2.6 Newtake Records Ltd owns three shops selling rare jazz and classical recordings to serious collectors. At the beginning of June, the business had an overdraft of 35,000 and the bank has asked for this to be eliminated by the end of November of the same year. As a result, the directors of the business have recently decided to review their plans for the next six month s in order to comply with this requirement. The following forecast information was prepared for the business some months earlier: May June July Aug Sept Oct Nov 000 000 000 000 000 000 o00 110 57 Expected sales 230 180 140 180 135 52 320 250 120 142 Admin. expenses Selling expenses Tax payment Finance payments Shop refurbishment 53 48 46 28 26 21 18 5 14 18 6 Inventories held at 1 June were 112,000. The business believes it is necessary to main- tain a minimum inventories level of 40,000 over the period to 30 November of the same 1 2 Suppliers allow one month's credit. The first three months' purchases are subject to a contractual agreement that must be honoured. The gross profit margin is 40 per cent. All sales income is received in the month of sale. However, 50 per cent of customers pay with a credit card. The charge made by the credit card business to Newtake Records Ltd is 3 per cent of the sales value. These charges are in addition to the selling expenses identified above. The credit card business pays Newtake Records Ltd in the month of sale. The business has a bank loan that it is paying off in instalments of 5,000 per month. The interest element represents 20 per cent of each instalment. Administration expenses are paid when incurred. This item includes a charge of 15,000 each month in respect of depreciation. 3 4 5 6 7 Selling expenses are payable in the following month