Problem
Chips Ltd. is currently planning their cash requirements for the next quarter of their financial year, January 2023 to March 2023. The company sells electronic supplies on credit, leading to a constant flow of sales and payments from debtors, with occasional large inflows when goods are supplied for large contracts. The aging report on the accounting system of the company gives the following breakdown of collection from debtors:
a) 40% one month after the sales have taken place
b) 60% two months after the sales have taken place
The sales recorded for both November 2022 and December 2022 were R500 000 respectively. Sales are expected to increase to R600 000 in January 2023 and to remain at this level until at least March 2023.
Further to this, e-mails from other branches and sales personnel indicate that the company can expect payments from large contracts worth R100 000 in January, R80 000 in February and R200 000 in March (all in 2023).
Variable costs related to sales equal 80% of the selling price; and the company has fixed expenses estimated at R300 000 every month. The company had a cash balance of R200 000 at the end of December 2022.
The company uses a R20 000 000 revolving credit facility to finance cash shortfalls which costs 1% per month and on which interest is paid on the closing balance of the previous month.
Task
Compile a cash budget for Chips Ltd. for January to March 2023.