HealthMart is a retail store selling home oxygen equip- ment. HealthMart also services home oxygen equipment, for which the company bills customers monthly. HealthMart has budgeted for increases in service revenue of $200 each month due to a recent advertising campaign. The forecast of sales and service revenue for the March-June 2018 is as follows: Sales and Service Revenues Budget March-June 2018 Expected Sales Revenue Expected Service Revenue Total Revenue Month March April May June $6,00 8,000 7,500 9,000 $4,000 $ 10,000 12,200 11,900 13,600 4,400 4,600
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.
Almost all of the sales revenues of the oxygen equipment are credit card sales; cash sales are negligible. The credit card company deposits 97% of the revenues recorded each day into HealthMart’s account overnight. For the servicing of home oxygen equipment, 60% of oxygen services billed each month is collected in the month of the service, and 40% is collected in the month following the service.
Q. HealthMart has budgeted expenditures for May of $11,000 and requires a minimum cash balance of $250 at the end of each month. It has a cash balance on May 1 of $400.
a. Given your answer to requirement 1, will HealthMart need to borrow cash to cover its payments for May and maintain a minimum cash balance of $250 at the end of May?
b. Assume (independently for each situation) that (1) May total revenues might be 10% lower or that (2) total costs might be 5% higher. Under each of those two scenarios, show the total net cash for May and the amount HealthMart would have to borrow to cover its cash payments for May and maintain a minimum cash balance of $250 at the end of May. (Again, assume a balance of $400 on May 1.)
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