Newtake Records Limited owns a chain of 14 stores selling CDs and DVDs. At the beginning of June, the business had an overdraft of $35,000, and the bank has asked for this to be eliminated by the end of November of the same year. As a result, the directors of the business have recently decided to review their plans for the next six months in order to comply with this requirement.
The following forecast information was prepared for the business some months earlier:

Notes:
1. Inventory held at June 1 was $112,000. The business believes it is necessary to maintain a minimum inventory level of $40,000 over the period ended November 30 of the same year.
2. Suppliers sell on terms of 30 days for payment. The first three months' purchases are subject to a contractual agreement that must be honoured.
3. The gross profit margin is 40%.
4. All sales income is received in the month of sale. However, 50% of customers pay with a credit card. The charge made by the credit card business to Newtake Records Limited is 3% of the sales value.
These charges are in addition to the selling expenses identified above. The credit card business pays Newtake Records Limited in the month of sale.
5. The business has a bank loan that it is paying off in monthly installments of $5,000 per month. The interest element represents 20% of each installment.
6. Administration expenses are paid when incurred. This item includes a charge of $ 15,000 each month in respect of depreciation.
7. Selling expenses are payable in the following month.
Required:
(a) Prepare a cash budget for the six months ended November 30 that shows the cash balance at the end of each month.
(b) Calculate the projected inventory levels at the end of each month for the six months ended November 30.
(c) Prepare a pro forma income statement for the six months ended November 30. (A monthly breakdown of profit is not required.)
(d) What problems is Newtake Records Limited likely to face in the next six months? Can you suggest how the business might deal with these problems?

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May Jun. . Aug. Sep. ct. Nov. ($000) ($000)(000) ($000) ($000) ($000) ($000) 180 230 320 250 140 120 110 94 53 Expected sales Purchases Admin. expenses Selling expenses 2 Payment of taxes Loan and interest 135 180 142 55 56 28 57 52 46 19 21 payments Store upgrades 18