Sunbusters Ltd is a manufacturer and distributor of sunscreen products. It is approachingthe third quarter of the year, during which its peak monthly sales occur. The company isconcerned that it may experience cash shortages during this quarter and has asked the bankfor an overdraft facility to see it through this period. The bank has in turn asked Sunbustersto prepare a cash forecast for the third quarter. In response the company has collected thefollowing information:1. On 1 July, the beginning of the first quarter, the company expects to have £44,500 inits bank account.2. Actual sales for the past two months, and forecast sales for the third quarter, are asfollows:May (actual)£250,000June (actual)£300,000July (forecast)£400,000August (forecast)£600,000September (forecast)£320,000Past experience shows that 25% of any month's sales are for cash, which is collected inthe month of sale. The remainder of the sales are on credit. 70% of total sales arecollected in the month after sale, and 3% of total sales are collected in the second monthfollowing the sale. The remainder is bad debt and is not collectable.Forecast purchases and expenses for the third quarter are given below. Unless statedotherwise, all relevant expenses are paid in the month shown.JulyAugustSeptemberRaw material purchases£240,000£350,000£175,000Salaries and wages£45,000£50,000£40,000Advertising£130,000£145,000£80,000Factory rental£9,000£9,000£9,000Depreciation£10,000£10,000£10,000Raw material purchases are paid in full in the month following purchase. The amountpayable in July in respect of June purchases is expected to be £180,000.3. Equipment costing £10,000 will be purchased for cash in July.Required:A. Prepare a schedule of cash collections for July, August, and SeptemberB. Prepare a cash forecast, by month, for the third quarter

Depreciation is a non-cash expenses, so need to record the item in cash budget.

Answered: Required: A. Prepare a schedule of cash…

Required: A. Prepare a schedule of cash collections for July, August, and September B. Prepare a cash forecast, by month, for the third quarter

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

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.

Question

100%

Sunbusters Ltd is a manufacturer and distributor of sunscreen products. It is approaching
the third quarter of the year, during which its peak monthly sales occur. The company is
concerned that it may experience cash shortages during this quarter and has asked the bank
for an overdraft facility to see it through this period. The bank has in turn asked Sunbusters
to prepare a cash forecast for the third quarter. In response the company has collected the
following information:
1. On 1 July, the beginning of the first quarter, the company expects to have £44,500 in
its bank account.
2. Actual sales for the past two months, and forecast sales for the third quarter, are as
follows:
May (actual)
£250,000
June (actual)
£300,000
July (forecast)
£400,000
August (forecast)
£600,000
September (forecast)
£320,000
Past experience shows that 25% of any month's sales are for cash, which is collected in
the month of sale. The remainder of the sales are on credit. 70% of total sales are
collected in the month after sale, and 3% of total sales are collected in the second month
following the sale. The remainder is bad debt and is not collectable.
Forecast purchases and expenses for the third quarter are given below. Unless stated
otherwise, all relevant expenses are paid in the month shown.
July
August
September
Raw material purchases
£240,000
£350,000
£175,000
Salaries and wages
£45,000
£50,000
£40,000
Advertising
£130,000
£145,000
£80,000
Factory rental
£9,000
£9,000
£9,000
Depreciation
£10,000
£10,000
£10,000
Raw material purchases are paid in full in the month following purchase. The amount
payable in July in respect of June purchases is expected to be £180,000.
3. Equipment costing £10,000 will be purchased for cash in July.
Required:
A. Prepare a schedule of cash collections for July, August, and September
B. Prepare a cash forecast, by month, for the third quarter

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