QUESTION 2 Dawson is a retailer, buying and selling clothes, and is preparing a cash budget. The following
information is available:
Sales Purchases Overheads
Month $000 $000 $000
August (actual) 180 120 22
September (actual) 150 144 18
October (estimated) 120 150 20
November (estimated) 150 140 24
December (estimated) 180 130 22
The following information is also available:
• All sales are on credit. 50% of the sales are received one month after the sale. The remaining
50% are received two months after the sale.
• All purchases are paid one month after being received.
• The overheads include a monthly depreciation charge. Depreciation is calculated at 10% per
annum on fixed assets valued at $288 000.
• 50% of the overheads (excluding depreciation) are paid during the month they are incurred.
The remaining 50% are paid one month later.
• The cash balance as at 1 October is $4 000.
(a) Prepare a cash budget for the three-month period for October, November and December.
(16 marks)
(b) Explain two ways the company could avoid a cash deficit, based on the information provided​