[Question 5]

Andrew Nugent has been working as a Transport Manager for Grace Foods and has retired. He intends to start up in business on his own account, using $150 000 which he has invested at Guardian Asset Management. Andrew maintains an account with National Commercial Bank with a minimal balance but intends to approach the bank for the necessary additional finance. Andrew asked for advice and provided the following additional information.

1. Arrangements have been made to purchase fixed assets costing $80 000. These will be paid for at the end of September and are expected to have a five year life, at the end of which they will possess a nil residual value.

2. Stocks costing $50 000 will be acquired on 28 September and subsequently monthly purchases will be at a level sufficient to replace forecast sales for the month.

3. Forecast monthly sales are $30 000 for October; $60 000 for November and December, and $105 000 from January 2008 onwards.

4. Selling price is fixed at the cost of stocks plus 50%.
5. Two months credit will be allowed to customers but one months credit will be received from suppliers of stock.
6. Running expenses are estimated at $16 000 per month.
7. Andrew intends to make monthly cash drawings of $10 000.

REQUIRED:

Prepare a cash budget for six months to 31 March 2008.

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