x Update Available We've made some fixes and improvements. To complete the G78 X V H K L M N O O LL C W WCM Assessment You have been asked to prepare a cash budget for the period from March to June based on the following data Material Heat & Sundry Expenses (inc Period Tumover Labour Purchases Light Depn) 3,000 1,200 4,400 January 15,000 7,200 4,800 February 16,200 7,800 3,300 1,050 March 3,600 900 5,200 17,400 8,400 April 18,600 9,000 3,900 750 5,60 600 6,000 May 19,800 9,600 4,200 10 200 450 6,400 June 21,000 4,500 The budgeted cash balance at the end of February is expected to be E14,000 Customer terms Cash sales 25% Cash discount (on cash sales) 2% Credit sales (two month's credit) 75% Suppliers terms: Cash purchases 40% Suppliers (one month's crealt Labour. Wages are paid in the month of production All other costs paid in the month incumed Other income/expenditure: Rates are payable quarterly in advance from January. The annual rates bill is 7,200 It is expected that rent will be received of 200 per month from April onwards Depreciation of non-current assets amounts to 1,000 per month New equipment costing 18,000 will be bought in February and paid for in three instalments in March, June and September, Required: 1 (a) Prepare a cash budget for the period March to June. (b) Advise management of any possible uses for cash surpluses identified and how they may plan for any cash deficits. A supplier is offering a 3% cash discount for payment within 14 days. Altematively, they will allow a maximum of 40 days credit. The business is expecting to be short of cash but an overdraft facility is available from the bank at an annual interest rate of 14% Would you advise the firm to pay early to receive the discount? The firm is concemed that their working capital ratios indicate that they are operating with significantly lower working capital than most other firms In their industry. The figures are summarised in the table below: Competitor Firm Current ratio 1.25 1 1.80 1.60 1 1.50 :1 Acid-test ratio 0.50 1 1.40 :1 1.20 1 0.85 1 Debtor days 35 days 38 days 34 days Creditor days 36 days 12 days 16 days 18 days Stock turnover 15 days 48 days 44 days 40 days 38 days You have been asked to prepare a report to management which should address the following Issues: What information can we get from the Current Ratio and the Acid-Test Ratio and what is the difference between these two ratios? . Comment on whether these ratios might indicate a problem with the fin's working capital situation . Explain what is meant by the working capital cycle, making reference to the various components of working capital and use the components to calculate the film's working capital cycle and compare with that of the various competitors. . Make specific recommendations to improve the firm's working capital situation and discuss any possible drawbacks of trying to implement such changes. Question Cash budget Discount WCC Ready KAccessibility: Unavailable