Q. 1 (Max. Marks:30)

Tom Hardy plans to sell DVD players over the internet & by mail order. He buys the players for $31 & sells them for $52. If payment by cheque accompanies the mail order (estimated to be 40% of sales), he gives 10% discount. If customers include a credit card number for either internet or mail order (estimated 30% of sales), they receive 5% discount. The remaining collections are estimated as follows:

One month following

15%

Two months following

6%

Three months following

4%

Uncollectable

5%

Sales forecast are:

September

140 units

October

240 units

November

330 units

December

420 units

January

Business terminated

Max plans to pay his supplier 50% in the month of purchase, and 50% in the following month. A 6% discount is granted on payments made in the month of purchase. However, Max will not be able to take any discounts on the September purchases because of cashflow constraints. All September purchases will be paid for in October.

Max has 50 players on hand (purchased in August and to be paid in September), and plans to maintain enough end-of-month inventory to meet 70% of the next month's sales.

Required:

Prepare schedules for monthly budgeted cash receipts (10 marks) & cash disbursements (13 marks) & the cash budget (5 marks). During which month will Max need to finance purchases? (2 marks)