Adeline Sdn Bhd has engaged you to prepare its cash budget for July 2021. The following is the information extracted from its management report: May 2021 June 2021 July 2021 Credit sales 500,000 450,000 600,000 Purchases of direct material 300,000 500,000 550,000 Expenses 80,000 Other receipts: Sale of investments 30,000 Other payments: Purchase of van 60,000 All sales are on account. Collections are expected to be 50% in the month of sale, 30% in the first month following the sale, and 20% in the second month following the sale. Of direct material purchases, 40% are paid in cash in the month of purchase, and the balance due is paid in the month following the purchase. All other items and expenses above are paid in the month incurred. The cash balance on 1 July 2021 is expected to be RM60,000. Adeline wants to maintain a minimum cash balance of RM50,000. Required: How much will Adeline receive in July from the credit sales in May, June and July? How much will Adeline pay in July for the purchases of direct material in May, June and July? Prepare a cash budget for July 2021 for Adeline Sdn Bhd. Advise Adeline on the various ways an organisation may improve its working capital management.
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.
Adeline Sdn Bhd has engaged you to prepare its
|
|
May 2021 |
June 2021 |
July 2021 |
|
Credit sales |
500,000 |
450,000 |
600,000 |
|
Purchases of direct material |
300,000 |
500,000 |
550,000 |
|
Expenses |
|
|
80,000 |
|
Other receipts: Sale of investments |
|
|
30,000 |
|
Other payments: Purchase of van |
|
|
60,000 |
All sales are on account. Collections are expected to be 50% in the month of sale, 30% in the first month following the sale, and 20% in the second month following the sale. Of direct material purchases, 40% are paid in cash in the month of purchase, and the balance due is paid in the month following the purchase. All other items and expenses above are paid in the month incurred.
The cash balance on 1 July 2021 is expected to be RM60,000. Adeline wants to maintain a minimum cash balance of RM50,000.
Required:
- How much will Adeline receive in July from the credit sales in May, June and July?
- How much will Adeline pay in July for the purchases of direct material in May, June and July?
- Prepare a cash budget for July 2021 for Adeline Sdn Bhd.
- Advise Adeline on the various ways an organisation may improve its
working capital management.
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