Printing4Everyone Ltd has been established to open a print studio in Cardiff.

Following a series of meetings by the budget committee of Printing4Everyone Ltd, the following information has been collected relating to the first 3 months of activity:

Trading:

Sales are expected to be as follows:

September and October 40,000 a month, November 50,000.

90% of sales are for cash, the remainder of sales are on credit terms and collected 1 month later. 50% of Cash Sales are allowed a 5% NUS discount.

Stock purchases are estimated to be 40% of sales each month purchased as sales are made. Suppliers are paid one month in arrears.

One experienced staff member will be employed at a cost of 2,000 a month and each of three directors will initially take 1,000 per month in salary. Overheads are forecast to be 2,000 per month and paid one month in arrears.

Rent is 36,000 per year, one half payable in September and another in October.

The Shop has been stocked at a cost of 60,000 and this is paid in September.

Fixtures and Fittings will cost 120,000 and will be depreciated at 10% of cost per year on a straight-line basis.

Financing:

Each director will contribute 15,000 in Capital and a 120,000 loan has been arranged with repayments over 10 years through equal monthly repayments of 1,600, to cover capital and interest.

Required:

a) Prepare a monthly cash budget for the three months September to November.

(11 marks)

b) Comment on the cash position from September to November, including any recommended course of action regarding the cash balance over the period concerned.

(8 marks)

c) Discuss the differences between fixed and flexible budgets. The discussion should include the definition of each and the main points of differences.

(6 marks)