ABC pic is experiencing cash flow problems. The managing director asks you to devise a system to improve the company's ability to budget its cash position for one month ahead.

An examination of past data products the following information:

Cash expenditure

(i) The company maintains a strict policy of payment for raw material supplies 1 calendar month after receipt of the goods

(ii) It has certain fixed monthly cash payments for all other expenditures than wages and salaries amounting to 30000 per month

(iii) Wages and salaries are in the main a fixed monthly cash expense, but there is an element which varies directly with the actual invoiced sales for each month The fixed component of the wages and salaries bill amounts to 30000 per month, with the variable element averaging 15 per cent of actual invoiced sales After analysing this relationship further it is determined that it has:

coefficient of determination value of 0.81 standard error of the estimate value of 5000 standard error of the regression coefficient value of 0.0009 Cash revenue On average 60 per cent of customers pay their invoices one calendar month after their receipt and the remaining 40 per cent pay the invoices 2 calendar months after their receipt.

Data for the last 3 months reveals:

Feb Mar Apr REQUIRED Actual

(invoiced)

sales

$000 150 165 140 Raw material purchases

$000 60 70 55

(a) Estimate the change in the company's cash position in May

(b) Estimate the limits on the change in the cash balance based on establishing the 95 per cent confidence intervals for cash expenses (the t-statistic for the 95 per cent confidence interval

= 2.074 for the expense estimate)

(c) Explain the meaning of the terms 'coefficient of determination' and 'standard error of the regression coefficient' in the context of the above example ICMA. PS, Part I, Qualitative Techniques, May 1981.