The figures in the table below relate to HM Sdn Bhd which is seeking your advice on its financial position.

2020 2021

Expected Results Budgets

November December January February March April

Sales 60,000 70,000 72,000 66,000 60,000 68,000

Materials 30,000 35,000 36,000 33,000 30,000 34,000

Direct Labour 12,000 14,000 14,400 13,200 12,000 13,600

Overheads 12,600 14,700 15,200 13,800 12,700 14,300

TOTAL COSTS 54,600 63,700 65,600 60,000 54,700 61,900

NET PROFITS 5,400 6,300 6,400 6,000 5,300 6,100

You are provided with the following additional information:

• Each month consists of four weeks.
• 20% of sales are for cash, and 80% on credit. Half the credit customers pay in the month following the month of the sale and the balance two months later.
• All purchases are on credit and are paid for in the month following the month of the purchase after first deducting a 5% cash discount.
• Wages are paid one week in arrears.
• Overheads which include RM2,500 for depreciation each month are otherwise paid in the following month.
• In January 2021, the company will purchase a new delivery van for RM42,000 less RM6,000 trade in on the old van. Payment will be made 50% in the month of purchase and the balance of 50% in March.
• The bank balance at start of January 2021 is expected to be RM 2,800.
• No stock of raw materials or finished goods is held

Required:

a. Prepare the 4 months Cash Budget from January to April 2021. (14 marks)

b. Advise the management concerning the financial position of the company. (6 marks)