Accepting that there is now a greater need to plan properly for the future, Management has sought your help in revisiting their existing budgets, especially those affecting the cash flow of the company. It had been agreed that the company should maintain a balance of at least $ 40,000 at all times. The balance at the start of the year was $ 45,000. The current sales policy allows for all sales to be done on a credit basis with 50 % of the sales being collected in the month of sale; 40% in the next month and 10% in the second month after the sale. Sales projections for the first three months of 2021 are as follows: January February March $ 150,000 $ 160,000 $ 180,000 You have also learnt that sales in the months of November and December 2020, were $ 130,000 and $ 140,000 respectively. The purchasing policy is also under scrutiny as the market gets more demanding. Currently all purchases are on credit also and payments are made with 30% in the month of purchase, 50% in the following month and the balance in the second month. Purchases for November and December in 2020 were, $ 75,000 and $ 80,000 respectively. In 2021 these are expected to increase to $ 100,000 in January. $ 110,000 in February and $90,000 in March. In addition the company has the following monthly expenses which have to be paid: January February Мarch 30,000 20,000 35,000 15,000 7,500 4,500 Direct Labour 20,000 12,000 Selling & Administrative Expenses Maintenance Costs 5,000 3,000 3,000 2,500 Motor Vehicle Expenses

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 4P

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Prepare a Cash budget for the first three months of 2021.

Accepting that there is now a greater need to plan properly for the future,
Management has sought your help in revisiting their existing budgets, especially
those affecting the cash flow of the company.
It had been agreed that the company should maintain a balance of at least
$ 40,000 at all times. The balance at the start of the year was $ 45,000.
The current sales policy allows for all sales to be done on a credit basis with 50 %
of the sales being collected in the month of sale; 40% in the next month and 10%
in the second month after the sale.
Sales projections for the first three months of 2021 are as follows:
January
February
March
$ 150,000
$ 160,000
$ 180,000
You have also learnt that sales in the months of November and December 2020,
were.$ 130,000 and $ 140,000 respectively.
The purchasing policy is also under scrutiny as the market gets more demanding.
Currently all purchases are on credit also and payments are made with 30% in
the month of purchase, 50% in the following month and the balance in the second
month.
Purchases for November and December in 2020 were, $ 75,000 and $ 80,000
respectively. In 2021 these are expected to increase to $ 100,000 in January.
$ 110,000 in February and $90,000 in March.
In additiion the company has the following monthly expenses which have to be
paid:
January
February
March
Direct Labour
Selling & Administrative Expenses
30,000
20,000
5,000
3,000
35,000
15,000
7,500
4,500
20,000
12,000
3,000
2,500
Maintenance Costs
Motor Vehicle Expenses

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

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