Petronina Sdn. Bhd. needs a cash budget for October. The following information is available: 1. The cash balance at the beginning of October is RM9,000. 2. The actual sales for August and September and expected sales for October are presented in Table 1: Table 1: Cash, Credit, and Total Sales Items August (RM) September (RM) October (RM) Cash sales 6,500 5,250 7,400 Sales on credit 20,000 30,000 40,000 Total sales 26,500 35,250 47,400 Credit sales are collected over a 3-month period in the following ratio: i. In the month of sale: 10% ii. In the month following the sale: 70% iii. In the second month following the sale: 18% iv. The remaining 2% is uncollectible 3. Purchases of inventory will total RM25,000 for October; 20% will be paid in October. Accounts payable from September’s inventory purchases is RM16,000; this will be paid in October. 4. Selling and administrative expenses are budgeted at RM13,000 for October; of this amount, RM4,000 is for depreciation. 5. Equipment costing RM18,000 will be purchased in cash during October and cash dividends of RM3,000 will be paid during the month. 6. The company must maintain a minimum cash balance of RM5,000. An open line of credit is available from the company’s bank as needed. Required: (i) Prepare a cash budget for October. (ii) Analyze how the cash budget in (i) contributes to good management.
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.
Petronina Sdn. Bhd. needs a
available:
1. The cash balance at the beginning of October is RM9,000.
2. The actual sales for August and September and expected sales for October are
presented in Table 1:
Table 1: Cash, Credit, and Total Sales
Items August
(RM)
September
(RM)
October
(RM)
Cash sales 6,500 5,250 7,400
Sales on credit 20,000 30,000 40,000
Total sales 26,500 35,250 47,400
Credit sales are collected over a 3-month period in the following ratio:
i. In the month of sale: 10%
ii. In the month following the sale: 70%
iii. In the second month following the sale: 18%
iv. The remaining 2% is uncollectible
3. Purchases of inventory will total RM25,000 for October; 20% will be paid in
October. Accounts payable from September’s inventory purchases is RM16,000;
this will be paid in October.
4. Selling and administrative expenses are budgeted at RM13,000 for October; of
this amount, RM4,000 is for depreciation.
5. Equipment costing RM18,000 will be purchased in cash during October and cash
dividends of RM3,000 will be paid during the month.
6. The company must maintain a minimum cash balance of RM5,000. An open line
of credit is available from the company’s bank as needed.
Required:
(i) Prepare a cash budget for October.
(ii) Analyze how the cash budget in (i) contributes to good management.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
