‘Myrto’ Cosmetics Ltd has decided to open a new shop in Leeds. A new bank account will be opened on 1 April 2012.

The following is a summary of the expected transactions for the first three months:

‘Myrto’ transferred £55,000 capital in April into the new shop bank account.
The shop expects to sell items worth £8,000 in April, £9,000 in May and £10,000 in June. In each month 80% of the sales will be in cash and 20% will be on credit to account customers. The account customers will receive two months credit and will settle their account two months following the sale. No bad debts are expected.
The shop will make purchases of £4,000 in April, £4,500 in May and £5,000 in June. At the end of June goods costing £2,000 will remain in inventory. All purchases will be made on two month’s credit.  
Furniture will be purchased in April for £18,000 and paid on delivery. These items are expected to last for 5 years with £2,000 scrap value at the end of that period.
£3,000 is paid in April for insurance for the three month period: April-June 2012.          
Other operating expenses of £7,000 each month are payable in the month following the month incurred.

Required:
Prepare a cash flow forecast (cash budget) for the three months ending 30 June 2012.
Prepare a forecast income statement for the three months ending 30 June 2012.
Advise ‘Myrto’ Cosmetics on the key issues that have emerged from the financial information you have prepared.
Critically examine the usefulness to business managers of cash flow forecasts (cash budgets).