CHAPTER 20 /| FORECASTING CASH FLOWS 34 Example: A month-by-month cash budget in detail Now you have some idea as to the underlying principles, let us put these to work. From the following information which relates to George and Zola Co you are required to prepare a month by month cash budget for the second half of 20X5 and to append such brief comments as you consider might be helpful to management. (a) The company's only product, a calfskin vest, sells at $40 and has a variable cost of $26 made up as follows. 24 20 Materials Labour Variable overheads (b) Fixed costs of $6,000 per month are paid on the 28th of each month. (c) Quantities sold/to be sold on credit June May 1,000 July 1,400 Aug 1,600 Sept 1,800 Oct Nov Dec 1,200 2,000 2,200 2,600 (d) Production quantities Oct 2,600 June July 1,600 Aug 2,000 Sept 2,400 Nov Dec May 1,200 1,400 2,400 2,200 (e) Cash sales at a discount of 5% are expected to average 100 units a month. (f) Customers are expected to settle their accounts by the end of the second month following sale. (g) Suppliers of material are paid two months after the material is used in production. (h) Wages are paid in the same month as they are incurred. (i) 70% of the variable overhead is paid in the month of production, the remainder in the followings month. () Corporation tax of $18,000 is to be paid in October. A new delivery vehicle was bought in June, the cost of which, $8,000 is to be paid in August. The old vehicle was sold for $600, the buyer undertaking to pay in July. (k) The company is expected to be $3,000 overdrawn at the bank at 30 June 20X5. The overdrat charged at 2% per month on any brought forward balance. (1) The opening and closing inventories of raw materials, work in progress and finished goods are budgeted to be the same. (m)
CHAPTER 20 /| FORECASTING CASH FLOWS 34 Example: A month-by-month cash budget in detail Now you have some idea as to the underlying principles, let us put these to work. From the following information which relates to George and Zola Co you are required to prepare a month by month cash budget for the second half of 20X5 and to append such brief comments as you consider might be helpful to management. (a) The company's only product, a calfskin vest, sells at $40 and has a variable cost of $26 made up as follows. 24 20 Materials Labour Variable overheads (b) Fixed costs of $6,000 per month are paid on the 28th of each month. (c) Quantities sold/to be sold on credit June May 1,000 July 1,400 Aug 1,600 Sept 1,800 Oct Nov Dec 1,200 2,000 2,200 2,600 (d) Production quantities Oct 2,600 June July 1,600 Aug 2,000 Sept 2,400 Nov Dec May 1,200 1,400 2,400 2,200 (e) Cash sales at a discount of 5% are expected to average 100 units a month. (f) Customers are expected to settle their accounts by the end of the second month following sale. (g) Suppliers of material are paid two months after the material is used in production. (h) Wages are paid in the same month as they are incurred. (i) 70% of the variable overhead is paid in the month of production, the remainder in the followings month. () Corporation tax of $18,000 is to be paid in October. A new delivery vehicle was bought in June, the cost of which, $8,000 is to be paid in August. The old vehicle was sold for $600, the buyer undertaking to pay in July. (k) The company is expected to be $3,000 overdrawn at the bank at 30 June 20X5. The overdrat charged at 2% per month on any brought forward balance. (1) The opening and closing inventories of raw materials, work in progress and finished goods are budgeted to be the same. (m)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
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.
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Transcribed Image Text:12
24 Example: A month-by-month cash budget in detail
Now you have some idea as to the underlying principles, let us put these to work. From the following
information which relates to George and Zola Co you are required to prepare a month by month cash
budget for the second half of 20X5 and to append such brief comments as you consider might be
helpful to management.
(a)
The company's only product, a calfskin vest, sells at $40 and has a variable cost of $26 made up
as follows.
Materials
24
Labour
20
Variable overheads
(b)
Fixed costs of $6,000 per month are paid on the 28th of each month.
(c)
Quantities sold/to be sold on credit
June
May
1,000
July
1,400
Aug
1,600
Sept
1,800
Oct
Nov
Dec
1,200
2,000
2,200
2,600
(d) Production quantities
July
1,600
Sept
2,400
June
Oct
Aug
2,000
Nov
Dec
Мay
1,200
1,400
2,600
2,400
2,200
(e)
Cash sales at a discount of 5% are expected to average 100 units a month.
(f)
Customers are expected to settle their accounts by the end of the second month following sale.
(g)
Suppliers of material are paid two months after the material is used in production.
(h)
Wages are paid in the same month as they are incurred.
(i)
70% of the variable overhead is paid in the month of production, the remainder in the following
month.
(1)
Corporation tax of $18,000 is to be paid in October.
A new delivery vehicle was bought in June, the cost of which, $8,000 is to be paid in August.
The old vehicle was sold for $600, the buyer undertaking to pay in July.
(k)
The company is expected to be $3,000 overdrawn at the bank at 30 June 20X5. The overdraft
charged at 2% per month on any brought forward balance.
(1)
The opening and closing inventories of raw materials, work in progress and finished goods are
budgeted to be the same.
(m)
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