Cash budget—part 1 PrimeTime Sportswear is a custom imprinter that began operations six months ago. Sales have exceeded management’s most optimistic projections. Sales are made on account and collected as follows: 50% in the month after the sale is made and 45% in the second month after sale. Merchandise purchases and operating expenses are paid as follows:In the month during which the merchandiseis purchased or the cost is incurred . . . . . . . . . . . . . . . . . . . . . . 75%In the subsequent month. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25%PrimeTime Sportswear’s income statement budget for each of the next four months, newly revised to reflect the success of the firm, follows:September October November DecemberSales $ 42,000 $ 54,000 $ 68,000 $ 59,000 Cost of goods sold:Beginning inventory $ 6,000 $ 14,400 $ 20,600 $ 21,900Purchases 37,800 44,000 48,900 33,100Cost of goods available for sale $ 43,800 $ 58,400 $ 69,500 $ 55,000Less: Ending inventory (14,400) (20,600) (21,900) (20,000)Cost of goods sold $ 29,400 $ 37,800 $ 47,600 $ 35,000Gross profi t $ 12,600 $ 16,200 $ 20,400 $ 24,000Operating expenses 10,500 12,800 14,300 16,100Operating income $ 2,100 $ 3,400 $ 6,100 $ 7,900Cash on hand August 31 is estimated to be $40,000. Collections of August 31 accounts receivable were estimated to be $20,000 in September and $15,000 in October. Payments of August 31 accounts payable and accrued expenses in September were estimated to be $24,000.Required:a. Prepare a cash budget for September.b. What is your advice to management of PrimeTime Sportswear?
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.
is purchased or the cost is incurred . . . . . . . . . . . . . . . . . . . . . . 75%
In the subsequent month. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25%
PrimeTime Sportswear’s income statement budget for each of the next four months, newly revised to reflect the success of the firm, follows:
September October November December
Sales $ 42,000 $ 54,000 $ 68,000 $ 59,000 Cost of goods sold:
Beginning inventory $ 6,000 $ 14,400 $ 20,600 $ 21,900
Purchases 37,800 44,000 48,900 33,100
Cost of goods available for sale $ 43,800 $ 58,400 $ 69,500 $ 55,000
Less: Ending inventory (14,400) (20,600) (21,900) (20,000)
Cost of goods sold $ 29,400 $ 37,800 $ 47,600 $ 35,000
Gross profi t $ 12,600 $ 16,200 $ 20,400 $ 24,000
Operating expenses 10,500 12,800 14,300 16,100
Operating income $ 2,100 $ 3,400 $ 6,100 $ 7,900
Cash on hand August 31 is estimated to be $40,000. Collections of August 31 accounts receivable were estimated to be $20,000 in September and $15,000 in October. Payments of August 31 accounts payable and accrued expenses in September were estimated to be $24,000.
Required:
a. Prepare a cash budget for September.
b. What is your advice to management of PrimeTime Sportswear?
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