You are hired as a financial manager and your first task is to establish the cash budget of your firm. You gathered the following information. The firm receives all income from sales Sales estimates (in millions) Q1 = 1,000; Q2 = 1,250; Q3 = 1,500; Q4 = 2,000; Q1 next year = 1,200 Accounts receivable Beginning receivables = $3000 Average collection period = 45 days Accounts payable Purchases = 60% of next quarter’s sales Beginning payables = 1,200 Accounts payable period is 45 days Other expenses Wages, taxes, and other expense are 25% of sales Interest and dividend payments are $100 A major capital expenditure of $500 is expected in the second quarter The initial cash balance is $100 and the company maintains a minimum balance of $50
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.
Exercise 2 (Short-Term Finance and Planning)
You are hired as a
You gathered the following information.
The firm receives all income from sales
- Sales estimates (in millions)
- Q1 = 1,000; Q2 = 1,250; Q3 = 1,500; Q4 = 2,000; Q1 next year = 1,200
- Accounts receivable
- Beginning receivables = $3000
- Average collection period = 45 days
- Accounts payable
- Purchases = 60% of next quarter’s sales
- Beginning payables = 1,200
- Accounts payable period is 45 days
- Other expenses
- Wages, taxes, and other expense are 25% of sales
- Interest and dividend payments are $100
- A major capital expenditure of $500 is expected in the second quarter
- The initial cash balance is $100 and the company maintains a minimum balance of $50
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