Question

Q2. Draw up a cash budget for Amben Ltd showing the balance at the end of each month from the following information for the six months ended 31 December 2016. Write a short report on the budget.

a. Opening cash balance (including bank) balance $12,200

b. Production in units: April 1,240, May 1,270, June 1,300, July 1,320, August 1,350, Sep 1,370, Oct 1,380, Nov 1,340, Dec 1,310, Jan 2017 1,260, Feb, 1,250.

c. Raw materials used in production cost $12 per unit. Of this 60% is paid in the month of production and 40% in the month after production.

d. Direct labour costs of $6 per unit are payable in the month of production.

e. Variable expenses are $5 per unit, payable one-half in the same month as production and one-half in the month following production.

Sales at $50 per unit:

Mar 1,260, Apr 1,200, May 1,320, Jun 1,290, Jul 1,400, Aug 1,300, Sep 1,350, Oct 1,400 Nov 1,390 Dec 1,400

f. All goods are sold on credit. Seventy percent of the value of credit sales is received one month after sale, 20% two months after sale and 8% three months after sale. The balance is written off as bad debt.

g. Fixed expenses of $400 per month payable each month.

h. Amben ltd. has placed an order for three new forklift trucks that will cost $25,000 each. The scheduled payment date is in August.

i. Cash from a loan secured on the land and buildings of $120,000 at an interest rate of 7.5% is due to be received on 1 September.

j. Depreciation on the forklift is $2,000 per annum.

k. An interim dividend and tax thereon, $43,000 to be paid on November.

l. An old forklift will be sold in July for $10,000.

Answer 1

1. Cash Budget -

Amben Ltd Cash Budget July August September October November December $12,200 $ 54,736 $ 15,685 $ 39,581 $ 73,364 $ 66,552 Opening cash balance Add: Cash Collection From Customer Equipment Sold $63,150 $ 67,180 $ 64,660 $ 65,850 $ 67,700 $ 68,050 $10,000 Total Cash Collection $85,350 $121,916 $ 80,345 $ 105,431 $ 141,064 $ 134,602 Less: Cash Disbursement Material Purchase Direct Labour Variable Expense Fixed Expenses Equipment Purchased Interest Payment Interim Dividend Paid $15,744 $ 16,056 $ 16,344 $ 16,512 $ 16,272 $ 15,864 $ 7,920 $ 8,100 $ 8,220 $ 8,280 $ 8,040 $ 7,860 $ 6,550 $ 6,675$ 6,800 $ 6,875$ 6,800 $ 6,625 $ 400 $ 400 $ 400$ 400$ 400 $ 400 $ 75,000 $ 9,000 $ 43,000 Total Cash Disbursement $30,614 $ 106,231 $ 40,764 $ 32,067 $ 74,512 $ 30,749 Cash Surplus/ (Deficit) $54,736 $ 15,685 $ 39,581 $ 73,364 $ 66,552 $ 103,853

2. Working Notes -

Working Notes June July March April May August September October November December January February Production in units Cost per Unit Total Cost 1,240 1,270 1,300 1,320 1,350 1,370 1,380 1,340 1,310 1,260 1,250 $ 12 $ 12$ 12 $ 12$ 12$ 12$ 12 $ 12 $ 12 $ 12$ 12 $ 14,880 $ 15,240 $ 15,600 $ 15,840 $ 16,200 $ 16,440 $ 16,560 $ 16,080 $ 15,720 $ 15,120 $ 15,000 Payment: In the same Month In the following Month $ 60% 40% 8,928 $ 9,144 $ 9,360 $ 9,504 $ 9,720 $ $ 5,952 $ 6,096 $ 6,240 $ 6,336 $ 9,864 $ 9,936 $ 9,648 $ 9,432 $ 9,072 $ 9,000 6,480 $ 6,576 $ 6,624 $ 6,432 $ 6,288 $ 6,048 Direct Labour: $ 6 $ 7,440 $ 7,620 $ 7,800 $ 7,920 $ 8,100 $ 8,220$ 8,280$ 8,040 $ 7,860 $ 7,560 $ 7,500 Variable Expense: $ 5 $ 6,200 $ 6,350 $6,500 $ 6,600 $ 6,750 $ 6,850 $ 6,900 $ 6,700$ 6,550 $ 6,300 $ 6,250 Payment: In the same Month In the Following Month $ 50% 50% 3,100 $ 3,175$ 3,250 $ 3,300 $ 3,375$ $ 3,100 $ 3,175 $3,250 $3,300 $ 3,425$ 3,450 $ 3,375 $ 3,425$ 3,350 $ 3,275 $ 3,150 $ 3,125 3,450 $ 3,350 $ 3,275 $ 3,150 Sales Units Sales Price 1,260 1,200 1,320 1,290 1,400 1,300 1,350 1,400 1,390 1,400 50 $ 63,000 $ 60,000 $ 66,000 $ 64,500 $ 70,000 $ 65,000 $ 67,500 $ 70,000 $ 69,500 $ 70,000 $ Receipts: One month after Sale Two Month After Sale Three Month After Sale 70% 20% 8% $ 44,100 $ 42,000 $ 46,200 $ 45,150 $ 49,000 $ 45,500 $ 47,250 $ 49,000 $ 48,650 $ 49,000 $ 12,600 $ 12,000 $ 13,200 $ 12,900 $ 14,000 $13,000 $ 13,500 $ 14,000 $ 13,900 $ 14,000 $ 5,040 $ 4,800 $ 5,280 $ 5,160 $ 5,600 $ 5,200 $ 5,400 $ 5,600 $ 5,560 Fixed Expenses $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 75,000 $ 9,000 Equipment Purchased Interest Payment Depreciation Interim Dividend Equipment Sold 2000 $ (43,000) $ 10,000