Niko Ltd specialises in the importation and sale of equipment for children's indoor play centres. The company was set up two years ago by its joint shareholders, Mr and Mrs Nikostar.
The business has been very successful, expanding rapidly over the last year, and the cash balance in the company's current account has exceeded Rs1 million on several occasions recently. Mr and Mrs Nikostar have asked you, an accounting technician for Niko Ltd, to assist them in managing their cash balances over the next six months.
You have been provided with the following information.
(i) The bank balance on 1 January 2009 is forecast at Rs1·2 million in credit.
(ii) Sales for November and December 2008 are Rs1·3 million per month. They are expected to rise to Rs1·5 million in January 2009, Rs1·7 million in February and Rs1·9 million in March. They will then fall to Rs1·4 million for each of the following six months. This is due to a downturn in demand as the weather improves.
(iii) All sales are made on credit. 2% of debtors do not pay at all, 70% pay one month after sale and the remaining 28% pay two months after sale.
(iv) Purchases are made one month prior to sales, and two months' credit is taken from suppliers.
(v) The company's gross profit margin is 50%.
(vi) The cost of employing Niko Ltd's permanent staff is Rs150,000 per month. Niko Ltd also employs temporary staff during January, February and March at an additional cost equating to 3% of sales each month.
(vii) Niko Ltd uses a courier to despatch the equipment to its customers. The cost of this service is 2% of sales value in January to March, falling to 1% thereafter.
(viii) Administration costs are forecast at Rs30,000 for January. These costs are directly proportional to sales each month.
(ix) Mr and Mrs Nikostar will be attending a conference abroad in July 2009 at a total cost of Rs5,000. They must complete the booking form and send it off, along with a deposit of Rs2,000, by the end of January 2009. The final balance is due in June.
(x) The company charges depreciation of Rs45,000 each month.
(xi) Niko Ltd also owns two indoor play centres that it rents out at the rate of Rs3,500 each per month from January to April, falling to Rs3,000 per month thereafter. All rents are received one month in advance.
(xii) The company will invest in a new computer system later in the year. This will be paid for by two equal instalments of Rs200,000, one in June and one in September.
Required:
(a) Prepare a monthly cash budget for EACH of the six months to 30 June 2009, showing clearly any necessary workings.
(b) Outline the benefits of a budgeting system.