sh Newtake Records Ltd owns a chain of 14 shops selling DVDs and CDs. At the beginning of June the business had an overdraft of $35,000 and the bank had asked for this to be eliminated by the end of November. As a result, the directors have recently decided to review their plans for the next six months. OV lo 230 afo The following plans were prepared for the business some months earlier: May June July Aug S000 $000 $000 $000 Sales revenue 180 320 250 Purchases 135 180 142 94 Administration expenses 52 55 56 53 Selling expenses 22 24 28 26 Taxation payment 22 Finance payments 5 5 5 5 Shop refurbishment 14 18 Sept $000 140 75 48 21 Oct S000 120 66 46 19 Noy 5000 110 57 45 18 5 5 6 ale ES By 0 s Notes 1. The inventories level at 1 June was $112,000. The business believes it is preferable to maintain a minimum inventories level of $40,000 over the period to 30 November 2. Suppliers allow one month's credit. 3. The gross profit margin is 40 per cent. 4. All sales proceeds are received in the month of sales. However, 50 per cent of customers pay with credit card. The charge made by the credit card business to Newtake Records Ltd is 3 per cent of the sales revenue value. These charges are in addition to selling expenses identified above. The credit card business pays Newtake Records Ltd in the month of sale. 5. The business has a bank loan, which it is paying off in monthly instalments of $5,000. The interest element represents 20 per cent of each instalment 6. Administration expenses are paid when incurred. This item includes a charge of $15,000 each month in respect of depreciation 7. Selling expenses are payable in the following month. Required (working to the nearest S1,000): (a) Prepare an inventories budget for the six months to 30 November also based on the table of plans above. (b) Prepare a cash budget for the six months ending 30 November which shows the cash balance at the end of cach month also based on the plans set out in the table above. (c) Prepare a budgeted income statement for the whole of the six-month period ending 30 November. (A monthly breakdown of profit is not required) (d) What problems is Newtake Records Ltd likely to face in the next six months? Can you suggest how the business might deal with these problems? Sept Nov The following plans were prepared for the business some months earlier: May June July Aug $000 $000 $000 $000 Sales revenue 180 230 320 250 Purchases 135 180 142 94 Administration expenses 52 55 56 53 Selling expenses 22 24 28 26 Taxation payment 22 Finance payments 5 5 5 Shop refurbishment 14 18 $000 140 75 48 21 Oct $000 120 66 46 19 $000 110 57 45 18 5 5 5 5 6 Notes 1. The inventories level at 1 June was $112,000. The business believes it is preferable to maintain a minimum inventories level of $40,000 over the period to 30 November 2. Suppliers allow one month's credit. 3. The gross profit margin is 40 per cent. . 4. All sales proceeds are received in the month of sales. However, 50 per cent of customers pay with credit card. The charge made by the credit card business to Newtake Records Ltd is 3 per cent of the sales revenue value. These charges are in addition to selling expenses identified above. The credit card business pays Newtake Records Ltd in the month of sale. 5. The business has a bank loan, which it is paying off in monthly instalments of $5,000. The interest element represents 20 per cent of each instalment. 6. Administration expenses are paid when incurred. This item includes a charge of $15,000 each month in respect of depreciation. 7. Selling expenses are payable in the following month. Required (working to the nearest $1,000): (a) Prepare an inventories budget for the six months to 30 November also based on the table of plans above. (b) Prepare a cash budget for the six months ending 30 November which shows the cash balance at the end of each month also based on the plans set out in the table above. (c) Prepare a budgeted income statement for the whole of the six-month period ending 30 November. (A monthly breakdown of profit is not required) (d) What problems is Newtake Records Ltd likely to face in the next six months? Can you suggest how the business might deal with these problems
