Answered: Prepare a cash budget for Dortex Ltd…

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 30P

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Question

Dortex Ltd is a small importer of photocopiers. In recent months it has been selling 50 machines a month at a price of £2,000 each. These machines cost £1,600 each. A new model has just been launched and this is expected to offer greatly enhanced performance. Its selling price and cost will be the same as for the old model. From the beginning of January Year 6, sales are expected to increase at a rate of 20 machines each month until the end of June Year 6, when sales will amount to 170 units per month. They are expected to continue at that level thereafter. Operating costs including depreciation of £2,000 a month are forecast as follows:

		Jan		Feb		Mar		Mar		May		June
Operating costs (£000)		7		8		9		10		11		12

Dortex expects to receive no credit for operating costs. Additional shelving for storage will be bought, installed and paid for in April, costing

£12,000. Corporation tax of 25,000 is due at the end of March. Dortex expects that trade receivables will take two months to pay. To give their customers a good level of service, Dortex plans to hold enough inventories at the end of each period to fulfil anticipated demand from customers in the following month. The photocopier manufacturer, however, grants one month's credit to Dortex.

Statement of financial position at 31 December Year 5
		£000
ASSETS
Non - current assets		80
Current assets
Inventories		112
Trade receivables		200
Cash		-
		312
Total assets		392
EQUITY AND LIABILITIES
Equity
Share capital - 25p ordinary shares		10
Retained earnings		177
		187
Current liabilities
Trade payables		112
Taxation		25
Overdraft		68
		205
Total equity and liabilities		392

Required:

Prepare a cash budget for Dortex Ltd showing the cash balance or required overdraft for the six months ending 30 June Year 6. ( I have done this and it is giving deficit)

And identify the action response to cashdeficit and cash surplus revealed by budgetary planning and control for efective organizational decision making. (I do not know how to interpret the deficit and give suggestion and reason as to why it is a deficit and what to do if it was a surplus) and also how does thecosing balance change due to the closing balance etc

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