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.