prepare a cash budget, Financial Management

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You are presented with the budgeted data shown below for the period November 20X1 to June 20X2 by your firm. It has been extracted from the other functional budgets that have been prepared.

You are also told the following.

a.   Sales are 40% cash, 60% credit. Credit sales are paid two months after the month of sale.

b.   Purchases are paid the month following purchases.

c.   75% of wages are paid in the current month and 25% the following month.

d.  Overheads are paid the month after they are incurred.

e.  Dividends are paid three months after they are declared.

f.   Capital expenditure is paid two months after it is incurred.

g.  The opening cash balance is RO 15,000.

The managing director is pleased with the above figures as they show sales will have increased by more than 100% in the period under review. In order to achieve this he has arranged a bank overdraft with a ceiling of RO 50,000 to accommodate the increased stock levels and wage bill for overtime worked.

 

Nov X1

Dec X1

Jan X2

Feb X2

Mar X2

Apr X2

May X2

Jun X2

 

RO

RO

RO

RO

RO

RO

RO

RO

Sales

80,000

100,000

110,000

130,000

140,000

150,000

160,000

180,000

Purchases

40,000

60,000

80,000

90,000

110,000

130,000

140,000

150,000

Wages

10,000

12,000

16,000

20,000

24,000

28,000

32,000

36,000

Overheads

10,000

10,000

15,000

15,000

15,000

20,000

20,000

20,000

Dividends

 

20,000

 

 

 

 

 

40,000

Capital expenditures

 

 

30,000

 

 

40,000

 

 

a)  Prepare a cash budget for the 6 month period January to June 20X2.

b)  Comment upon your results in the light of your managing director's comments and offer advice.


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