Cash Budget Question

Alberta Ltds estimated revenues for the first four months of 2010 is as follows:

January R108,500

February R106,200

March R120,500

April R120,500

All sales are on credit. Customers are expected to pay one-quarter of their debts a month after the sale and the remainder after two months: sales expected for November 2009 are R95,500, and for December 2009, R105,300. Material purchases for the same period are:

January R21,500

February R21,200

March R24,400

April R24,100

One fifth of the materials are paid for in the month of purchase and the remainder two months later: deliveries received in November 2009 wereR18,800, and in December 2009, R19,600.

Old factory equipment is to be sold in February 2010 for R2,800. Receipt of the money is expected in April 2010. New equipment will be installed at a cost of R20,000. One quarter of the amount is payable in February2010 and the remainder 2 months later. Wage costs during this period are as follows: January R4,300

February R4,200

March R4,800

April R4,900

Three-quarters of the wages are payable in the months they fall due, the remainder a month later: wages for December 2009 are estimated atR4,200. Overhead costs are as follows:

January R72,300

February R70,800

March R80,200

April R80,400

R12,000 of total monthly overheads are payable in the month they occur, and the remainder one month later: total overheads for December2009 are expected to be R69,400.

The opening bank balance at 1 February 2010 is expected to be an overdraft of R11,000.

REQUIRED:

(a) Construct a monthly cash budget for Alberta Ltd for the 3 months from 1st Feb to 30th April 2010, showing the cash balance at the end of each month. (A total column is not necessary (35 marks)

(b) Advise the company about possible ways in which it can improve its cash management both in the long-term and the short-term (15 marks)