Question ANSWER B ONLY AND CALCULATE TOTAL The management accountant at Miller Merchandising & More, Odail Russell is in the process of preparing the cash budget for the business for the fourth quarter of 2021. It is customary for the business to borrow money during this quarter. Extracts from the sales and purchases budgets are as follows: Month Cash Sales Sales on Account Purchases August $85,000 $640,000 $420,000 September 70,000 550,000 550,000 October 88,550 600,000 500,000 November 77,160 800,000 600,000 December 174,870 500,000 450,000 i) An analysis of the records
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
The
Month Cash Sales Sales on Account Purchases
August $85,000 $640,000 $420,000
September 70,000 550,000 550,000
October 88,550 600,000 500,000
November 77,160 800,000 600,000
December 174,870 500,000 450,000
i) An analysis of the records shows that trade receivables are settled according to the following credit pattern, in accordance with the credit terms 4/30, n90:
50% in the month of sale
30% in the first month following the sale
20% in the second month following the sale
ii) Expected purchases include monthly cash purchases of 5%. All other purchases are on
account. Accounts payable are settled as follows, in accordance with the credit terms – 2/30, n60:
60% in the month in which the inventory is purchased
40% in the following month
iii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be $1,680,000 per annum, (including depreciation on non-current assets of $420,000 per annum) and is settled monthly.
iv) Wages and salaries are expected to be $2,280,000 per annum and will be paid monthly.
v) Other operating expenses are expected to be $108,000 per quarter and will be settled monthly.
vi) In the month of November, an old motor vehicle, which cost $650,000, will be sold to an employee at a gain of $30,000. Accumulated depreciation on the motor vehicle at that time is expected to be $540,000. The employee will be allowed to pay a deposit equal to 60% of the selling price in November and the balance settled in two equal amounts in December
2021 & January of 2022.
vii) Computer equipment, which is estimated to cost $320,000, will be acquired in November. The manager has made arrangements with the dealer to make a cash deposit of 50% of the amount upon signing of the agreement in November, with the balance to be settled in four
equal monthly instalments, starting in December 2021
viii) The management of Miller Merchandising Company has negotiated with a tenant to rent office space to her beginning November 1. The rental is $624,000 per annum. The first month’s rent along with one month’s safety deposit is expected to be collected on November 1. Thereafter, monthly rental income becomes due at the beginning of each
month.
ix)
x) A
xi) The cash balance at December 31, 2021 is expected to be an overdraft of $236,000.
Required:
(a) The business needs to have a sense of its future cashflows and therefore requires the preparation of the following:
▪ A schedule of budgeted cash collections for trade receivables (sales on account) for each of the months October to December.
▪ A schedule of expected cash disbursements for accounts payable (purchases on account) for each of the months October to December.
(B)A cash budget, with a total column, for the quarter ending December 31, 2021, showing the expected cash receipts and payments for each month and the ending cash balance for each of the three months, given that no financing activities took place.
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