You are presented with the following forecasted cash flow data for your organisation for the period November 2016 to June 2017. It has been extracted from functional flow forecasts that have already been prepared.

Nov Dec Jan Feb Mar Apr May June

K000 K000 K000 K000 K000 K000 K000 K000

Sales 80 100 110 130 140 150 160 180

Purchases 40 60 80 90 110 130 140 150

Wages 10 12 16 20 24 28 32 36

Overheads 10 10 15 15 15 2 0 20 20

Dividends declared 20 40

Capital expenditure 30 40

(FOR SALES,PURCHASES,WAGES ,OVERHEAD FIGURES ARE ON EACH MONTH NOV TO DECEMBER WHILE DIVIDENDS DECLARED IN DEC AND APRIL...CAPITAL EXPENDITURE JAN AND APRIL)

You are also told the following.

i) Sales are 45% cash 55%% credit. Credit sales are paid two months after the month of sale.

ii) Purchases are paid the month following purchase.

iii) 65% of wages are paid in the current month and 35% the following month.

iv) Overheads are paid the month after they are incurred.

v) Dividends are paid three months after they are declared. K10, 000 dividends were declared in October, 2016.

vi) Capital expenditure is paid two months after it is incurred. The expenditure for October, 2016 was K11,000

vii) The opening cash balance is K20, 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 K50,000 to accommodate the increased inventory levels and wage bill for overtime worked.

Required

(a) Prepare a cash flow forecast for the six-month period January to June 2017.

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