-2-1 fitness sessions with clients in their homes and conducted various classes at a local community center. Her classes included cardio-dance, High-Intensity Interval Training (HIIT), and Fitness Pilates. Her business is called "Fit for the Future Limited". During the pandemic, she diversified her product offerings due to national lockdowns and restrictions. Emma pivoted to online classes and 1-2-1 sessions via conferencing tools like Zoom.Despite these challenges, Emma managed to retain approximately 65% of her clients. However, she lost the remaining clients to alternatives such as freely accessible YouTube fitness channels. Emma is preparing her cash budget for July, August, September, and October 2021.### Membership PackagesEmma offers three levels of monthly membership packages:| Package | Details | Cost ||---------|---------|------|| **Bronze** | Access to all group classes Monday - Friday | £15 per month || **Silver** | Access to all classes Monday – Sunday and personalized fitness and nutritional planner | £22 per month || **Gold** | All of the above, plus two 1-2-1 sessions with Emma per week | £30 per month |### Budgeted Client Numbers (June - October)Emma has provided projected client numbers for the next four months.| | June | July | August | September | October ||-------|------|------|--------|-----------|---------|| **Bronze** | 65 | 65 | 67 | 69 | 80 || **Silver** | 36 | 38 | 44 | 48 | 49 || **Gold** | 8 | 8 | 9 | 10 | 11 |### Additional Financial Considerations1. **Credit Terms**: Emma offers credit terms of 1 month to all her silver and gold customers, which they utilize. Payments from bronze customers are collected in the same month the service is provided.2. **Equipment Upgrades**: Emma currently uses her old laptop and speakers. She plans to buy a new laptop and sound system to improve the quality of her classes in August 2021. She will make a deposit of £500 on this purchase with the ### Budgeting Exercise for Fit for the Future LimitedThis exercise provides detailed instructions for preparing and analyzing a cash budget over a four-month period (July, August, September, and October 2021) for Fit for the Future Limited. Below is a breakdown of the points from the exercise:### Expense Information1. **Broadband Costs**: - Emma pays for fibre optic broadband to ensure a reliable internet connection for her classes. - Charged at £40 per month (payable in the incurred month). - Notification of a 5% increase beginning in September.2. **Marketing Agency**: - A marketing agency was engaged to update the company webpage for £850. - Initial 20% payment (£170) made in May 2021. - Balance of £680 due in August 2021.3. **Staff Wages**: - Administrative assistant wage: £1,000 per month. - Emma's wage: £2,000 per month. - From October 2021, the assistant will be awarded a 5% pay rise.4. **Depreciation**: - Equipment depreciation charged at £50 per month.5. **Opening Cash Balance**: - Expected opening cash balance on 1 July 2021: £5,500.6. **Insurance**: - Personal Trainer Insurance: £10 per month, payable annually in advance every 1 October.7. **Other Expenses**: - Including utility bills: £100 per month, paid in the incurred month.8. **Business Loan**: - £10,000 business loan taken at an annual interest rate of 6%. - Annual interest payment of £600 due in July 2021.### Requirements**(i) Prepare a Cash Budget**Prepare a cash budget for the months of July, August, September, and October 2021, considering the above costs and wage increments. This should detail the cash inflows and outflows to determine the ending cash balance for each month.**(ii) Analyze Budgeted Figures**Analyze the budgeted figures and changes in the cash balance throughout the period. Identify any potential cash flow issues and make recommendations to Emma to optimize cash management strategy.**(iii) Evaluate Profit and Cash Flow**Emma contends that the profits for this period should be approximately equal to the net cash inflow for the same period. Investigate and

Cash Budget - A cash budget is an estimation of cashflows of the company over a particular period of…

4. Emma pays for fibre optic broadband to ensure a reliable internet connection for all of her classes. This is charged at a monthly rate of £40pcm, payable in the month it is incurred. However, she has been recently notified that this is likely to see a 5% increase from September onwards. 5. Earlier in the year, Emma engaged with a marketing agency to update her company webpage. The fee for this was £850. 20% was paid in May 2021. The balance is due in August. 6. Emma employs an administrative assistant to manage her membership records and perform her bookkeeping for her. She pays her assistant a wage of £1,000 per month. Emma takes a wage of £2,000 per month. Wages are paid in the month in which they are incurred. From October 2021, Emma intends to award her assistant a 5% pay rise. 7. Depreciation of all equipment is charged at £50 per month. 8. Opening cash balance on 1 July 2021 is expected to be £5,500. 9. Emma continues to pay Personal Trainer Insurance of £10 per month, payable annually in advance on 1 October 2021. 10. Other expenses, including utility bills relating to the business amount to £100 per month, paid for in the month in which they are incurred. 11. In February 2021, the company took on a £10,000 business loan at an annual interest rate of 6%. The annual interest payment is due in July 2021. Requirements: (i) Prepare a cash budget for July, August, September and October 2021 for Fit for the Future Limited. (ii) Analyse the budgeted figures and changes in the cash balance. In doing so, make any recommendations to Emma. (iii) Emma has stated that profits for the period should be more or less equal the net cash inflow for the period. Do you agree? Explain your reasoning.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q