Drosophila (Pty) Ltd is currently forecasting its short-term financing needs and it requires your assistance in determining these needs and the possible costs of financing. The following information has been gathered and passed on to you.
The bookkeeper extracted an aging report from the system and determined that 40% of sales were paid for in the same month that the sales were made and the remainder was paid 1 month later (all sales were on credit).
The company has access to a R1 000 000 revolving credit facility (line of credit) at a cost of 12% interest per year, assuming 365 days per year. No administrative fees are applicable.
All purchases and other expenses are paid in cash.
Sales from March, April and May were as follows:

March	April	May
R500 000	R600 000	R400 000

Expected sales for June, July and August are as follows:

June	July	August
R300 000	R400 000	R800 000

Additionally, purchases amount to 50% of sales and other costs amount to R200 000 per month but exclude a depreciation expense of R5 000 per month.

REQUIRED:
Draw up a cash budget for this company for June, July and August and determine how much the requisite short-term financing by way of the revolving credit facility will cost (in rand terms) if utilised. Use the space below to make your preliminary calculations and present your cash budget in the space provided below where indicated

Answer rating: 100% (QA)

Sales Cash collection 40 collection in same month 60 colle... View the full answer