Question

Kilang Roti Berhad, a manufacturer of traditional breads in Port Dickson, is preparing
monthly cash budgets for the month of January, February and March 2018. The
following data are available from records of the company:

January February March

RM RM RM
Sales 100,000 150,000 200,000
Raw materials purchases 50,000 70,000 100,000
Wages 20,000 35,000 55,000
Manufacturing overhead costs 10,000 10,000 10,000
Selling and administration 5,000 5,000 5,000
The company has the following business policies:
 Collections of cash from customers are expected to be 75% of the sales in the month of
sale and 25% in the month following the sale.
 The company pays cash for 80% of the raw materials purchases in the month of
purchase and the balance is due in the month following the purchase.
 All other items besides these two are paid cash in the month they are incurred.

Other relevant data are as follows:
 Sales: December 2017: RM110,000
 Purchases of raw materials: December 2017: RM 55,000.
 Other receipts:
January, 2018: Cash Dividend received, RM25,000
March, 2018: Cash receipts from sale of used equipment, RM30,000
 Other payments:

February, 2018: payment of debt: RM 50,000
August, 2018: Cash purchase of a new equipment for RM70,000.
 The company proposed to pay cash dividend of RM 20,000 in March, 2018.
 Closing Cash balance as at December 31, 2018 is estimated at RM55,000.

Required:
a) Prepare a Cash Budget for Kilang Biskut Berhad for the month of January, February
and March 2018.

b) Analyze the Cash Budget for the month of March, 2018.

Answer 1

A. Cash Budget
	January	February	March
Opening Balance	RM 55000	41,500	13,000
Receipts
Receipts from sale	102,500	137,500	187,500
Cash dividend received	25,000	-	-
Cash receipts from sale of equipment	-	-	30,000
Total Available Cash (A)	127,500	179,000	230,500
Payments
Cash payments for raw material	51,000	66,000	94,000
Wages	20,000	35,000	55,000
Manufacturing Overhead cost	10,000	10,000	10,000
Selling & Administration	5,000	5,000	5,000
Payment of Debt	-	50,000	-
Total Payments (B)	86,000	166,000	164,000
Closing Balance (A-B)	41,500	13,000	66,500

Notes:
1. Calculation of receipts from sale
	January	February	March
Total sale (A)	100000	150000	200000
Receipts
75% in the month of sale (A*75%)	75000	112500	150000
25% in the next month of sale	27500	25000	37500
	(110000*25%)	(100000*25%)	(150000*25%)
Total Receipts	102500	137500	187500
2. Calculation of cash payments for raw material
	January	February	March
Raw material Purchase (A)	50000	70000	100000
Payments
80% in the month of purchase (A*80%)	40000	56000	80000
20% in the next month of purchase	11000	10000	14000
	(55000*20%)	(50000*20%)	(70000*20%)
Total payments	51000	66000	94000

1. The cash sales are constantly rising, and so is cash payments for purchases. This shows that the company is on a growth path.

2. In March, the total receipts are $ 217,500, and the total payments are $ 164,000. As the receipts are more than payments, this shows that the company is financially stable.