A. Crystal Computers owns a chain of seven shops selling computer goods. In the past, the company maintained a healthy cash balance. However, this has fallen in recent months, and at the end of September 2020 it had an overdraft of $100,000. In view of this, its managing director has asked you to prepare a cash forecast for the next six months. You have collected the following information (the amounts are in $'000): 2020 Nov Dec 250 200 Jan 250 Feb 350 2021 March 200 April 80 Cash Sales forecast 180 160 130 40 50 60 Cash purchases Wages and salaries Rates 40 40 50 40 40 45 Other expenses 60 25 25 25 25 25 25 250 Refurbishing shops [TASK 1] Comment on the projected cash balances for the first three months (Nov and Dec 2020, as well as Jan 2021). [6 marks] [TASK 2] In Feb 2021, Crystal is expected to spend $250,000 for refurbishing work of its shops. Based on your answer in (1), would Crystal have enough amount of cash balance to finance the refurbishing work? What should it do to ensure that it can undertake the work? [6 marks] B. Barron Ltd's sales department has been successfully achieving its targets for the past three years. Those in the department were rewarded handsomely by the company due to their sustainable performance. Mr Clarke, the Chief Financial Officer (CFO), however, was a bit sceptical on the ability of the department to consistently beating the targets. Upon a close examination, he was frustrated to learn that the sales targets of the department were set considerably lower than the actual capability of the department. [TASK] Explain the reasons why a manager might submit a biased budget estimate, which is lower or higher than the targets achievable using the resources and opportunities available. [6 marks] A. Crystal Computers owns a chain of seven shops selling computer goods. In the past, the company maintained a healthy cash balance. However, this has fallen in recent months, and at the end of September 2020 it had an overdraft of $100,000. In view of this, its managing director has asked you to prepare a cash forecast for the next six months. You have collected the following information (the amounts are in $'000): 2020 Nov Dec 250 200 Jan 250 Feb 350 2021 March 200 April 80 Cash Sales forecast 180 160 130 40 50 60 Cash purchases Wages and salaries Rates 40 40 50 40 40 45 Other expenses 60 25 25 25 25 25 25 250 Refurbishing shops [TASK 1] Comment on the projected cash balances for the first three months (Nov and Dec 2020, as well as Jan 2021). [6 marks] [TASK 2] In Feb 2021, Crystal is expected to spend $250,000 for refurbishing work of its shops. Based on your answer in (1), would Crystal have enough amount of cash balance to finance the refurbishing work? What should it do to ensure that it can undertake the work? [6 marks] B. Barron Ltd's sales department has been successfully achieving its targets for the past three years. Those in the department were rewarded handsomely by the company due to their sustainable performance. Mr Clarke, the Chief Financial Officer (CFO), however, was a bit sceptical on the ability of the department to consistently beating the targets. Upon a close examination, he was frustrated to learn that the sales targets of the department were set considerably lower than the actual capability of the department. [TASK] Explain the reasons why a manager might submit a biased budget estimate, which is lower or higher than the targets achievable using the resources and opportunities available. [6 marks]
