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3. Budgeting: 15 mark Common Retail operates a retail clothing company which sells men and women's clothing as well as workplace uniforms. Jay Dobbs, the
3. Budgeting: 15 mark Common Retail operates a retail clothing company which sells men and women's clothing as well as workplace uniforms. Jay Dobbs, the owner, is concerned with maintaining a healthy cash balance. The cash forecast for the next three months follows Forecasted Cash Receipts for three months to 30 June 2019 April May June Receipts Cash from cash and credit sales $118,000 $174,000 $220,000 Sales estimates used for the cash budget are $170,000 $160,000 $130,000 May March $180,000 June April $190,000 July $150,000 The cost of goods sold is expected to be 55% of sales. * .Purchases of clothing are as follows: Purchased on one month's credit and pay in the following month. Ending inventory equals 22% of next month's sales. Wages are $14,500 (April), $14,000 (May) and $13,000 (June). Rent is $7,000 per month. Other general expenses are $20,000 per month. Wages, rent and other general expenses will be paid in the month that they incur. Taxation is estimated to be $10,000 and will be paid in June . (a) For April, May and June 2019 () Prepare an inventory purchases budget to determine the purchases for each month Inventory purchase budget. Please show all working Ma June Workings: (ii) Prepare a cash budget to determine the closing cash balance at the end of each month. The bank balance on 1 April was an overdraft of $23,000. Please show all working Cash budget. June April Receipts Outflows: Net cash flow Opening cash Closing balance Workings: (b) Jay foresees cash flow problems during the next six months. It has been suggested that the outlet reduce the inventory levels. Explain the advantages and disadvantages of taking this action
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