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.
Prepare a cash budget for Atlas Products, Inc. for the first quarter of 2011 based on the following information.
Total Sales Credit Sales
December 2010 $825,000 $770,000
January 2011 730,000 690,000
February 2011 840,000 780,000
March 2011 920,000 855,000
The company found that on average, about 25% of its credit sales are collected during the month when the sale is made, and the remaining 75% of the credit sales are collected during the month following the sale.
The company estimates its purchases at 60% of the next month’s sales and payments for those purchases are budgeted to lag the purchases by 1 month.
Other disbursements have been estimated as follows:
January February March
Wages and salaries $250,000 $290,000 $290,000
Rent 27,000 27,000 27,000
Other expenses 10,000 12,000 14,000
In addition, a tax payment of $105,000 is due in January, and a $40,000 dividend will be declared in January and paid in March. Also, the company has ordered a $75,000 piece of equipment. Delivery is scheduled for January and payment will be made in February.
The company’s projected cash balance at the end of December is $100,000 and they desire to maintain a balance of $100,000 at the end of each month.
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