Home Ltd. runs a chain of garden equipment stores. The business is seasonal in nature regarding the garden tools...

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Home Ltd. runs a chain of garden equipment stores. The business is seasonal in nature regarding the garden tools and equipment. The forecast sales for 2021 are as follows: January February March April May June . . . . £'000 18 18 30 150 240 210 July August September October November December £'000 120 75 75 20 15 90 60% of Home's sales are on cash terms, and 40% are on credit terms. Approximately half the credit sales pay 1 month after sale, and the balance pay during the second month after sale. Home Ltd. purchased goods for resale 3 months prior to sale and pays for them 1 month after purchase. Typically, the goods are sold at a profit mark-up on cost of 50% (selling price is 150% of cost). Wages and administration costs amount to £35,000 per month including depreciation costs of £8,000 per month. A tax payment of £30,000 needs to be made in May 2021. Home needs to buy a new machine in May, which costs £50,000, full amount payable on purchase. One of the owners of the business, Sam will retire in July, and is expecting a retirement lump sum bonus payment of £65,000. Human Resources has advised that this payment should be made in August. The company is also expected to buy back Sam's shares in April 2022, with expected total value of £100,000 payable in April 2022. Cash position in Home Ltd follows the same pattern every year. Required: a) Prepare a monthly cash budget for the 6 months from April to September 2021. Assume an opening cash balance of £27,000 on 1 April 2021. (18 marks) b) Based on the cash budget above, make suggestions to the management team on how they can manage its cash situation from April to September. Your answers must include specific suggestions regarding each month's cash situation. (7 marks)

Answer rating: 100% (QA)

Let s prepare a monthly cash budget for Home Ltd for the 6 months from April to September 2021 We ll start with an opening cash balance of 27 000 on 1 View the full answer