Question

Prepare cash budget using following information:

	Sales
Jan	80,000
Feb	75,000
Mar	92,000
April	88,000
May	76,000
June	81,000

• The selling price was set to offer 15% margin on the purchase price of the goods.

• The company has a policy to keep a monthly closing balance of inventory as 50% of the requirement of the next month.

• Beginning inventory for the month of Jan is $43,500 and ending inventory of June is $39,200.

• The purchases are paid 40% in the month of purchase, 30% in the next month, and 30% in the following month.

Prepare cash disbursement budget for the period from March to May

Answer 1

When selling price was set to offer 15% margin on the purchase price of the goods, Cost of Goods Sold = Sales /(1+ Margin %) Jan Feb Mar Apr May Jun Sales $80,000 $75,000 $92,000 $88,000 $76,000 $81,000 1 + Margin % 1.15 1.15 1.15 1.15 1.15 1.15 [1 + 15% = 1 + 0.15 = 1.15] Cost of Goods Sold $92,000 $86,250 $105,800 $101,200 $87,400 $93,150 [$80000 x 1.15] [$75000 x 1.15] [$92000 x 1.15] ($88000 x 1.15] [$76000 x 1.15] [$81000 x 1.15] Therefore, Cost of Goods Sold $92,000 $86,250 $105,800 $101,200 $87,400 $93,150 [As calculated above] Add: Desired Ending Inventory $43,125 $52,900 $50,600 $43,700 $46,575 [Ref: NOTE] Total Inventory Needed $135,125 $139,150 $156,400 $144,900 $133,975 $93,150 Less: Beginning Inventory $43,125 $52,900 $50,600 $43,700 [Previous month's ending inventory calculated above] Inventory to be purchased $96,025 $103,500 $94,300 $90,275 NOTE: Ending Inventory for Jan = $86250 x 50% = $43125; Feb = $105800 x 50% = $52900; Mar = $101200 x 50% = $50600; Apr = $87400 x 50% = $43700; May = $93150 x 50% = $46575. Cash disbursement budget For the period from March to May Mar Apr May February's purchases paid $28,807.50 $28,807.50 $0.00 [$96025 x 30%; $96025 x 30%] March's purchases paid $41,400.00 $31,050.00 $31,050.00 [$103500 x 40%; $103500 x 30%; $103500 x 30%] April's purchases paid $0.00 $37,720.00 $28,290.00 ($94300 x 40%; $94300 x 30%] May's purchases paid $0.00 $0.00 $36,110.00 [$90275 x 40%] Total cash disbursement $70,207.50 $97,577.50 $95,450.00