Question

Use the information provided below to prepare the Cash Budget of Project M for June, July and August 2020. (Note: Use separate monetary columns for each month. A total column is not required.)

  

  INFORMATION

  

  The management accountant of Remax Limited prepared the following forecasted sales schedule of Project M for the five months ended 31 August 2020:

  

April R100 000

May R130 000

June R150 000

July R160 000

August R210 000

  

  Additional information

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 2020 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 2020.

7. A packing machine that costs R50 000 is expected to be purchased on credit on 31 July 2020. A deposit of R10 000 will be paid on 31 July 2020 and the balance plus finance charges of R5 000 will be paid in 10 equal monthly installments commencing 31 August 2020.

8. A favorable bank balance of R18 000 is expected on 31 May 2020

Answer 1

Answer:

Cash Budget
Particulars	June	July	August
Beginning cash balance	$   18,000	$    62,615	$ 100,740
Add: Cash receipts	$ 137,115	$ 152,125	$ 192,180
Cash available	$ 155,115	$ 214,740	$ 292,920
Less: Cash payments
Purchases of materials	$   25,000	$    32,500	$    37,500
Fixed production overheads	$   20,000	$    20,000	$    20,000
Marketing Overheads	$   22,500	$    24,000	$    31,500
Production salaries and wages	$   25,000	$    27,500	$    30,250
Packing machine	$            -	$    10,000	$      5,000
Total cash payments	$   92,500	$ 114,000	$ 124,250
Ending cash before financing	$   62,615	$ 100,740	$ 168,670

Calculations:

1.

	April	May	June	July	August
Sales	$ 100,000	$ 130,000	$ 150,000	$ 160,000	$ 210,000
Cash sales (70%)	$   70,000	$   91,000	$ 105,000	$ 112,000	$ 147,000
Credit sales (30%)		$      8,550	$    11,115	$    12,825	$    13,680
Credit sales (70%)			$    21,000	$    27,300	$    31,500
Cash received			$ 137,115	$ 152,125	$ 192,180

2.

	April	May	June	July	August
Sales	$ 100,000	$ 130,000	$ 150,000	$ 160,000	$ 210,000
Purchases	$   25,000	$   32,500	$    37,500	$    40,000	$    52,500
Payment			$    25,000	$    32,500	$    37,500

In case of any doubt, please comment.