Insurance $1\mathrm{.}235$

Other $535$

$($c$)$A new to meet the increased demand will be purchased in May ate cost of $25,000-$a $25\%$ deposit will be paid in May. The balance will be paid in five equal monthly instalments beginning in June. The machine that is being replaced will be scrapped, scrap proceeds of $500$ will be received in May.

$($d$)$A VAT refund of $5,000$ relating to the purchase of the new machine is expected to be received in July.

$($e$)$ Sales are made on cash and credit terms. Cash customers pay at the time of purchase. $30\%$ of customer are cash customers, cash customers are given a $6\%$ discount. The remainder of the customers pay on credit, credit customers are offered $60$ days credit $($two months$),$ Customers who pay within $30$ days $($one month$)$ are offered a $4\%$ discount and it is estimated that $65\%$ of customers will take advantage of this discount.

Task $2$

Using the above information, you are to prepare a Cash Budget for the six months beginning in April. It is estimated that there will be a bank balance of $48,750$ at the end of March.

You must also identify any areas of concern highlighted by the cash budget and suggest how these concerns might be addressed.

Task$3$

Following discussions at Board level, based on the Cash Budget produced, the following alternative courses of action have been proposed:

Option $1$

The selling price is to be decreased by $2$ per unit and it is anticipated unit sales will increase sales by $5\%$ as a result of this decrease. Additional administration costs relating to additional sales orders are expected to beE$375$ per month.

Option $2$

Materials can be sourced from an alternative supplier which will reduce the cost by $2$ per unit however, there will be additional costs in terms of administration overheads of $80$ per month to manage the ordering process with the supplier.

Task $4$

You are to rework your original budget to illustrate the effect that the above changes will have on the final figures. From the three options, you most recommend which would be the best course of action and give reasons for your answer.