Delta Company has required you to prepare a cash budget on the basis of following information: i. The company has observed that 35% of its sales is cash basis and the balance is collected in the following month. ii. The company’s raw materials cost is 70% of sales. Usually purchases are made 1 (ONE) month before the month of sales and paid cash. Salaries and lease payments are RM15,000 and RM12,000 respectively. iii. The company plans to make a cash purchase of a new van for RM60,000 and sell its marketable securities for RM90,000 in May. iv. The company's cash balance as of February 28, 2020 will be RM25,000. Excess cash will be used to retire short-term borrowing (if any). Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of RM15,000 at the beginning of each month. Construct cash budget for March, April and May 2020.
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.
Delta Company has required you to prepare a
i. The company has observed that 35% of its sales is cash basis and the balance is collected in the following month.
ii. The company’s raw materials cost is 70% of sales. Usually purchases are made 1 (ONE) month before the month of sales and paid cash. Salaries and lease payments are RM15,000 and RM12,000 respectively.
iii. The company plans to make a cash purchase of a new van for RM60,000 and sell its marketable securities for RM90,000 in May.
iv. The company's cash balance as of February 28, 2020 will be RM25,000. Excess cash will be used to retire short-term borrowing (if any). Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of RM15,000 at the beginning of each month.
Construct cash budget for March, April and May 2020.
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