The following information was extracted from the books of Mvula Ltd (newly formed company that makes metal boxes). At the start of January Mvula Ltd will have R150 000 cash in the current account. The Budgeted Sales figures is as follows: January February March Sales R300 000 R400 000 R550 000
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 FIVE
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The following information was extracted from the books of Mvula Ltd (newly formed company that makes metal boxes). At the start of January Mvula Ltd will have R150 000 cash in the current account. The Budgeted Sales figures is as follows:
These figures are based on orders that customers have already placed with the company after considerable work by the sales team. In order to secure the orders the sales team negotiated payment terms with the customers. Only 10% of customers agreed to pay immediately for the metal boxes. Of the remaining customers, 60% agreed to pay after one month and 40% after two months. Within the metal box industry, it is known that 2% of credit customers never pay (because they go out of business or dispute the invoices) the metal box company has made the decision to reduce the budgeted
Labour cost equal to 20% of the sales value. Labour cost is paid weekly one week in arrears and that there are four weeks in both January and February and five weeks in March. Materials cost equal to 25% of the sales value. The material supplier will not allow the metal box company any credit as because it is a newly formed company, it has no track record of paying its debts. The supplier of materials is also aware that new companies often fail and go out of business thus creating irrecoverable debt. Therefore, the supplier is insisting on cash at time of delivery for all materials purchased. However, the metal box company has to buy the materials before they can be made into boxes (therefore the material purchase budget differs from the material usage budget). Half of the materials required for production must be purchased and paid for in the month prior to sale the other 50% can be purchased and paid for in the month that the metal boxes are manufactured and sold.
REQUIRED: 5.1 Prepare a NB: Show all workings
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