Len Auck and Brian Land trade as partners in Auckland Manufacturing Company making components for minicomputers. To cope with increasing demand the partners intend to extend their manufacturing capacity but are concerned about the effect of the expansion on their cash resources during the build-up period from January to April 2016. The following information is available.

(a) The statement of financial position of Auckland Manufacturing Company at 31 December 2015 is expected to be:

(b)

(c) New plant costing £25,000 will be delivered and paid for in January 2016.

(d) Raw material inventory are to be increased to £12,000 by the end of January 2016, thereafter raw material inventory will be maintained at that level. Payment for raw materials is made two months after the month of delivery. Finished goods inventory will be maintained at £18,500 throughout the period. There is no work in progress.

(e) Sales for the four months are expected to be:

Sales for several months prior to 31 December had been running at the rate of £18,000 per month. It is anticipated that all sales will continue to be paid for two months following the month of delivery.

(f) The cost structure of the product is expected to be:

(g) Indirect wages and salaries included in overheads amount to £900 for the month of January and £1,000 per month thereafter.
(h) Depreciation of plant and machinery (including the new plant) is to be provided at £700 per month and is included in the total overheads.
(i) Wages and salaries are to be paid in the month to which they relate; all other expenses are to be paid for in the month following the month to which they relate.
(j) The partners share profits equally and drawings are £400 per month each.
(k) During the period to April an overdraft facility is being requested.

Required:
(a) A forecast statement of profit or loss for the four months January to April 2016 and a statement of financial position as at 30 April 2016.
(b) A month by month cash forecast for the four months showing the maximum amount of finance required during the period.
(c) A calculation of the month in which the overdraft facility would be repaid on the assumption that the level of activity in April is maintained.
For the purposes of this question, taxation and bank interest may be ignored.

Transcribed Image Text:

Non-current assets Plant and machinery at cost Less Depreciation Current assets Inventory - raw materials - finished goods Accounts receivable Cash at bank Current liabilities Accounts payable Partners' capital accounts Len Auck Brian Land F 10,500 18,500 36,000 4,550 4 65,000 28,000 37,000 69,550 106,550 (27,550) 79,000 40,000 39,000 79,000