Client 1: Power Direct (30 marks) (A):

Prepare the Cash Budget for Power Direct for the three months ending June 2014

. Power Direct has an overdraft facility with its bank under which it can borrow up to a maximum of 50,000. As at 1 April its bank account is 10,000 overdraft.

Cash is received in the month following the sale.

The sales for the period are estimated to be as follows:

Forecasted Sales:

February: 18500

March: 19,000

April: 15,000

May: 1000

Other cash payments are:

Wages 10,000 will be paid in May

Packaging Costs 6,000 will be paid in April

Other Expenses total 2,000 per month

Drawings are 4,000 per month.

Income Tax Expense of 5,000 is scheduled to be paid in April. (final tax)

The business plans to purchase and pay for a new Motor Vehicle in June for 20,000.

(B): In the months where the cash balance is negative, Power Direct would like your expert advice on how the cash balance could be improved. Write a short report to Power direct stating:

700 words

1. What is meant by cash flow?

2. Why it is important to have a strong cash balance for a company like Power Direct.

3. Explain why good management of cash flow starts with good forcasting.

4. Explain how Power Direct could benefit form delaying its cash outflow?

5. What are the precautionary measures that the Power Direct can follow in the months where cash balance could be negative. You need to suggest both cost management measures and funding measures to Power Direct.

6. Examine two ways in which the cash flow forecast may be unreliable..