Ace Corp. has sales for the second quarter of $2M, $3M, and $5m per month. All sales are on credit terms 2/10 net 40. Only a small proportion of customers (10%) pay early enough to earn the 2% discount. Most customers (70%) pay in
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.
- Ace Corp. has sales for the second quarter of $2M, $3M, and $5m per month.
All sales are on credit terms 2/10 net 40. Only a small proportion of customers (10%) pay early enough to earn the 2% discount. Most customers (70%) pay in the month following purchase, with the remaining 20% paying in the second month following purchase. It obtains 30 days credit from its suppliers, and purchases usually amount to 70 % of the current month's sales. Taxes ($0.75M) must be paid in the third month of the quarter. Other expenses are (i) wages @ 15% of the current month's sales (ii) interest on the debt ($0.5M), and “other expenses” @ 10% of the current month's sales.
- Construct a
cash budget for the third month of the second quarter.
Does the firm have a cash surplus or deficit?
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