A new company, is being established to manufacture and sell an electronic tracking device: the Trackit. The owners are excited about the future profits that the business will generate. They have forecast that sales will grow to 2,600 Trackits per month within five months and will be at that level for the remainder of the first year. The owners will invest a total of $250,000 in cash on the first day of operations (that is the first day of July). They will also transfer non-current assets into the company. Extracts from the company's business plan are shown below. Sales The forecast sales for the first five months are: Irackits (units) 1,000 Month July August September October 1,500 2,000 2,400 November 2,600 The selling price has been set at $140 per Trackit. Sales receipts Sales will be mainly through large retail outlets. The pattern for the receipt of payment is expected to be as follows: Time of payment Immediately One month later % of sales value 15* 25 Two months later 40 Three months later 15 The balance represents anticipated bad debts. * A 4% discount will be given for immediate payment
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Required
1. Prepare a cash receipts budget schedule for each of the first three months (July – September), including the total receipts per month
2. Prepare a material purchases budget schedule for each of the first three months (July – September), including the total purchases per month
3. Prepare a cash budget for the month of July. Include the owners’ cash contributions
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