Corona2020, a merchandising firm, needs to prepare budgets for July 2020. The followings are the data regarding the company’s plans for 2020. 1. The actual and forecasted sales (in units) of the company are as follows: June 55,000 July 70,000 August 75,000 The unit-selling price is estimated at RM14.50. All sales are on account; 60% of the monthly sales is expected to be collected in the month of sales, and another 40% will be received in the following month after the sales. 2. The company’s policy indicates that the ending inventory of merchandises should be equal to 15% of the current month’s sales plus 5% of the following month’s sales. 3. The cost of goods sold is about 65% of the total monthly sales. 4. The company pays 60% of the purchase in cash, and the balance is paid in the following month after the purchases. Total cost of merchandises purchased in June was RM594,500. 5. In July 2020, the company expects to purchase a piece of commercial land costing RM80,000. 6. Monthly administrative expenses of the company are RM35,000. Selling expenses are estimated at 4% of the cost of sales. These selling and administrative expenses are paid in the month incurred. 7. The closing cash balance in June was RM45,000. REQUIRED: (a) Prepare the Cash Budget for the month of July 2020. (Show workings) (b) Discuss three (3) purposes of budgeting. (c) Explain two (2) factors that are essential for effective budgeting.
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.
Corona2020, a merchandising firm, needs to prepare budgets for July 2020. The followings are
the data regarding the company’s plans for 2020.
1. The actual and
June 55,000
July 70,000
August 75,000
The unit-selling price is estimated at RM14.50. All sales are on account; 60% of the
monthly sales is expected to be collected in the month of sales, and another 40% will be
received in the following month after the sales.
2. The company’s policy indicates that the ending inventory of merchandises should be equal
to 15% of the current month’s sales plus 5% of the following month’s sales.
3. The cost of goods sold is about 65% of the total monthly sales.
4. The company pays 60% of the purchase in cash, and the balance is paid in the following
month after the purchases. Total cost of merchandises purchased in June was RM594,500.
5. In July 2020, the company expects to purchase a piece of commercial land costing
RM80,000.
6. Monthly administrative expenses of the company are RM35,000. Selling expenses are
estimated at 4% of the cost of sales. These selling and administrative expenses are paid in
the month incurred.
7. The closing cash balance in June was RM45,000.
REQUIRED:
(a) Prepare the
(Show workings)
(b) Discuss three (3) purposes of budgeting.
(c) Explain two (2) factors that are essential for effective budgeting.
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