Question

Prepare the Cash Budget of Project R for June, July and August.

The following are forecasted sales schedule of Project M for the five months ended 31 August :

April R100 000

May R130 000

June R150 000

July R160 000

August R210 000

1. Cash sales usually comprise 70% of the total sales.
2. The remaining sales are on credit and these are collected as follows:

• 30% in the month of the sale, with a 5% cash discount applicable;
• 70% in the month after the sale.

3. The monthly purchases of materials equal 25% of the sales value of the same month (before any discounts) but are paid for two months after the month of purchase.

4. Fixed production overheads, excluding depreciation of R3 000, amount to R20 000 per month and they are payable in the month in which they are incurred.

5. Marketing overheads as a fixed percentage of the monthly sales value (before discounts) will be maintained during the budgeted period. Marketing overheads for May are expected to amount to R19 500. Marketing overheads are paid at the end of the applicable month.

6. Production salaries and wages are budgeted at R25 000 per month and are paid for in the applicable month. Employees are entitled to a 10% increase in remuneration with effect from 01 July.

7. A packing machine that costs R50 000 is expected to be purchased on credit on 31 July. A deposit of R10 000 will be paid on 31 July and the balance plus finance charges of R5 000 will be paid in 10 equal monthly instalments commencing 31 August.

8. A favourable bank balance of R18 000 is expected on 31 May.

Answer 1

Cash budget A cash budget is a budget or plan of expected cash receipts and disbursements during the period. A cash budget is an estimated projection of the company's cash position in the future. I Cash Budget of Project R for June July August Particulars opening cash balance Cginen) 18,000 95625 188305 Receipts Sales Cho N. 1) 1 45 125 199 180 198555 (2500) (Q0000 (32500) (20000) Payments Materials (h.n.2) Fixed production OH (20000) CHIN. 3) Marketing oH (@a500) (N.N. 4 Production salaries & loages 25000) (24000) (31500) 27500 C25000 110/ (10000) (27500) Casooo x110% Deposit for machine Instalments for machine (HONS) closing cash balance (4500) 270860 95625 1,88,305

Page No Working Note (W.N-) 1 : Cash from sales. August 2,10,000 1,47,000 17,955 Particular Abril May June July b ach Sales 200,000 1,30,000 150 000 1,60,000 (A → Cash Sales sales 40,000 $1,000 1,05,000 1,12,000 1 (70% X Sales) (B) credit sales 85sol 211.15 12,825 13,680 307. X Sales)x30% X95 7481,00,000 P1207.) x 907 x 95% (6) Balance in next month 21000 h 27300 735 00 ex Sales )x STOC0X30 1x400% S (A) + (B) + 6 ] 78,550 123115 145 125 199 180 33600 30 198555 WON.2: Payment for materials Total sales. Purchases 25% sales) Abril 11,00,000 25,000 May June 1,30,000 1,50,000 32,500 37500 July 1,60,000 40,000 August 2,10,oool $2,500 yment 25ooo 325 og 25-000 | 32506 Important The payment two months & hence for is done in the month of for materials is made after from the month of purchase purchases of April, payment July ive after 2 months from purchase.
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HIN. 3: Depreciation and hence will be budget. is a non- cash excluded from expenditure a cash N.N.4: percentage of Marketing Calculation OH to of Sales 19500 x 100 = 15%. 1,30, ooo Applying the rate of 15% get marketing Overheads to sales to Particulars July June 1,50,000 August Sales 115% x ales = Marketing oH 22SOO 24.000 31,500 W.Nos calculation of EMI for machine Particulars Cost of machine o Deposit Balance (f) Finance charges Amount 50000 (10000) 40000 5000 4 5000 10 8 10 EMI EMI 4500