You are presented with the following flow forecasted cash flow data for your organisation for the period November 2001 to June 2002. It has been extracted from functional flow forecasts that have already been prepared. Nov 01 Dec 01 Jan 02 Feb 02 Mar 02 Apr 02 May 02 June 02 Sales 80,000 100,000 110,000 130,000 140,000 150,000 160,000 180,000 Purchases 40,000 60,000 80,000 90,000 110,000 130,000 140,000 150,000 Wages 10,000 12,000 16,000 20,000 24,000 28,000 32,000 36,000 Overheads 10,000 10,000 15,000 15,000 15,000 20,000 20,000 20,000 Dividends 20,000 40,000 Capital expenditure 30,000 40,000

You are also told the following.

(a) Sales are 40% cash 60% credit. Credit sales are paid two months after the month of sale.

(b) Purchases are paid the month following purchase.

(c) 75% of wages are paid in the current month and 25% the following month.

(d) Overheads are paid the month after they are incurred.

(e) Dividends are paid three months after they are declared.

(f) Capital expenditure is paid two months after it is incurred.

(g) The opening cash balance is 15,000.

The managing director is pleased with the above figures as they show sales will have increased by more than 100% in the period under review.

In order to achieve this he has arranged a bank overdraft with a ceiling of 50,000 to accommodate the increased inventory levels and wage bill for overtime worked.

Required: Prepare a cash flow forecast for the six-month period January to June 2002. (30 marks)

Comment on your results in the light of the managing directors comments and offer advice (5 marks)