Question 5 Andre Lapierre, a skiing enthusiast, plans to open a ski school on 1 November 2017 spending the month of November preparing for skiing lessons which are due to start on 1 December 2017. Andre estimates the following expenditure in the first months of operating the school: 40 pairs of skis 480 per pair 60 pairs of ski boots 180 per pair 4 ski instructors 3,000 per month (excl. employer insurance cost) Public liability and general insurance 5,000 per month The skis and ski-boots will be purchased for cash during November 2017. The ski instructors will be hired for three months, with the related 15% employer insurance costs paid one month in arrears. Public liability and general insurance cost for three months is payable in total and in advance on 1 December 2017. As his school is new to the resort, the management have restricted him to operate at a lower altitude level, therefore increasing his reliance on good snow. For revenue, Andre provides the following projected information: Dec 2017 Jan 2018 Feb 2018 Skiing days 10 25 20 Groups per day 4 3 Price per group 140 220 200 Casual skiers 10 8 Casual skiers price per lesson 60 85 85 6 4 Groups price covers both the lesson and equipment (skis and boots). Groups will pay a cash deposit of 50% one month in advance of the lesson and will pay the balance on the day of the lesson. Casual skiers will be charged a separate rental fee for skis 15 and boots 10. It is expected that one in two casual skiers will rent skis and 30% will rent boots. All revenue from casual skiers will be received in cash on the day of the lesson Andre has 5,000 to invest in the business on 1 November 2017. Two family members will also invest 3,000 each on that date and will be repaid in full on the last day of February 2018. Andre approached his local bank who has offered to provide a four-month term loan of 10,000 on 1 November 2017. The loan and interest (5% simple interest) is to be repaid in full on 28 February 2018 and is conditional on the cash-flow projections demonstrating that the business will break even in cash by 28 February 2018. Andre has asked for your help in preparing cash budgets for the first four months (November 2017 to February 2018) of the business. At the end of the conversation Andre mentioned to you that if the figures do not meet the bank's requirements, you could increase the projected number of groups each month to whatever level is necessary to secure the loan. Requirement: (a) Calculate the budgeted monthly sales revenue from groups for December 2017 January and February 2018. 2 Marks (6) Prepare a monthly cash budget for the ski school for the four months commencing 1 November 2017. 13 Marks