Trellis Ltd is a small start-up business hoping to grow and diversify in future, currently engaged...

 

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Trellis Ltd is a small start-up business hoping to grow and diversify in future, currently engaged in the bespoke manufacture of one product, a decorative garden fence. The company's overdraft limit is £15,000 and the directors wish to ensure that this is not exceeded between 1 October 2022 and 31 January 2023, as it wants to prove to its lenders that it can manage its cashflow. I 4 Each fence has the following selling price and direct costs per unit: £ - Selling price Direct material Direct labour Variable production expenses" Variable selling expenses Contribution Predicted sales quantities for the next 4 months are:< Sales Units P 4 October 2022 November 2022 December 2022- January 2023 200--> (120)** (20) (10) (20) 250 280 300- 340 £30 O fe 4² e P De om DE Extracts from the latest financial statements, as at 30 September 2022 included the following: ¹ 41 el Trade receivables + T Inventory Utilities bill (payable in October 2022) 4 4 Bank overdraft (trading bank account)" # Trade payables- + Variable selling expense accrual . ● The following information is also relevant:< 40% of sales each month are expected to be for cash (received immediately) and the remaining sales will be on 1 month's credit. ● 15,000- 17,000+¹ 400- 2,000+ 25,000+ 2,200 . de W de توله Purchases of direct material are made in the month of sale and Trellis Ltd takes, on average, one month's credit from its suppliers before payment.+¹ Direct labour cost and variable production expenses are paid for in the month in which they are incurred. The variable selling expenses are paid in the following month. Fixed expenses of £4,500 are paid each month as they are incurred.< Trellis I td has an £8.000 loan from a private source received on 1 January 2022.00. . . b) . ● they are Trellis Ltd has an £8,000 loan from a private source received on 1 January 2022 on which interest of 10% is payable after a year, on 31 December each year. The funds from the loan were deposited into its trading bank account on 1 January 2022. The company is planning to purchase additional machinery on 1 October 2022 at a cost of £9,000 payable in two equal instalments in October 2022 and December 2022. The company is planning to purchase space at a local Garden Centre to show off its garden fences and future products. A payment of £3,000 will be paid in full in November 2022 to secure the space for 2023, which is often in high demand. • Taxation owed from the previous period is £8,000 and will be paid in November 2022.< d An inventory of finished goods is kept for emergency orders. This is not expected to change throughout the period. Required: a) Prepare a month-by-month cash flow budget for Trellis Ltd using a tabular format, showing the closing balance expected each month, for the four months from 1 October 2022 to 31 January 2023.< (17 Marks)< Calculate the current ratio and 'acid test' quick ratio as at 31 January 2023. (5 Marks) Based on your answer to part a) and b), advise the directors on whether they need to take action and, if so, what action they might take to manage their cash position. (8 Marks)+ Trellis Ltd is a small start-up business hoping to grow and diversify in future, currently engaged in the bespoke manufacture of one product, a decorative garden fence. The company's overdraft limit is £15,000 and the directors wish to ensure that this is not exceeded between 1 October 2022 and 31 January 2023, as it wants to prove to its lenders that it can manage its cashflow. I 4 Each fence has the following selling price and direct costs per unit: £ - Selling price Direct material Direct labour Variable production expenses" Variable selling expenses Contribution Predicted sales quantities for the next 4 months are:< Sales Units P 4 October 2022 November 2022 December 2022- January 2023 200--> (120)** (20) (10) (20) 250 280 300- 340 £30 O fe 4² e P De om DE Extracts from the latest financial statements, as at 30 September 2022 included the following: ¹ 41 el Trade receivables + T Inventory Utilities bill (payable in October 2022) 4 4 Bank overdraft (trading bank account)" # Trade payables- + Variable selling expense accrual . ● The following information is also relevant:< 40% of sales each month are expected to be for cash (received immediately) and the remaining sales will be on 1 month's credit. ● 15,000- 17,000+¹ 400- 2,000+ 25,000+ 2,200 . de W de توله Purchases of direct material are made in the month of sale and Trellis Ltd takes, on average, one month's credit from its suppliers before payment.+¹ Direct labour cost and variable production expenses are paid for in the month in which they are incurred. The variable selling expenses are paid in the following month. Fixed expenses of £4,500 are paid each month as they are incurred.< Trellis I td has an £8.000 loan from a private source received on 1 January 2022.00. . . b) . ● they are Trellis Ltd has an £8,000 loan from a private source received on 1 January 2022 on which interest of 10% is payable after a year, on 31 December each year. The funds from the loan were deposited into its trading bank account on 1 January 2022. The company is planning to purchase additional machinery on 1 October 2022 at a cost of £9,000 payable in two equal instalments in October 2022 and December 2022. The company is planning to purchase space at a local Garden Centre to show off its garden fences and future products. A payment of £3,000 will be paid in full in November 2022 to secure the space for 2023, which is often in high demand. • Taxation owed from the previous period is £8,000 and will be paid in November 2022.< d An inventory of finished goods is kept for emergency orders. This is not expected to change throughout the period. Required: a) Prepare a month-by-month cash flow budget for Trellis Ltd using a tabular format, showing the closing balance expected each month, for the four months from 1 October 2022 to 31 January 2023.< (17 Marks)< Calculate the current ratio and 'acid test' quick ratio as at 31 January 2023. (5 Marks) Based on your answer to part a) and b), advise the directors on whether they need to take action and, if so, what action they might take to manage their cash position. (8 Marks)+

Answer rating: 100% (QA)

Here is my analysis of the cash flow budget and financial position for Trellis Ltd a Monthbymonth cash flow budget for Trellis Ltd Trellis Ltd Cash Fl... View the full answer