Sue runs a business called Oxford Cycles, selling fold-up bicycles. She set this up in 2010 and is now looking to expand by taking on two extra members of staff to help meet a recent sharp increase in demand. This is as a result of a contract with the local council, who have given their staff the option of free fold-up bicycles, paid for by the council, ift hey cycle to work. There has been good take-up from staff in relation to this offer. The contract will be fulfilled over the next year, and the estimated sales figure for Oxford Cycles includes the council's contracted amounts.

Details of the business are as follows:

* Oxford Cycles expects to have a bank balance of £3,500 at 31 December 2011.

At that date, the business will owe £1,600 to suppliers for goods supplied in December 2011.

* Sue has negotiated a bank overdraft facility of £2,000 for the next two years to 31 December 2013.

The shop rental is £900 per quarter, payable in January, April, July, and October.

* Allsales are made for cash. Purchases are made on one month's credit.

* Sue's sales income for January to June 2012 is predicted to be as follows:

Sue makes a 33.33% gross profit margin on each bicycle sold. Sue is planning to buy a van at the beginning of January. The cost of the van will be £4,200. Petrol for the van will be paid in cash and is estimated as £200 per month. Sue plans to take £700 out of the business each month to cover her personal living expenses. The cost of the two new members of staff means that the total monthly wage bill paid in cash will be £1,200 from January 2012. Sue spends £400 per month on electricity costs.

REQUIRED:

a) Prepare a cash budget for Oxford Cycles for the six months ending 30 June 2012.

b) What advice would you give to Sue?

Transcribed Image Text:

Income from bicycle sales January 8,000 February 6,000 March 5,000 April 5,000 May 5,000 June 8,000