Accepting that there is now a greater need to plan properly for the future, Management has sought your help in revisiting their existing budgets, especially those affecting the cash flow of the company. It had been agreed that the company should maintain a balance of at least $ 40,000 at all times. The balance at the start of the year was $ 45,000. The current sales policy allows for all sales to be done on a credit basis with 50 % of the sales being collected in the month of sale; 40% in the next month and 10% in the second month after the sale. Sales projections for the first three months of 2021 are as follows: January $ 150,000 February $ 160,000 March $ 180,000 You have also learnt that sales in the months of November and December 2020, were $ 130,000 and $ 140,000 respectively. The purchasing policy is also under scrutiny as the market gets more demanding. Currently all purchases are on credit also and payments are made with 30% in the month of purchase, 50% in the following month and the balance in the second month. Purchases for November and December in 2020 were, $ 75,000 and $ 80,000 respectively. In 2021 these are expected to increase to $ 100,000 in January, $ 110,000 in February and $90,000 in March. In additiion the company has the following monthly expenses which have to be paid: January February March Direct Labour 30,000 35,000 20,000 Selling & Administrative Expenses 20,000 15,000 12,000 Maintenance Costs 5,000 7,500 3,000 Motor Vehicle Expenses 3,000 4,500 2,500 You are asked to: A) Prepare a cash collections budget for the first three months of 2021. B) Prepare a cash payment budget for the purchases for 2021. C) Prepare a Cash budget for the first three months of 2021.
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.
Accepting that there is now a greater need to plan properly for the future, Management has sought your help in revisiting their existing budgets, especially those affecting the
It had been agreed that the company should maintain a balance of at least $ 40,000 at all times. The balance at the start of the year was $ 45,000.
The current sales policy allows for all sales to be done on a credit basis with 50 % of the sales being collected in the month of sale; 40% in the next month and 10% in the second month after the sale.
Sales projections for the first three months of 2021 are as follows:
January $ 150,000
February $ 160,000
March $ 180,000
You have also learnt that sales in the months of November and December 2020, were $ 130,000 and $ 140,000 respectively.
The purchasing policy is also under scrutiny as the market gets more demanding. Currently all purchases are on credit also and payments are made with 30% in the month of purchase, 50% in the following month and the balance in the second month.
Purchases for November and December in 2020 were, $ 75,000 and $ 80,000 respectively. In 2021 these are expected to increase to $ 100,000 in January, $ 110,000 in February and $90,000 in March.
In additiion the company has the following monthly expenses which have to be paid:
|
|
January |
February |
March |
|
|
|
|
|
|
Direct Labour |
30,000 |
35,000 |
20,000 |
|
Selling & Administrative Expenses |
20,000 |
15,000 |
12,000 |
|
Maintenance Costs |
5,000 |
7,500 |
3,000 |
|
Motor Vehicle Expenses |
3,000 |
4,500 |
2,500 |
|
|
|
|
|
You are asked to:
A) Prepare a cash collections budget for the first three months of 2021.
B) Prepare a cash payment budget for the purchases for 2021.
C) Prepare a
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