The directors of Hamble Ltd have asked you, as a recently employed assistant management accountant, to prepare and review their cash budget. The bookkeeper started the cash budget but was unable to complete it due to ill health.
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.
The directors of Hamble Ltd have asked you, as a recently employed assistant
In addition, Hamble Ltd requires you to evaluate the different funding options for its expansion plans.
Estimated sales and purchases for each of the nine months to September are given below:
|
|
Jan £,000 |
Feb £,000 |
Mar £,000 |
April £,000 |
May £,000 |
June £,000 |
July £,000 |
Aug £,000 |
Sept £,000 |
|
Credit sales |
9,500 |
8,000 |
6,000 |
11,000 |
12,350 |
14,000 |
13,250 |
4,500 |
12,500 |
|
Cash sales |
250 |
350 |
800 |
600 |
620 |
900 |
500 |
350 |
800 |
|
Credit purchases |
6,000 |
5,200 |
5,800 |
8,000 |
8,700 |
6,300 |
5,200 |
5,000 |
5,100 |
Trade Receivables: Credit sales are to be collected two months after the date they have been sold.
Trade Payables: Credit purchases are to be paid one month after the date they have been purchased.
Borrowings: The terms of a 5-year loan are coming to an end and Hamble Ltd are due to repay the capital of £1,000,000 on 31st July.
Current Liabilities: Corporation tax of £100,000 is due to be paid to HMRC in the month of May.
Delivery vehicles: Hamble Ltd has a policy of replacing delivery vehicles every 2 years. A number of delivery vehicles are due to be replaced under this policy in June at a cost of £1,250,000, but existing delivery vehicles will be traded in for £310,000 as part of the deal.
Other
Cash: Hamble Ltd expects to have £90,000 in cash at the beginning of April.
You are required to:
- Using Excel, prepare a cash budget for the business for the 6-month period from April to September.
NOTE: To achieve full marks you MUST show your working out, i.e. by using Excel cell referencing and formula.
- Examine the cash budget you have prepared and advise the directors of Hamble Ltd of any possible solutions to
cash flow problems that might be evident. Marks will be awarded depending on the depth of discussion.
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