Question

Q4. The following are the sales forecast for Lovely Toy Ltd. For the next three months (15) Month Expected sales January February March Rs.20,00,000 Rs.16,00,000 Rs.10,00,000 The following additional information is provided: • Thirty percent of the company's sales are for cash and the remaining are collected in the month following the sale. Cost of sales amount to 75 percent of sales. Out of which 40 percent are raw material costs and 60 percent are direct labor costs. • Direct labor costs are paid in the month incurred. • Raw materials are paid in the month following the purchase. • Total of other operating expenses amount to Rs.3, 00,000 per month A capital expenditure of Rs. 1, 50,000 has been planned in February. Tax payments of Rs.1, 80,000 are to be made in March. • The company maintains a cash balance equal to 10 percent of the previous months cost of sales. The surplus cash is invested in bank deposits based on future requirements. • Sales in the month of December were Rs.21,00,000. You are required to prepare a cash budget for the next three months.

Answer 1

The following is the cash budget of Lovely Toy Ltd from Jan to March

Sl.no	Particulars	January(Rs.)	February(Rs.)	March(Rs.)
1	Opening Balance(from WN-1(e))	157500	150000	120000
2	Cash Sales	600000 (2000000*30%)	480000 (1600000*30%)	300000 (1000000*30%)
3	Collection from Debtors	1470000 (2100000*70%)	1400000 (2000000*70%)	1120000 (1600000*70%)
4	Labor Expenses (from WN-1(d))	(900000)	(720000)	(450000)
5	Raw material Expenses (from WN-1(c))	(630000)	(600000)	(480000)
6	Operating Expenses	(300000)	(300000)	(300000)
7	Capital Expenditure	-	(150000)	-
8	Tax Expense	-	-	(180000)
9	Total(1+8)	397500	260000	130000
10	Investments made(9-11)	247500	140000	55000
11	Closing Balance	150000	120000	75000

WN-1

In the absence of clear information it is assumed that the operating expenses per month are cash expenses and are paid in the month it actually has happened.

Sl.no.	Particulars	Dec(Rs.)	Jan(Rs.)	Feb(Rs.)	Mar(Rs.)
(a)	Sales	2100000	2000000	1600000	1000000
(b)	Cost of Sales(a*75%)	1575000	1500000	1200000	750000
(c)	Raw material Expense(b*40%)	630000	600000	480000	300000
(d)	Labor Expense(b*60%)	945000	900000	720000	450000
(e)	Cash balance to be maintained at the end of month(b*10%)	157500	150000	120000	75000