Simone Limited distributes specialist wines on a wholesale basis to its customers. Some of his sales will be for cash from a shop that he intends to rent. It also plans to sell some wine on credit to local restaurants and hotels. The details of his business plan are as follows:

1. It will rent a shop for GH¢10,000 per annum payable quarterly in advance. The landlord also requires a deposit of GH¢5,000 to be paid when the rental starts in June.

2. It will invest GH¢12,000 from its own savings and a bank will loan it GH¢8,000. Interest is to be charged at a rate of 5% per annum payable annually.

3. It will purchase and pay for GH¢12,000 of wine in June and thereafter. To maintain that level of stock, he will continuously purchase wine to replace what is sold.

4. Suppliers will allow one month’s credit and credit customers will expect one month’s credit.

5. Sales levels are predicted to be:

	Total sales GH¢	Cash sales GH¢	Credit sales GH¢
June	6,000	3,000	3,000
July	6,500	3,000	3,500
August	7,000	3,000	4,000
September	8,000	3,500	4,500
October	9,500	4,500	5,000
November	12,000	5,000	7,000

6. Wine will be sold at a gross profit margin of 20%.

7. It intends to withdraw GH¢500 per month for private use and will employ a part-time assistant for GH¢400 per month.

8. It will need to purchase and install shelving that will be delivered and paid for at the beginning of June at a cost of GH¢3,800.

1. It will also lease a van at a cost of GH¢450 per month.

10. Other anticipated costs are:                             GH¢

June	500
July	380
August	400
September	500
October	550
November	600

Required

1. Prepare a cash budget for Simone Limited for the first 6 months’ trading to 30 November 2021.
2. Determine the size of the overdraft facility Simone Limited should request from the bank.

Answer rating: 100% (QA)

Computation of purchases Opening stock 12000 in June after that to main... View the full answer