Question

Kojima Berhad is trying to estimate its need of funds for the second quarter of year 2009. The company's actual and forecasted sales are as follows:

Actual                         RM                             Forecasted                             RM

January                       160,000                       April                                        180,000

February                     190,000                       May                                         260,000

March                          140,000                      June                                        220,000

July                                           280,000

b) The collection of sales is as follows:

• 30% is for cash

• 70% is collected one month after sales

c) The purchases of the raw materials are 60% of sales and made one month in advance. The payments are made in the same month in which the sales occur.

d) Rent expenses is RM3.000 per month. 6% of interest payment on RM150,000 notes payable is to be paid in May.

f) Wages and salaries in April, May and June are estimated to be RM10,000, RM12.000 and RM14.000 respectively.

g) Other fixed monthly expenses:

• Depeciation RM15,000

• Insurance RM 3,000

h) The company plans to pay RM10,000 in cash for a new cutting machine in June. This new machine will depreciate RM500 per month.

i) The cost of renovation of RM50,000 will be paid equally in May and June. A quarterly dividend of RM5.000 will be received in June.

k) Kojima Berhad's ending cash balance for March is RM30.000 and a minimum balance the firm wishes to have is RM50.000 per month and the amount will be increased to RM100,000 starting from June.

You are required to prepare a cash budget for Kojima Berhad for the second quarter of year 2009.                                                                                                                             

Answer 1

1) Cash budget for Kojima Berhad for second quarter of 2009.

The following table shows the cash budget for April - June 2009

All Figures in RM

Particulars	April	May	June
Opening balance - A	30,000	58,000	54,000
Cash inflows
Cash inflow from sales	152,000	204,000	248,000
Other cash inflow (Dividend)			5,000
Total Cash inflows - B	152,000	204,000	253,000
Cash outflows
Payment for purchase of materials	108,000	156,000	132,000
Wages	10,000	12,000	14,000
Rent	3,000	3,000	3,000
Interest payment (150,000x6%)		9,000
Insurance	3,000	3,000	3,000
Purchase of machine			10,000
Renovation cost (RM 25000 in May and June)		25,000	25,000
Total Cash Outflow - C	124,000	208,000	187,000
Closing Balance A+B-C	58,000	54,000	120,000

Note:

1) Cash inflow from sales is calculated on the basis of following

Particulars	Basis	March	April	May	June
Sales	Given	140,000	180,000	260,000	220,000
Cash from sales received in the same month	30% of current month sales	42,000	54,000	78,000	66,000
Cash from sales received in the next month	70% of previous month sale	133,000	98,000	126,000	182,000
Total Cash from Operating Revenue		175,000	152,000	204,000	248,000

2) Cash payment on purchase is on the basis of following -

Particulars	Basis	March	April	May	June
Sales	Given	140,000	180,000	260,000	220,000
Purchass	60% of sales	84,000	108,000	156,000	132,000
Cash paid on goods purchased in the same month	60% of sales	84,000	108,000	156,000	132,000
Total Cash for purchases		84,000	108,000	156,000	132,000

3) Depreciation is a non-cash item hence is not considered for cash budgeting.

4) Opening balance for a month is the closing balance of previous month. Hence, Opening balance of April will be closing balance of March and so on.

5) The company in its present budgets has the desired minimum balance of cash (RM50,000 for April, May and RM 100,000 for June). Hence, no additional borrowings or fundings are required to maintain the minimum balance.