H ltd is preparing its budget for the second quarter. The following information is available June July August September K’000 K’000 K’000 K’000 Sales 12,500 13,600 17,000 16,800 Direct material purchases 3,450 3,780 2,890 3,150 Direct wages are K1, 300,000 per month. Additional information H ltd sells 10% of its goods for cash. The remainder of customers receive one month’s credit. Payments to creditors are made in the month following purchase. Wages are paid as they are incurred H ltd takes one month’s credit on all overheads Production overheads are K3, 200,000 per month. Selling, distribution and administration overheads amount to K1, 890,000 per month. Included in the amounts for overhead given above are depreciation charges of K300,000 and K190,000 respectively. The cash balance at the end of June is forecast to be K1, 235,000. An asset costing K5, 600,000 will be acquired in September. H ltd expects to purchase a delivery vehicle in July for K9,870,000 Capital expenditure is paid one month after being incurred. Required Prepare a cash budget for each of the months July to September. Examine and interpret the cash budget
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.
H ltd is preparing its budget for the second quarter. The following information is available
June July August September
K’000 K’000 K’000 K’000
Sales 12,500 13,600 17,000 16,800
Direct material purchases 3,450 3,780 2,890 3,150
Direct wages are K1, 300,000 per month.
Additional information
- H ltd sells 10% of its goods for cash. The remainder of customers receive one month’s credit.
- Payments to creditors are made in the month following purchase.
- Wages are paid as they are incurred
- H ltd takes one month’s credit on all
overheads - Production overheads are K3, 200,000 per month.
- Selling, distribution and administration overheads amount to K1, 890,000 per month.
- Included in the amounts for overhead given above are
depreciation charges of K300,000 and K190,000 respectively. - The cash balance at the end of June is
forecast to be K1, 235,000. - An asset costing K5, 600,000 will be acquired in September.
- H ltd expects to purchase a delivery vehicle in July for K9,870,000
- Capital expenditure is paid one month after being incurred.
Required
- Prepare a
cash budget for each of the months July to September. - Examine and interpret the cash budget
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