uestion i) You have been asked to prepare a December cash budget for AB Company, a distributor of exercise equipment following information is available about the company’s operations: The cash balance on December 01, $40,000. Actual sales for October and November and expected sales for December are as follows:
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Question i)
You have been asked to prepare a December
The cash balance on December 01, $40,000.
Actual sales for October and November and expected sales for December are as follows:
October
November
December
Cash Sales
$65,000
$70,000
$83,000
Sales on Account
$4,00,000
$5,25,000
$6,00,000
Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectable.
Purchases of inventory will total $2,80,000 for December. Thirty percent of month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $1,61,000, all of which will be paid in December.
Selling and administrative expenses are budgeted at $4,30,000 for December. Of this amount, $50,000 is for
A new web server for marketing department costing $76,000 will be purchased for cash during December, and dividends totaling $9,000 will be paid during December also.
The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to strengthen the cash position as needed.
Required:
i1. Prepare a schedule of expected cash collections for December.
i2. Prepare a schedule of expected cash disbursements for merchandise purchases for December.
i3. Prepare cash budget for December. Indicate the financing section and borrowing that will be needed during the month. Assume that any interest will be paid until the following month
i4.The principal purpose of the cash budget is to see how much cash the company will have in the bank at the end of the year.” Do you agree? Explain.
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