Reference no: EM132522109

Gilbet Limited, a multi-product company is in the process of preparing its cash budget for the next quarter starting in April. Budgeted sales and purchases are as follows:

                                           Sales???                               Purchases

Sh.000???Sh.000

February                                 ???60,000                          ???37,200

March????                                     75,000???                         46,500

April????                                         65,000???                       40,300

May????                                           55,000                     ???34,100

June                                            ????70,000???                       43,400

July????                                                 75,000                      ???46,000

• Sales are received 10% in cash at the point of sale, 65% in the month following and 25% in the month after. Sales of scrap constitute other income and are estimated at 5% of preceding month's sales. Creditors for purchases are paid 60% in the month of purchase and 40% in the month following. Other monthly cash expenses estimated to be the same for the next three months are:

Sh.000

Fuel and oil??????                    1.750

Office expenses?????             800

Transport and travels?????       300

Salaries                       ??????2,650

Telephone??????                      450

Others???????                           1,000

According to the policy of the company, depreciation on fixed assets is estimated at sh.6,000 per month. Payment for the purchase of a new fixed asset costing sh.70 million is to be effected unfailingly in the months of May and June on equal installment basis. Ignore opening cash balance.

You are required to:

Question (a) Prepare the cash budget of Gilbet Ltd for the quarter April to June.

Question (b) Advise the management based on your findings