Mr Norman is going to set up a new business in Singapore on 1 January 20X8. He will invest $150,000 in the business on that date and has made the following estimates and policy decisions:

1 Forecast sales (in units) made at a selling price of $50 per unit are:

Month Sales units Month Sales units Januar y 1,650 May 4,400 Februar y 2,200 June 4,950 March 3,850 July 5,500 April 4,400 2 50% of sales are for cash. Credit terms are payment in the month following sale.

3 The units cost $40 each and the supplier is allowed one month’s credit.

4 It is intended to hold inventor y at the end of each month sufficient to cover 25% of the following month’s sales.

5 Administration $8,000 and wages $17,000 are paid monthly as they arise.

6 On 1 January 20X8, the following payments will be made: $80,000 for a five-year lease of the business premises and $350 for insurance for the year.

7 Staff sales commission of 2% of sales will be paid in the month following sale.

Required:

(a) A purchases budget for each of the first six months.

(b) A cash flow forecast for the first six months.

(c) A budgeted income statement for the first six months’ trading and a budgeted balance sheet as at 30 June 20X8.

(d) Advise Mr Norman on the investment of any excess cash.