You are the Management Accountant of Cari’s shoe store and you are involved in the budgetary process, including operating and financial budgets, for the income year ending December 2020. One component of the financial budget is the cash budget. The opening cash balance on 1st January was expected to be $30000. The sales budgeted were as follows: Month $ November 80000 December 90000 January 75000 February 75000 March 80000 Analysis of records shows that debtors settle in the following pattern: 60%-------------Within the month of sale 25%-------------The month following 15%-------------The month following Extracts from the purchases budget were as follows: Month $ December 60000 January 55000 February 45000 March 55000 All purchases are on credit and past experience shows that 90% are settled in the month following purchase and the balance settled the month after. Wages are $15000 per month and overheads are $20000 per month (including $5000 depreciation) are settled monthly. Taxation of $8000 has to be settled in February and the company will receive settlement of an insurance claim of $25000 in March. Required: 1. Prepare a cash budget for each of the months January, February, and March 2. Prepare a cash budget for the period January to March 3. Cari’s need to maintain a minimum cash balance of $ 20000. Will Cari’s be able to maintain such a minimum balance for each month? If not, what cash management strategy do you recommend and why?
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.
You are the
The opening cash balance on 1st January was expected to be $30000. The sales budgeted were as follows:
Month $
November 80000
December 90000
January 75000
February 75000
March 80000
Analysis of records shows that debtors settle in the following pattern:
60%-------------Within the month of sale
25%-------------The month following
15%-------------The month following
Extracts from the purchases budget were as follows:
Month $
December 60000
January 55000
February 45000
March 55000
All purchases are on credit and past experience shows that 90% are settled in the month following purchase and the balance settled the month after.
Wages are $15000 per month and overheads are $20000 per month (including $5000 depreciation) are settled monthly.
Required:
1. Prepare a cash budget for each of the months January, February, and March
2. Prepare a cash budget for the period January to March
3. Cari’s need to maintain a minimum cash balance of $ 20000. Will Cari’s be able to maintain such a minimum balance for each month? If not, what cash management strategy do you recommend and why?
4. What are the benefits of a detailed cash budget?
5. Provide three (3) differences between a cash
6. How would an event such as a global pandemic affect the Budget process at Cari’s?
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