Question3 Part A Local Food Suppliers Ltd is considering opening a new store in

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Question3 Part A Local Food Suppliers Ltd is considering opening a new store in August 2014. The following estimates have been provided SEPTEMBER OCTOBER Sales 200,000 120,000 100.000 300,000 200,000 130,000 400,000 300,000 140,000 Selling and Marketing Expenses It is expected that 60% of sales are for cash and 40% are credt sales Credit sales will be colected in the following pattem 50% 45% 5% In the month of sale 1 month after the sale bad debts .All purchases are on credit and suppliers are paid 1 month after the purchase The following expenses are paid in the month in which they are incurred a. Insurance expenses for the year of $12,000 are to be paid in August b. Wages will be $2,000 per month c. Accountants fees of $6,000 are expected to be paid in October d. Rent is expected to be $8,000 per month. Interest received on term deposit is expected to be $2,000 per month Depreciation of the delivery van of $2,000 per month is included in Selling and Marketing Expenses. Management would ike to pay out a dividend of $ 20,000 to its shareholders in October Installation of a new cool room costing $120,000 will commence in November. A deposit of $50,000 is required in October Estimated cash balance as at 1 August 2014 is $20,000. Required I1] Prepare a Schedule of Cash Collections for the quarter ending October 31 2014 21 Prepare a Cash Budget for the above period. Show a separate column for each month 3 The management of Local Food Suppliers Ltd would ike to purchase a new delivery truck costing $320,000 in January 2015. What would you advise? Refer to the resuilts of your Cash Budget to support your answer [5+8+2=15 marks]

Explanation / Answer

3. The new truck costs 320,000, the company will have to finance this by taking a loan since the net cash proceeds are not enough to finance this big an investment.

Local Food Suppliers, Ltd Schedule of cash colections for the Quarter ending Oct 31, 2014 August September October Total Sales                200,000              300,000              400,000              900,000 Cash sales - 60% (1)                120,000              180,000              240,000              540,000 Credit sales                  80,000              120,000              160,000              360,000 Collected in the month (50%) (2)                  40,000                60,000                80,000              180,000 Collected in the following month (45%) (3)                            -                  36,000                54,000                90,000 Total cash collected (1+2+3)                160,000              276,000              374,000              810,000 Local Food Suppliers, Ltd Cash budget for the Quarter ending Oct 31, 2014 August September October Total Beginning balance                  20,000                62,000                82,000 20000 Cash collection                160,000              276,000              374,000              810,000 Add: other receipts Interest received                     2,000 2000 2000                  6,000 Total cash available                182,000              340,000              458,000              836,000 Payments Purchases (paid next month) 0 120000 200000              320,000 Selling and marketing expenses 98000 128000 138000              364,000 Cash expenses Insurance 12000 0 0                12,000 Wages 2000 2000 2000                  6,000 Accountant's fee 0 0 6000                  6,000 Rent 8000 8000 8000                24,000 Dividends 0 0 20000                20,000 Deposit for new cool system 0 0 50000                50,000 Total Payments                120,000              258,000              424,000              802,000 Ending balance                  62,000                82,000                34,000                34,000

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