Z & J Merchandising & More is a family-owned auto-parts store. You are the management accountant of the concern and have been given the task of preparing the cash budget for the business for the quarter ending March 31, 2021. (i)Your data collection has yielded the following: Month November 2020 – March 2021 cash sales Sales on account Purchases November $151,100 $480,000 $390,000 December $145,500 $600,000 $360,000 January $159,025 $700,000 $505,000 February $169,350 $650,000 $400,000 March $176,200 $800,000 $518,000 (ii) An analysis of the records shows that trade receivables (accounts receivable) are settled according to the following credit pattern, in accordance with the credit terms 2/30, n90: 45% in the month of sale 30% in the first month following the sale 25% in the second month following the sale (iii) Expected purchases include cash purchases of $25,000 in January and $18,000 in March. All other purchases are on account. Accounts payable are settled as follows, in accordance with the credit terms 4/30, n60: 75% in the month in which the inventory is purchased 25% in the following month (iv) The management of Z & J Merchandising & More is in the process of upgrading its fleet of motor vehicles. During March the company expects to sell an old Toyota Corolla motor vehicle that cost $500,000 at a gain of $45,000. Accumulated depreciation on this motor vehicle at that time is expected to be $340,000. The employee will be allowed to pay a deposit equal to 60% of the selling price in March; the balance will be settled in two equals amounts in April & May of 2021. (v) An air conditioning unit, which is estimated to cost $300,000, will be purchased in February. The manager has made arrangements with the suppliers to make a cash deposit of 40% upon signing of the agreement in February. The balance will be settled in four (4) equal monthly instalments beginning March 2021. vi) A long-term bond purchased by Z & J Merchandising & More 4 years ago, with a face value of $500,000 will mature on January 20, 2021. In order to meet the financial obligations of the business, management has decided to liquidate the investment upon maturity. On that date quarterly interest computed at a rate of 5½% per annum is also expected to be collected. (vii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be $2,016,000 per annum, [including depreciation on non-current assets of $42,000 per month] and are settled monthly. (viii) Other operating expenses are expected to be $177,000 per quarter and are settled monthly. (ix) The management of Z & J Merchandising & More has negotiated with a tenant to rent office space to her beginning February 1. The rental is $540,000 per annum. The first month’s rent along with one month’s safety deposit is expected to be collected on February 1. Thereafter, monthly rental income becomes due at the beginning of each month. (x) Wages and salaries are expected to be $2,976,000 per annum and will be paid monthly. (xi) As part of its investing activities, the management of Z & J Merchandising & More has just concluded an expansion project relating to the business’s storage facilities. The project required capital outlay of $1,800,000 and was funded by a loan from a family member, who is a partner in the business. $340,000 of the principal along with interest of $35,000 will become due and payable in January 2021. (xii) The cash balance on March 31, 2021 is expected to be an overdraft of $92,000. REQUIREMENTS (a) The business needs to have a sense of its future cashflows and therefore requires the preparation of the following: >schedule of budgeted cash collections for trade receivables for each of the months January to March. >A schedule of expected cash disbursements for accounts payable (purchases on account) for each of the months January to March. > A cash budget, with a total column, for the quarter ending March 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.
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.
Z & J Merchandising & More is a family-owned auto-parts store. You are the
(i)Your data collection has yielded the following:
|
Month November 2020 – March 2021
|
cash sales |
Sales on account |
Purchases |
|
November |
$151,100 |
$480,000 |
$390,000
|
|
December |
$145,500 |
$600,000 |
$360,000 |
|
January |
$159,025 |
$700,000 |
$505,000 |
|
February |
$169,350 |
$650,000 |
$400,000 |
|
March |
$176,200 |
$800,000 |
$518,000 |
|
|
|
|
|
(ii) An analysis of the records shows that trade receivables (
according to the following credit pattern, in accordance with the credit terms 2/30, n90:
45% in the month of sale
30% in the first month following the sale
25% in the second month following the sale
(iii) Expected purchases include cash purchases of $25,000 in January and $18,000 in March.
All other purchases are on account. Accounts payable are settled as follows, in accordance
with the credit terms 4/30, n60:
75% in the month in which the inventory is purchased
25% in the following month
(iv) The management of Z & J Merchandising & More is in the process of upgrading its fleet of
motor vehicles. During March the company expects to sell an old Toyota Corolla motor
vehicle that cost $500,000 at a gain of $45,000.
vehicle at that time is expected to be $340,000. The employee will be allowed to pay a
deposit equal to 60% of the selling price in March; the balance will be settled in two equals
amounts in April & May of 2021.
(v) An air conditioning unit, which is estimated to cost $300,000, will be purchased in February.
The manager has made arrangements with the suppliers to make a cash deposit of 40%
upon signing of the agreement in February. The balance will be settled in four (4) equal
monthly instalments beginning March 2021.
- vi) A long-term bond purchased by Z & J Merchandising & More 4 years ago, with a face value
of $500,000 will mature on January 20, 2021. In order to meet the financial obligations of
the business, management has decided to liquidate the investment upon maturity. On that
date quarterly interest computed at a rate of 5½% per annum is also expected to be
collected.
(vii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be
$2,016,000 per annum, [including depreciation on non-current assets of $42,000 per month]
and are settled monthly.
(viii) Other operating expenses are expected to be $177,000 per quarter and are settled monthly.
(ix) The management of Z & J Merchandising & More has negotiated with a tenant to rent office
space to her beginning February 1. The rental is $540,000 per annum. The first month’s
rent along with one month’s safety deposit is expected to be collected on February 1.
Thereafter, monthly rental income becomes due at the beginning of each month.
(x) Wages and salaries are expected to be $2,976,000 per annum and will be paid monthly.
(xi) As part of its investing activities, the management of Z & J Merchandising & More has just
concluded an expansion project relating to the business’s storage facilities. The project
required capital outlay of $1,800,000 and was funded by a loan from a family member, who
is a partner in the business. $340,000 of the principal along with interest of $35,000 will
become due and payable in January 2021.
(xii) The cash balance on March 31, 2021 is expected to be an overdraft of $92,000.
REQUIREMENTS
(a) The business needs to have a sense of its future cashflows and therefore requires the
preparation of the following:
>schedule of budgeted cash collections for trade receivables for each of the months
January to March.
>A schedule of expected cash disbursements for accounts payable (purchases on account)
for each of the months January to March.
> A cash budget, with a total column, for the quarter ending March 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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