Abbas Manufacturing produces wheels for cars. It holds high inventory levels
so that one-off orders from major car manufacturers can be satisfied
quickly.
The world's big car manufacturers
demand long credit periods from their
suppliers of
three months. Abbas
Manufacturing has prepared the
following
cash flow forecast for the next three months:
$000
Cash inflows
July
September
August
Sale of old equipment
Cash from debtors' payments
550
475
545
0
50
Total cash in
550
475
595
Cash outflows
Materials purchased
160
175
170
Employee costs
185
185
190
New computers
0
145
0
Other costs
155
125
135
Total cash out
500
630 sibility
495
Opening bank balance
(75)
(25)
(180)
Net cash flow
50
(155)
X
Closing bank balance
(25)
(180)
y
a Define 'net cash flow'.
[2]
b Identify two reasons why Abbas Manufacturing needs high amounts of cash
or working capital.
[2]
c Calculate the values for x and y in the cash flow forecast. Show your
working.
[4]
d Amend the cash flow forecast for July assuming cash from debtors and
material costs are going to be 10 per cent higher than originally forecast.
Show your working.
[6]
e Using the cash flow forecast above, suggest two ways Abbas Manufacturing
can reduce its bank overdraft (negative closing balance). Recommend the
best one to choose. Justify your advice.
hen required.
[6]
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