Beauty Spa & Co. manufactures a specialised luxury spa that is supplied to five-star hotels around the country. The owner provides you with the following information to prepare its 1st quarter budget: July, August, and September. Budgeted sales are as follows: Month Sales ($) Units Sold May 25,000 250 June 28,000 280 July 30,000 300 August 40,000 400 September 35,000 350 October 37,000 370 Additional information: i) Purchases are budgeted at $5.00 per unit and are paid for in full in the month after purchase. ii) Closing inventory must equal 50% of the next month’s sales.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
- Beauty Spa & Co. manufactures a specialised luxury spa that is supplied to five-star hotels around the country. The owner provides you with the following information to prepare its 1st quarter budget: July, August, and September. Budgeted sales are as follows:
|
Month |
Sales ($) |
Units Sold |
|
May |
25,000 |
250 |
|
June |
28,000 |
280 |
|
July |
30,000 |
300 |
|
August |
40,000 |
400 |
|
September |
35,000 |
350 |
|
October |
37,000 |
370 |
Additional information:
- i) Purchases are budgeted at $5.00 per unit and are paid for in full in the month after purchase.
- ii) Closing inventory must equal 50% of the next month’s sales.
iii) Sales (which are all on credit) are collected as follows: 60% in the month of sale; 30% in the month after the sale; 5% in the second month after the sale.
- iv) The balance in the bank account as of 30 June is $10,000.
Required (show your workings for each question):
Prepare a purchases budget (in units and $) for the 1st quarter. (Purchases are based on expected sales).
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