Romeo Lindo, the management accountant at “Woods Household Supplies” is in the process of planning the company’s cash needs for the last quarter of 2016. Extracts from the sales and purchases budgets are as follows: Month 2016 Cash Sales Sales On Account Purchases On Account August $71,000 $520,000 $420,000 September $55,500 $640,000 $400,000 October $38,400 $760,000 $520,000 November $36,500 $680,000 $440,000 December $56,750 $850,000 $540,000 (i) An analysis of the records shows that trade receivables (accounts receivable) are settled according to the following credit pattern, in accordance with the credit terms 4/30, n90: 50% in the month of sale 40% in the first month following the sale 10% in the second month following the sale (ii) Accounts payable are settled as follows, in accordance with the credit terms 5/30, n60: 75% in the month in which the inventory is purchased 25% in the following month (iii) In the month of November, an old motor vehicle, with net book value of $95,000, will be sold for cash to an employee at a profit of $45,000. The employee will be allowed to pay a deposit equal to 50% of the amount in November and the balance will be settled in two equal amounts in December 2016 and January 2017. a) Companies in the industry in which Woods Household Supplies operates are required to maintain a minimum cash balance of $145,000 each month. Based on the budget prepared, will the business be meeting this requirement? Suggest three (3) possible steps (other than borrowing), that may be taken by the management of Woods Household Supplies to improve the organization’s cash flow. Please answer part A. This is the section asking to suggest three steps other than borrowing that the company may use to improve cash flow. Thank you.
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.
Romeo Lindo, the
Month
2016
Cash
Sales
Sales
On
Account
Purchases
On
Account
August
$71,000
$520,000
$420,000
September
$55,500
$640,000
$400,000
October
$38,400
$760,000
$520,000
November
$36,500
$680,000
$440,000
December
$56,750
$850,000
$540,000
(i) An analysis of the records shows that trade receivables (
50% in the month of sale
40% in the first month following the sale
10% in the second month following the sale
(ii) Accounts payable are settled as follows, in accordance with the credit terms 5/30, n60:
75% in the month in which the inventory is purchased
25% in the following month
(iii) In the month of November, an old motor vehicle, with net book value of $95,000, will be sold for cash to an employee at a profit of $45,000. The employee will be allowed to pay a deposit equal to 50% of the amount in November and the balance will be settled in two equal amounts in December 2016 and January 2017.
a) Companies in the industry in which Woods Household Supplies operates are required to maintain a minimum cash balance of $145,000 each month. Based on the budget prepared, will the business be meeting this requirement? Suggest three (3) possible steps (other than borrowing), that may be taken by the management of Woods Household Supplies to improve the organization’s
Please answer part A. This is the section asking to suggest three steps other than borrowing that the company may use to improve cash flow. Thank you.
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