Question
1 (Budgeting) Carruthers & Co was founded at the end of June 2017. The company has a capital of 40,000 of which 25,000 invested in
1 (Budgeting) Carruthers & Co was founded at the end of June 2017. The company has a capital of 40,000 of which 25,000 invested in fixed assets (plants and machinery). The company budgeted data for the first six months (July to December 2017) are as follows in Tables 1 and 2 shown below: Table 1. Budgeted data for six months (July to December 2017) Sales Materials used Materials purchased during the period Wages Overheads (including depreciation of 2,000) 600,000 240,000 260,000 180,000 140,000 Table 2. Budgeted data for six months (July to December 2017) Expected cash receipts and payments for six months Receipts from sales Payments for materials July August September October November December Total 40,000 50,000 50,000 70,000 120,000 150,000 480,000 60,000 60,000 20,000 20,000 20,000 20,000 200,000 Overheads and wages are paid evenly each month. Carruthers & Co is convinced that the business will be profitable in its first six months of trading and is planning to use the surplus cash generated from the business as a basis for expanding the operations of the business early next year. Required: a) Produce a simple profit and loss account for the first six months July to December 2017. Can you confirm Carruthers & Co.'s expectations regarding their business prospects? (40 marks) b) Produce a cash budget for the six months identifying the maximum additional funding the owner will need to raise. (40 marks) c) Advise Carruthers & Co on the action they should take to improve the company cash-flow position. (provide your answers in max. 200 words) Five valid reasons-4 marks per valid reason (20 marks) Total 100 marks
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