ConstructAB'S cash budget for the next three months.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
AB has generated $150,000 in sales during the past few months and expected the level of sales willcontinue for the next year. Based on the firm’s past experience, 30% of the sales will be collected in the month of the sale and these customers will take the 4% cash discount offered for early payment. 70% of the remaining sales will becollected one month after the sale. AB normally purchases and pays for raw materials which is 70% of sales, in the same month the finished goods are sold. Wages of AB employees represents 15% of sales and monthly rent is $10,000. At present, the firm has no cash but its target balance is $6,000. ConstructAB'S
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