Luis and Jos have set up a partnership, baking and selling cupcakes directly to consumers and supermarkets. They called the business Tasty Cupcake (TC). They used their savings of $3000 as starting capital. The partners need an overdraft agreement from the local bank. The bank manager asked for a cash-flow forecast.

Luis has forecasted the following sales and cost figures for the first six months of operation, beginning in January.

Sales

• Average selling price of one cupcake: $5.

• Sales of cupcakes: 1300 cupcakes in January and 1700 cupcakes per month from February

• 70 % of customers who purchase cupcakes will pay in cash. The supermarkets will buy the remaining 30 % of cupcakes on credit and pay one month later.

Costs

• Rent: $6500, payable at the start of each quarter.

• Labour costs: $750 per month.

• Raw materials: 50 % of sales revenue per month, paid in cash.

• Overheads: $400 per month, paid in cash.

a. Prepare a monthly cash-flow forecast for TC for the first six months of operation.