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a) Prepare a cash budget for the 3 months period February to April. b) Discuss the cash budget in (a) stating any concerns you would have about the figures and any steps the management of Gray Ltd could take to improve the company's cash flow position. (200 words) c) Explain why a business should prepare a cash budget.

a) Prepare a cash budget for the 3 months period February to April. b) Discuss the cash budget in (a) stating any concerns you would have about the figures and any steps the management of Gray Ltd could take to improve the company's cash flow position. (200 words) c) Explain why a business should prepare a cash budget.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question 1 The following data has been extracted from the operating budgets of Gray Ltd for 2023. The company manufactures shoes for sale to large retailers shop and in its own high street shops: Income from high street shop sales Month Income Raw material Labour Overheads from sales purchases to retailer £ January £ £ 255,000 90,000 232,500 97.500 5,500 February 262,500 232,500 112,500 225,000 90,000 5,500 March 75,000 232,500 97,500 8,200 67,500 April May 232,500 236,250 108,750 8,400 150,000 71,250 225,000 105,000 9,500 1. It is estimated that approximately 75% of cash from sales to retailers is received at the time of sale and 25% is received one month later. It is also agreed with the retailer that 5% of May sales will be paid one month in advance. 2. Sales in the high street shops are all in cash and received at the time of sale. 3. The company rents out one of its stores. It is going to receive cash rent income of £6,000 in April 2023. 4. 60% of payments for raw materials are made in the month of purchase, 40% one month later. 5. Labour costs are paid in full at the end of each month. 6. A new machine costing £120,000 is to be acquired on 28th February. The new machine will be paid for in 3 equal monthly instalments beginning in March. 7. Monthly overheads are paid one month after they are incurred and include £3,700 of depreciation. The monthly depreciation amount will increase by £4,000 in March 2023 due to the purchase of the new machine. 8. The opening bank balance on 1st February 2023 is forecast to be £130,000. The company is also forecast to have £20,000 in cash on 1st February 2023. Required a) Prepare a cash budget for the 3 months period February to April. b) Discuss the cash budget in (a) stating any concerns you would have about the figures and any steps the management of Gray Ltd could take to improve the company's cash flow position. (200 words) c) Explain why a business should prepare a cash budget.
Transcribed Image Text:Question 1 The following data has been extracted from the operating budgets of Gray Ltd for 2023. The company manufactures shoes for sale to large retailers shop and in its own high street shops: Income from high street shop sales Month Income Raw material Labour Overheads from sales purchases to retailer £ January £ £ 255,000 90,000 232,500 97.500 5,500 February 262,500 232,500 112,500 225,000 90,000 5,500 March 75,000 232,500 97,500 8,200 67,500 April May 232,500 236,250 108,750 8,400 150,000 71,250 225,000 105,000 9,500 1. It is estimated that approximately 75% of cash from sales to retailers is received at the time of sale and 25% is received one month later. It is also agreed with the retailer that 5% of May sales will be paid one month in advance. 2. Sales in the high street shops are all in cash and received at the time of sale. 3. The company rents out one of its stores. It is going to receive cash rent income of £6,000 in April 2023. 4. 60% of payments for raw materials are made in the month of purchase, 40% one month later. 5. Labour costs are paid in full at the end of each month. 6. A new machine costing £120,000 is to be acquired on 28th February. The new machine will be paid for in 3 equal monthly instalments beginning in March. 7. Monthly overheads are paid one month after they are incurred and include £3,700 of depreciation. The monthly depreciation amount will increase by £4,000 in March 2023 due to the purchase of the new machine. 8. The opening bank balance on 1st February 2023 is forecast to be £130,000. The company is also forecast to have £20,000 in cash on 1st February 2023. Required a) Prepare a cash budget for the 3 months period February to April. b) Discuss the cash budget in (a) stating any concerns you would have about the figures and any steps the management of Gray Ltd could take to improve the company's cash flow position. (200 words) c) Explain why a business should prepare a cash budget.
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