Question

Description Sales Purchases Wages Supplies Utilities Rent Insurance Advertising Depreciation Net Profit JANUARY 285,000 129,000 35,000 26,000 6,500 15,000 12,000 24,500 20,000 17.000 FEBRUARY 323,000 168,000 37,000 23,000 8,700 12,800 12.000 28,500 20,000 13.000 MARCH 221,000 95,000 30,000 21,500 7,200 13,600 12,000 18,000 20,000 3,700 Required: a. Please make a cashbudget forthemonths of January, February and March 1999 based on the data for: (5 Marks) Visw Receivable Trend: • 30% of Sales are collected in the month of sale • 30% of Sales are collected after the month of sale • 40% of Sales are collected two months after the sale is made View Payable Trend: • 10% of Purchases are paid for in the month of purchase • 35% of Purchases are paid after the month of purchase • 55% of Purchases are paid two months after the purchase is made Additional Information: • Rent and Insurance expense were prepaid at the end of 1998 • All other expenses are paid for in the month they were incurred • November Sales = 195,000 • November Purchases = 100,000 • December Sales = 250,000 • December Purchases = 165,000 • Please see attached Budgeted Income Statement for 1st Quarter 1999 b. Being a CFO of the company, interpretthe importance budgetin strategic and operational planning of the company (Word limit Max 150-200) (2 marks)

Answer 1

a)

Cash Budget for the month of January,February & March 1999

	Cash Budget
	January	February	March
Receipts
Sales
30% in the month of Sales	85500	96900	66300
30% after one month of Sales	75000	85500	96900
40% after 2months of Sale	78000	100000	114000
Total Receipts	238500	282400	277200
Payments
Purchases
10% paid in the month of purchase	12900	16800	9500
35% paid after one month of purchase	57750	45150	58800
55 % paid after two month of purchase	55000	90750	70950
Wages	35000	37000	30000
Supplies	26000	23000	21500
Utilities	6500	8700	7200
Rent(as prepaid)	0	0	0
Insurance(as prepaid)	0	0	0
Advertising	24500	28500	18000
Depreciation(non cash item)	0	0	0
Total Payments	217650	249900	215950
Total cash Receipts	20850	32500	61250

b)As the CFO of the company ,financial planning creates a revenue model.Tracking your cash flow and comparing it with your financial plan helps you analyse where your business is currently at. Having a plan allows you to measure actual progress relative to where you envisioned it to be at the beginning of your financial year.A chief financial officer (CFO) is the senior executive responsible for managing the financial actions of a company. The CFO's duties include tracking cash flow and financial planning as well as analyzing the company's financial strengths and weaknesses and proposing corrective actions.CFO advises the CEO on M&A, but they also drive the discussions with the targets. They have to make sure that the company has the right financing structure, and they're also supposed to negotiate with the banks. Resolving that tension between roles is where the CFO can do a better job.