Answered: AM is a trading entity. Purchases are…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter8: Budgeting For Planning And Control

Section: Chapter Questions

Problem 24E: Del Spencer is the owner and founder of Del Spencers Mens Clothing Store. Del Spencers has its own...

See similar textbooks

Related questions

Question

100%

AM is a trading entity. Purchases are on credit, with 70% paid in the month following the date of
purchase and 30% paid in the month after that.
Sales are partly on credit and partly for cash. Customers who receive credit are given 30 days to
pay. On average 60% pay within30 days, 30% pay between 30 and 60 days and 5% pay between
60 and 90 days. The balance is written off as irrecoverable. Other overheads, including salaries,
are paid within the month incurred.
AM plan to purchase new equipment at the end of June 2015, the expected cost of which is
P250,000. The equipment will be purchases on 30 days credit, payable at the end of July.
The cash balance on 1 May 2015 is P96,000.
The actual/budgeted figures for the six month to July 2015 were:

		actual		budgeted
	FEB P000	MAR P000	APRIL P000	MAY P000	JUNE P000	JULY P000
credit sales	100	100	110	110	120	120
cash sales	30	30	30	35	40	40
credit purchases	45	50	50	55	55	60
other overhead expenses	40	40	40	40	50	50

Required:
a. Prepare a monthly cash budget for the period May to July 2015.

b. Assess the likelihood of AM being able to pay for the equipment when it falls due.

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.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Financial Reporting in Hyperinflationary Economies

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions