Superstar Berhad reported sales of RM70,000 in May and RM80,000 in June. The forecast sales for July, August and September are RM90,000, RM100,000, and RM110,000, respectively. The beginning cash balance on July 1 is RM3,000 and the firm wishes to maintain a minimum cash balance of RM5,000 every month. The total long-term liabilities of the company is RM25,000. Given the following data, prepare a cash budget for the months of July, August and September. The firm makes 20% of sales for cash, 60% are collected in the next month, and the remaining 20% are collected in the second month following sale. The firm receives other income of RM 2,000 per month. The firm’s actual or expected purchases, all made for cash, are RM65,000, RM70,000, and RM85,000 for the months of July through September, respectively. Rent is RM5,500 per month. Wages and salaries are 10% of the previous month’s sales. The net income is RM30,000. Cash dividends is 20% of the net income and will be paid in August. The payment of principal and interest of the long-term liabilities is 20% of the total long-term liabilities and the payment is due in August. A cash purchase of equipment costing RM15,500 is scheduled in September. The earnings before taxes is RM100,000. The taxes amount is 10% of the earnings before taxes and it is due in August.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 7P

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Superstar Berhad reported sales of RM70,000 in May and RM80,000 in June. The forecast sales for July, August and September are RM90,000, RM100,000, and RM110,000, respectively. The beginning cash balance on July 1 is RM3,000 and the firm wishes to maintain a minimum cash balance of RM5,000 every month. The total long-term liabilities of the company is RM25,000. Given the following data, prepare a cash budget for the months of July, August and September.

The firm makes 20% of sales for cash, 60% are collected in the next month, and the remaining 20% are collected in the second month following sale.
The firm receives other income of RM 2,000 per month.
The firm’s actual or expected purchases, all made for cash, are RM65,000, RM70,000, and RM85,000 for the months of July through September, respectively.
Rent is RM5,500 per month.
Wages and salaries are 10% of the previous month’s sales.
The net income is RM30,000. Cash dividends is 20% of the net income and will be paid in August.
The payment of principal and interest of the long-term liabilities is 20% of the total long-term liabilities and the payment is due in August.
A cash purchase of equipment costing RM15,500 is scheduled in September.
The earnings before taxes is RM100,000. The taxes amount is 10% of the earnings before taxes and it is due in August.

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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