Question
Advanced Coatings Ltd. is a major distributor of paints and industrial coatings. It sells on credit to a wide range of industrial and wholesale customers.
Advanced Coatings Ltd. is a major distributor of paints and industrial coatings. It sells on credit to a wide range of industrial and wholesale customers. It offers credit terms, 2/10 net 40, in an effort to induce more customers to pay early.It receives 30-days credit from its suppliers. Sales for July to December (in $M) are 60, 85, 115, 125, 175, 210 respectively. From experience, it expects to collect 20% of any month's sales in that same month, 65% in the following month, and the remaining 15% in the second month following the month of sale. Its expenditure projections for the six-month period July to December, as a percentage of the month's projected sales are; for raw material (65%) paid in the following month, wages and salaries (15%), lease payments (10%). Taxes are paid at the end of each quarter and are $22M. The budgeted cash balance at September 30 was ($4).
(i)Set out ABC's cash budget for the Oct - Dec quarter(11 marks)
(ii)Identify whether there is a net cash deficit or net cash surplus for each monthand identify one course of action that could be taken with this net balance ineach month.(4 marks)
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