Question 3 Relevant data from Picta Company’s operating budgets are presented below. The company’s financial year ends on 30 June. Quarter 1 Quarter 2 Sales $248,470 $251,539 Direct material purchases 120,295 128,832 Direct labor 76,553 74,289 Manufacturing overhead 26,000 24,400 Selling and administration expenses 33,500 33,500 Depreciation included in selling and administration expenses 2,000 2,500 Collection from customers 230,524 220,116 Cash payments for purchases 114,345 118,346 Additional data: Equipment was sold in July for $8,000 and $4,500 in November. Dividends of $5,500 were paid in August. The beginning cash balance was $80,395 and a required minimum cash balance per quarter is $60,000. The company has a 15% open line of credit for $70 000 with their bank. Required: a) Use this information to prepare a cash budget for the first two quarters of the year. bi) Briefly comment on Picta Company’s expected cashflow position in the first two quarters of the year. SHOW YOUR WORKING
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.
Question 3
Relevant data from Picta Company’s operating budgets are presented below. The company’s financial year ends on 30 June.
|
|
Quarter 1 |
Quarter 2 |
|
Sales |
$248,470 |
$251,539 |
|
Direct material purchases |
120,295 |
128,832 |
|
Direct labor |
76,553 |
74,289 |
|
Manufacturing overhead |
26,000 |
24,400 |
|
Selling and administration expenses |
33,500 |
33,500 |
|
|
2,000 |
2,500 |
|
|
|
|
|
Collection from customers |
230,524 |
220,116 |
|
Cash payments for purchases |
114,345 |
118,346 |
Additional data:
Equipment was sold in July for $8,000 and $4,500 in November. Dividends of $5,500 were paid in August. The beginning cash balance was $80,395 and a required minimum cash balance per quarter is $60,000.
The company has a 15% open line of credit for $70 000 with their bank.
Required:
- a) Use this information to prepare a
cash budget for the first two quarters of the year. - bi) Briefly comment on Picta Company’s expected cashflow position in the first two quarters of the year.
SHOW YOUR WORKING
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