Carolanne wishes to open up a launderette. She is applying for an overdraft facility and the bank requires a cash budget for the first four months of business. The following additional information is available:

1. She intends to start her business with 2,000 in the business bank account.

2. The launderette will open 24 days a month.

3. Sales will be:

Month 1 will be 200 washes

Months 2 and 3 will be 400 washes per month

Month 4 will be 700 washes. Carolanne charges 2 per wash and 1 for drying. 80% of washes will be dried on the premises.

4. In months 1, 2 and 3, advertising costs will be 30 per month.

5. In month 4, she will employ a part-time assistant at an expected cost of 20 per morning.

6. Washing powder and other washing materials will cost 15 per day.

7. The launderettes fixed costs will be 300 per month.

8. The total cost of the washing machines and dryers will be 18,000. These costs will be paid for in equal monthly instalments over two years.

9. Each month, Carolanne will withdraw for personal use 150 or 10% of the gross monthly revenue, whichever is the greater amount.

REQUIRED

(a) Prepare a cash budget for Carolanne for each of the first four months.

(b) Explain the benefits to Carolanne of drawing up this cash budget.