Question 4 The following data has been extracted from the operating budgets of London's Manufacturing Ltd for 2020. The company manufactures plastic model units for sale to large furniture retailers and in its own shops: Income from sales from retailer Income from Queen Elizabeth street sales Raw material purchases Month Labour Overheads Jan 700,000 300,000 660,000 300,000 27,960 Feb 500,000 180,000 600,000 294,360 12,240 March 600,000 360,000 696,000 90,000 35,400 Additional information: 1. It is estimated that approximately 60% of cash from sales from retailers are received at the time of the sale and 40% are received one month later. 2. Sales in the Queen Elizabeth street shops are all in cash and received at the time of sale. 3. 70% of payments for raw materials are made in the month of purchase and 30% one month later 4. Labour costs for the month are paid in full at the end of each month. 5. A new machine costing 240,000 is to be acquired in Feb. The new machine will be paid for in 3 equal instalments beginning April. 6. Overheads are paid one month after they are incurred and include 9,000 of depreciation. 7. The opening bank balance on 1st Feb 2020 was forecast to be 250,000. Required: a) Prepare a cash budget for the months of Feb and March 2020. (20 Marks) (10 Marks) b) Discuss the cash budget in (a) stating any concerns you would have about the figures and any steps the management of London's Manufacturing Ltd could take to improve the company's cash flow position. (Total 30 marks) Continued