(Pty) Limited is a distributor of PPE to rural health clinics in KZN. Turnover has been good and running expenses are under control, however the owner of the business, Mr Sam Jonas, is concerned that upcoming legal expenses and necessary vehicle repairs may negatively affect the business’ cash flow. He has hired you to prepare a cash budget for the next four months, from July to October 2022. All sales are made on credit and collected as follows: • 40% in the month of the sale; • 35% in the month after the sale; • 15% in the second month after the sale; • 10% will be written off as bad debts. All purchases are made on credit and paid for as follows: • 60% in the month of the purchase and • 40% in the month after the purchase.
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.
BTB (Pty) Limited is a distributor of PPE to rural health clinics in KZN. Turnover has been good and running expenses are under control, however the owner of the business, Mr Sam Jonas, is concerned that upcoming legal expenses and necessary vehicle repairs may negatively affect the business’
All sales are made on credit and collected as follows:
• 40% in the month of the sale;
• 35% in the month after the sale;
• 15% in the second month after the sale;
• 10% will be written off as
All purchases are made on credit and paid for as follows:
• 60% in the month of the purchase and
• 40% in the month after the purchase.
Total administration expenses (rent, rates stationary etc) will be R14 000 per month. The legal costs will be R34 000 in each of July and August 2022. Major repairs and maintenance to vehicles will cost R45 000 and this amount will be paid in three equal instalments from August to October 2022. Cash on hand on 1st July 2022 is expected to be zero, however the company has agreed to maintain a minimum cash balance of R28 000 at all times with immediate effect.
Actual sales were R180 000 for May and R130 000 for June 2022. The estimated sales are R140 000 for July, R120 000 for August, R100 000 for September and R110 000 for October. Purchases for June 2022 were R75 000. The estimated purchases are R80 000 for July, R65 000 for August, R40 000 for September and R50 000 for October.
Required:
(e) Determine the cumulative cash balance at the end of October
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