Upon receipt of the budget, the team manager, Dannie Bruce, has now informed you that, in keeping with industry players, the management of Sallat Household Furnishings have indicated an industry requirement to maintain a minimum cash balance of $155,000 each month. He has also noted that management is very keen on keeping the gearing ratio of the business as low as possible and would therefore prefer to cushion any gaps internally using equity financing. Based on the budget prepared, will the business be achieving this desired industry target? Suggest three (3) internal strategies that may be employed by management to improve the organization’s monthly cash flow and militate against or reduce any possible shortfall reflected in the budget prepared. Each strategy must be fully explained.
Transcribed Image Text:SALLAT Household Furnishings & Appliances is a family-owned business. You are the
management accountant of the entity and have been given the iask of preparing the cash budget
for the business for the quarter ending September 30, 2022. Your data collection has yielded the
following:
Extracts from the sales and purchases budgets are as follows:
Cash
Sales
Cash
Purchases
Month
Sales
On Account
Purchases
On Account
May
June
$75,000
$135,000
$86,800
$105,600
$112,500
$480,000
$600,000
$390.000
$360,000
$36,000
July
August
September
$720,000
$640,000
S800,000
$61,700
$68,800
$77,250
$450,000
$400,000
$500,000
i)
An analysis of the records shows that trade receivables (accounts receivable) for sales on
account are settled according to the following credit pattern, in accordance with the credit
tems 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
ii)
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
Computer equipment, which is estimated to cost $350,000, will be acquired in August. The
iv)
manager has planned with the supplier 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 2022.
v)
A treasury bond purchased by the company with a face value of $560,000 is expected to
mature on July 20, 2022. To meet the financial obligations of the business the management
team has decided to liquidate the investment upon maturity. On that date, quarterly interest
computed at a rate of 7% % per annum is also expected to be collected.
vi)
Fixed operating expenses, which acrue evenly throughout the year, are estimated to be
$1,812.000 per annum (including depreciation on non-current assets of $37,.000 per month]
and are settied monthly.
vii) The management Sallat Household has negotiated with a tenant for rental of storage space
beginning on July 1. The rental is expected to be $840,000 per annum and will be paid over
by the tenant quarterly in advance. Rental relating to the quarter under review becomes
due on July 1.
viii) Other operating expenses are expected to be $432,000 per annum and will be settled
monthly.
Transcribed Image Text:Continued.
ix) Wages and salaries are expected to be $2,304,000 per annum and will be paid monthly.
x)
In the month of August, fumiture & fixtures, which cost $455,000, will be sold to an
employee at a loss of $20,000. Accumulated depreciation on the fumiture & fixtures at that
time is expected to be $305,000. The employee wil 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.
xi)
As part of its investing activities, the management of Sallat Household Fumishings &
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. $420,000
of the principal, along with interest of $14,200 is due to be paid on July 15, 2022.
xii) The cash balance on September 30, 2022, is expected to be an overdraft of $147,500.
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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![SALLAT Household Furnishings & Appliances is a family-owned business. You are the
management accountant of the entity and have been given the iask of preparing the cash budget
for the business for the quarter ending September 30, 2022. Your data collection has yielded the
following:
Extracts from the sales and purchases budgets are as follows:
Cash
Sales
Cash
Purchases
Month
Sales
On Account
Purchases
On Account
May
June
$75,000
$135,000
$86,800
$105,600
$112,500
$480,000
$600,000
$390.000
$360,000
$36,000
July
August
September
$720,000
$640,000
S800,000
$61,700
$68,800
$77,250
$450,000
$400,000
$500,000
i)
An analysis of the records shows that trade receivables (accounts receivable) for sales on
account are settled according to the following credit pattern, in accordance with the credit
tems 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
ii)
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
Computer equipment, which is estimated to cost $350,000, will be acquired in August. The
iv)
manager has planned with the supplier 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 2022.
v)
A treasury bond purchased by the company with a face value of $560,000 is expected to
mature on July 20, 2022. To meet the financial obligations of the business the management
team has decided to liquidate the investment upon maturity. On that date, quarterly interest
computed at a rate of 7% % per annum is also expected to be collected.
vi)
Fixed operating expenses, which acrue evenly throughout the year, are estimated to be
$1,812.000 per annum (including depreciation on non-current assets of $37,.000 per month]
and are settied monthly.
vii) The management Sallat Household has negotiated with a tenant for rental of storage space
beginning on July 1. The rental is expected to be $840,000 per annum and will be paid over
by the tenant quarterly in advance. Rental relating to the quarter under review becomes
due on July 1.
viii) Other operating expenses are expected to be $432,000 per annum and will be settled
monthly.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe5fe7267-47c5-41c2-94b8-326bf21616ab%2Fb9fcc8c9-38af-4b05-82bd-3ef7974ef796%2Fwn4iecg_processed.png&w=3840&q=75)
