countant at “Woods Household Supplies” is in the process of planning the company’s cash needs for the last quarter of 2016. Extracts from the sales and purchases budgets are as follows: Month 2016
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.
Romeo Lindo, the management accountant at “Woods Household Supplies” is in the process of planning the company’s cash needs for the last quarter of 2016. Extracts from the sales and purchases budgets are as follows:
Month
2016
Cash
Sales
Sales
On
Account
Purchases
On
Account
August
$71,000
$520,000
$420,000
September
$55,500
$640,000
$400,000
October
$38,400
$760,000
$520,000
November
$36,500
$680,000
$440,000
December
$56,750
$850,000
$540,000
(i) An analysis of the records shows that trade receivables (
50% in the month of sale
40% in the first month following the sale
10% in the second month following the sale
(ii) Accounts payable are settled as follows, in accordance with the credit terms 5/30, n60:
75% in the month in which the inventory is purchased
25% in the following month
(iii) In the month of November, an old motor vehicle, with net book value of $95,000, will be sold for cash to an employee at a profit of $45,000. The employee will be allowed to pay a deposit equal to 50% of the amount in November and the balance will be settled in two equal amounts in December 2016 and January 2017.
(iv) Furniture and Fixtures, which is estimated to cost $240,750, will be purchased for cash in December.
(v) A
ACCT 1003_Introduction to Cost and
- 2 -
(vi) The manager of Woods Household Supplies has negotiated with a tenant for rental of storage space to him beginning October 2016. The rental is $864,000 per annum. The first month’s rent along with one month’s safety deposit will be collected from the tenant on October 1. Thereafter, the monthly rental is expected to be received at the beginning of each month.
(vii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be $2,016,000 per annum are settled monthly. Monthly
(viii) Other operating expenses are expected to be $168,000 per quarter and are settled monthly.
(ix) Wages and salaries are expected to be $2,916,000 per annum and will be paid monthly.
(x) At the recently concluded negotiations between management and the union representing the workers it was agreed that the business should make retroactive payments in the amount of $1,140,000 to employees. The payment is being settled in four equal tranches. The third payment becomes due and payable in October of 2016.
(xi) The cash balance on September 30, 2016 is expected to be an overdraft of $175,000
Required:
(a) Prepare a schedule of budgeted cash collections for sales on account for each of the months October to December, 2016.
(b) Prepare a schedule of expected cash disbursements for purchases for the quarter to December 31, 2016.
(c) Prepare a
Step by step
Solved in 4 steps
