Question

The Accounts Manager of Farhan Enterprise has assembled the following data to prepare the firm’s cash budget for July, August and September.

• Cash balances on June 30, is RM10,000. Minimum cash balance required is RM10,000.

• Net sales:

    Actual: April        RM 80,000                     Forecasted:      July          RM120,000

            May               90,000                                     August          140,000

            June             100,000                                     September    150,000

• All sales are on credit. The credit manager collects 50 percent of account receivable in the month of sale, 40 percent in the month following sale, and 8 percent in the second month following sale and 2 percent are uncollected.

• Cost of goods sold: 70 percent of monthly net sales.

• Purchase of raw materials and component parts account for 40 percent of the cost of goods sold. The firm pays for 80 percent of purchases in the month of purchases and 20 percent of purchases the month following purchase.

• Direct labor and factory overhead are 35 percent and 25 percent respectively of the cost of goods sold.

• Equipment purchased RM20,000 will be paid out in August.

Prepare the cash budget of Farhan Enterprise for July, August and September.

Answer 1

CASH BUDGET

	JULY	AUGUST	SEPTEMBER
BEGINNING BALANCE	10,000	34320	43440
CASH RECIEPT FROM SALE*	107200	126000	140600
TOTAL RECIEPT (1)	117200	160320	184040
CASH PAYMENT FROM PURCHASES*	32480	38080	41440
DIRECT LABOUR*	29400	34300	36750
FACTORY OVERHEAD	21000	24500	26250
EQUIPMENT PURCHASED		20000
TOTAL PAYMENT(2)	(82880)	(116880)	(104440)
NET CASH (1-2)	34320	43440	79600

CASH RECIEPT FROM SALE*

JULY = 50% in the month of July + 40% of June + 8% of may = 107200

AUGUST = 50% In the month of August + 40% of July + 8% of June = 126000

SEPTEMBER = 50% In the month of September + 40% of August + 8% of July = 140600

CASH PAYMENT FROM PURCHASES*

70% of net sale the take it’s 40% as cost of good sold then

July = 80% of in the month of July + 20% of June = 32480

August = 80% of in the month of August + 20% of July = 38080

September = 80% of in the month of September + 20% of August = 41440