Classique Household Furnishings & Appliances is a family-owned furniture store. You are themanagement accountant of the concern and have been given the task of preparing the cash budget for thebusiness for the quarter ending September 30, 2018. Your data collection has yielded the following:i) Extracts from the sales and purchases budgets are as follows:MonthCashSalesSalesOn AccountPurchasesOn AccountMay $50,000 $480,000 $390,000June $65,000 $600,000 $360,000July $43,400 $720,000 $450,000August $52,800 $640,000 $400,000September $56,750 $800,000 $500,000ii) An analysis of the records shows that trade receivables (accounts receivable) for sales on accountare settled according to the following credit pattern, in accordance with the credit terms 5/30, n90:50% in the month of sale35% in the first month following the sale15% in the second month following the saleiii) Accounts payable are settled as follows, in accordance with the credit terms – 4/30, n60:70% in the month in which the inventory is purchased30% in the following monthiv) Monthly rental is received from a tenant for storage space rented to him by Classique HouseholdFurnishings & Appliances. The rental is $840,000 per annum and is received quarterly in advance.Rental relating to the quarter under review becomes due on July 1.v) Computer equipment, which is estimated to cost $350,000, will be acquired for cash in August.The manager has made arrangements with the seller to make a cash deposit of 50% of the amountupon signing of the agreement in August, with the balance to be settled in four equal monthlyinstalments, starting in September 2018.vi) An investment instrument purchased by the company with a face value of $480,000 will mature onJuly 20, 2018 and will be liquidated on that date. At the same time, quarterly interest computed at arate of 8⅓ % per annum will also be collected.vii) Fixed operating expenses, which accrue evenly throughout the year, are estimated to be $1,920,000per annum [including depreciation on non-current assets of $42,000 per month] and are settledmonthly.viii) Wages and salaries are expected to be $2,304,000 per annum and will be paid monthly.ix) Other operating expenses are expected to be $144,000 per quarter and are settled monthly.x) In the month of August, furniture & fixtures, which cost $455,000, will be sold to an employee at aloss of $20,000. Accumulated depreciation on the furniture & fixtures at that time is expected to be$305,000. The employee will be allowed to pay a deposit equal to 60% of the selling price inAugust with the balance settled in two equal amounts in September & October.Continued.......................................Assignment #4 _ Product Costing“Those who fail to prepare, are preparing to fail” Uriel Salmon Page 4Question 2 Continued.......................................xi) As part of its investing activities, the management of Classique Household Furnishings & Appliancesis in the process of completing a major addition to the business property which is estimated to cost$1,200,000, and which is being funded by external borrowing. $460,000 of the principal, along withinterest of $18,000 is due to be paid on July 15, 2018.xii) The cash balance on September 30, 2018 is expected to be an overdraft of $264,000.Required:(a) The business needs to have a sense of its future cashflows and therefore requires the preparation of the following: A schedule of budgeted cash collections for trade receivables for each of the months July to September. A schedule of expected cash disbursements for accounts payable for each of the months July to September.
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.
Classique Household Furnishings & Appliances is a family-owned furniture store. You are the
business for the quarter ending September 30, 2018. Your data collection has yielded the following:
i) Extracts from the sales and purchases budgets are as follows:
Month
Cash
Sales
Sales
On Account
Purchases
On Account
May $50,000 $480,000 $390,000
June $65,000 $600,000 $360,000
July $43,400 $720,000 $450,000
August $52,800 $640,000 $400,000
September $56,750 $800,000 $500,000
ii) An analysis of the records shows that trade receivables (
are settled according to the following credit pattern, in accordance with the credit terms 5/30, n90:
50% in the month of sale
35% in the first month following the sale
15% in the second month following the sale
iii) Accounts payable are settled as follows, in accordance with the credit terms – 4/30, n60:
70% in the month in which the inventory is purchased
30% in the following month
iv) Monthly rental is received from a tenant for storage space rented to him by Classique Household
Furnishings & Appliances. The rental is $840,000 per annum and is received quarterly in advance.
Rental relating to the quarter under review becomes due on July 1.
v) Computer equipment, which is estimated to cost $350,000, will be acquired for cash in August.
The manager has made arrangements with the seller to make a cash deposit of 50% of the amount
upon signing of the agreement in August, with the balance to be settled in four equal monthly
instalments, starting in September 2018.
vi) An investment instrument purchased by the company with a face value of $480,000 will mature on
July 20, 2018 and will be liquidated on that date. At the same time, quarterly interest computed at a
rate of 8⅓ % per annum will also be collected.
vii) Fixed operating expenses, which accrue evenly throughout the year, are estimated to be $1,920,000
per annum [including
monthly.
viii) Wages and salaries are expected to be $2,304,000 per annum and will be paid monthly.
ix) Other operating expenses are expected to be $144,000 per quarter and are settled monthly.
x) In the month of August, furniture & fixtures, which cost $455,000, will be sold to an employee at a
loss of $20,000. Accumulated depreciation on the furniture & fixtures at that time is expected to be
$305,000. The employee will be allowed to pay a deposit equal to 60% of the selling price in
August with the balance settled in two equal amounts in September & October.
Continued.......................................
Assignment #4 _ Product Costing
“Those who fail to prepare, are preparing to fail” Uriel Salmon Page 4
Question 2 Continued.......................................
xi) As part of its investing activities, the management of Classique Household Furnishings & Appliances
is in the process of completing a major addition to the business property which is estimated to cost
$1,200,000, and which is being funded by external borrowing. $460,000 of the principal, along with
interest of $18,000 is due to be paid on July 15, 2018.
xii) The cash balance on September 30, 2018 is expected to be an overdraft of $264,000.
Required:
(a) The business needs to have a sense of its future cashflows and therefore requires the preparation of the following:
A schedule of budgeted cash collections for trade receivables for each of the months July to September.
A schedule of expected cash disbursements for accounts payable for each of the months July to September.
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