III. Accounting and Finance asolanting Question 4 Aval Foods Ltd. plans to invest 63,000,000 in new equipment next year in order to increase production by 50%. The increase in production will occur in May and continue thereafter You may assume that all overhead costs. DO NOT increase as a result of the increase in production You are paid invoices on time one month after supply. Last year's corporation tax bill due during June Your Equipment Supplier has agreed to accept full payment in May . You have 12.500.000 in the bank at present. All annual costs are to be paid each month at 1/12 of the total cost EO SO * Starting with the month of Apr 2023, use the data above to create cash flow forecast to the nearest pound) from April to July, directly following the increase in production 110 marks] 2015 Sale Price of which duty of which material Current Production Rate EO 25 5,000,000 units/month What are the limitations of cash flow forecast? Is marks 220,000 annual cost E60,000 How does comparing actual revenues, costs and profits with how much cash is forecast help a business? Provide examples where appropriate 15 marks Wages Utilities Bank Charges Office Expenses Tax & NI 6,000 annualcom annual cost anal cost al cost 440,000 55,200 3,000,000 New Equipment Cost interest Paid on Credit Balances Interest to be paid on Overdraft Corporation Tax 2% of credit balance per year (paid monthly of overdraft balance per year Ipad 12% month 1,307,000 peld each year in June Additional Notes: Duty is paid on a monthly basis, one month following the date at which duty is incurred. That is, duty on April's sales is paid in May, and duty on March's sales is paid in April. The current production rate of March is the same as in April You keep 1 month worth of materials on site. Increased materials are paid for starting in April. Income from increased sales starts in May, increased duty payments are due to start in June Your bank manager has offered you an overdraft facility to cover the cost of expansion You are paid invoices on time one month after supply. Last year's corporation tax bill is due during June. Your Equipment Supplier has agreed to accept full payment in May. You have 2,500,000 in the bank at present. All annual costs are to be paid each month at 1/12 of the total cost a) Starting with the month of April 2023, use the data above to create a cash flow forecast (to the nearest pound) from April to July, directly following the increase in production. [10 marks) b) What are the limitations of a cash flow forecast? (5 marks] c) How does comparing actual revenues, costs and profits with how much cash is forecast help a business? Provide examples where appropriate. (5 marks] III. Accounting and Finance Question 4 Aval Foods Ltd. plans to invest 3,000,000 in new equipment next year in order to increase production by 50%. The increase in production will occur in May and continue thereafter. You may assume that all overhead costs DO NOT increase as a result of the increase in production Sale Price 0.50 of which duty 0.15 of which material 0.25 Current Production Rate 5,000,000 units/month Wages 220,000 annual cost Utilities 60,000 annual cost Bank Charges 6,000 annual cost Office Expenses 440,000 annual cost Tax & NI 55,200 annual cost New Equipment Cost 3,000,000 Interest Paid on Credit Balances 2% Interest to be paid on Overdraft of credit balance per year (paid monthly) of overdraft balance per year (paid monthly paid each year in June 12% Corporation Tax 1,307,000 Additional Notes: Duty is paid on a monthly basis, one month following the date at which duty is incurred. That is, duty on April's sales is paid in May, and duty on March's sales is paid in April. The current production rate of March is the same as in April. You keep 1 month worth of materials on site. Increased materials are paid for starting in April. Income from increased sales starts in May, increased duty payments are due to start in June. Your bank manager has offered you an overdraft facility to cover the cost of expansion II. Accounting and Finance Question 4 Aval Foods Ltd. plans to invest 3,000,000 in new equipment next year in order to increase production by 50%. The increase in production will occur in May and continue thereafter. You may assume that all overhead costs DO NOT increase as a result of the increase in production Sale Price 0.50 of which duty 0.15 of which material 0.25 Current Production Rate 5,000,000 units/month 220,000 annual cost Wages Utilities Bank Charges 60,000 annual cost 6,000 annual cost Office Expenses 440,000 annual cost Tax & NI 55,200 annual cost New Equipment Cost 3,000,000 Interest Paid on Credit Balances 2% Interest to be paid on Overdraft of credit balance per year (paid monthly) of overdraft balance per year (paid 12% monthly 1,307,000 paid each year in June Corporation Tax Additional Notes: Duty is paid on a monthly basis, one month following the date at which duty is incurred. That is, duty on April's sales is paid in May, and duty on March's sales is paid in April. The current production rate of March is the same as in April. You keep 1 month worth of materials on site. Increased materials are paid for starting in April. Income from increased sales starts in May, increased duty payments are due to start in June. Your bank manager has offered you an overdraft facility to cover the cost of expansion. You are paid invoices on time one month after supply. Last year's corporation tax bill is due during June. Your Equipment Supplier has agreed to accept full payment in May. You have 2,500,000 in the bank at present. All annual costs are to be paid each month at 1/12 of the total cost a) Starting with the month of April 2023, use the data above to create a cash flow forecast (to the nearest pound) from April to July, directly following the increase in production. [10 marks) b) What are the limitations of a cash flow forecast? (5 marks] c) How does comparing actual revenues, costs and profits with how much cash is forecast help a business? Provide examples where appropriate
