Question

1. Cash point Ltd prepares quarterly budget as part of the budgetary control system. During the last quarter ending 31^st March 2020 the following information is accumulated concerning operations for the next quarter ending 30^th June 2020.

1. Sales which are all on credit will amount to Kshs 400,000 in April 2020 the same level as in February and March 2020, increasing at 10% per month for the next six months and thereafter at 5%
2. Sales credit terms are strictly 30 days after-sales. Past experience shows that this policy is effective in 75% of cases. Of the remainder, 20% will pay in subsequent month and 5% never pay up until after 180 days.
3. Inventories are maintained at equivalent of 15 days sales. On 31^st March 2020 the inventory level is estimated at Kshs125,000.
4. Goods are bought and paid for within 30 days. During March 2020, merchandise purchases amounted to Kshs 250,000
5. The unit selling price is Kshs 100 with a profit margin of 40% on sales.
6. The cash balance on 31^st March 2020 is Kshs 87,800.
7. Projected payment for expenses and other items are as follows

	April	May	June
	Kshs	Kshs	Kshs
Salaries	45,000	45,000	54,000
Travelling	9,000	9,000	12,000
Office Expenses	15,000	15,000	18,000
Utilities	12,000	12,000	12,000
Depreciation	7,500	7,500	7,500
Drawings	30,000	16,000	16,000

8. Other payments are to be made as follows:

• Half yearly rent at the rate of Kshs 8,000 per month will be paid in April and the next instalment in October 2020.
• Income tax amounting to Kshs 20,000 will be paid in June 2020 being installment tax for 2020.
• Some computer equipment will be acquired in April 2020 but paid for in May 2020 at a price of Ksh 90,000

Required

A cash budget for the three months April, May, and June 2020

Answer 1

Please give positive ratings so I can keep answering. It would help me a lot. Please comment if you have any query. Thanks!

Cash point Ltd.	February	March	April	May	June	Quarter	Note
Budgeted Sales Revenue	400,000.00	400,000.00	440,000.00	484,000.00	532,400.00	1,456,400.00	A

Collection budget	April	May	June	Quarter	Note
75% of sale in the same month	330,000.00	363,000.00	399,300.00	1,092,300.00	B= 75% of A of same month
20% of sale in the next month	80,000.00	88,000.00	96,800.00	264,800.00	C= 20% of A of previous month
Total Scheduled Collections	410,000.00	451,000.00	496,100.00	1,357,100.00
Purchases Budget	April	May	June	Quarter	Note
Monthly Sales Budget	440,000.00	484,000.00	532,400.00	1,456,400.00	See A
Cost of goods sold at 60%	264,000.00	290,400.00	319,440.00	873,840.00	D=A*60%
Add: Closing	132,000.00	145,200.00	159,720.00	159,720.00	E= 50% of D of same month.
Material needed	396,000.00	435,600.00	479,160.00	1,033,560.00
Less: Opening	125,000.00	132,000.00	145,200.00	125,000.00	F= 50% of D of previous month
Purchases Budget	271,000.00	303,600.00	333,960.00	908,560.00	G
Cash disbursement to suppliers	April	May	June	Quarter
Material Purchase Budget	271,000.00	303,600.00	333,960.00	908,560.00	See G
100% paid in the next month		271,000.00	303,600.00	574,600.00	H= 100% of G of previous month
Payment for March purchases	250,000.00	-	-	250,000.00
Cash disbursement to suppliers	250,000.00	271,000.00	303,600.00	824,600.00

Cash Budget	April	May	June	Quarter
Beginning Cash Balance	87,800.00	88,800.00	81,800.00	87,800.00
Plus: Collections	410,000.00	451,000.00	496,100.00	1,357,100.00
Cash Available	497,800.00	539,800.00	577,900.00	1,444,900.00
Disbursements
Cash disbursement to suppliers	250,000.00	271,000.00	303,600.00	824,600.00
Salaries	45,000.00	45,000.00	54,000.00	144,000.00
Travelling	9,000.00	9,000.00	12,000.00	30,000.00
Office Expenses	15,000.00	15,000.00	18,000.00	48,000.00
Utilities	12,000.00	12,000.00	12,000.00	36,000.00
Drawings	30,000.00	16,000.00	16,000.00	62,000.00
Rent	48,000.00	-	-	48,000.00
Income tax	-	-	20,000.00	20,000.00
Equipment purchased	-	90,000.00	-	90,000.00
Total cash payments	409,000.00	458,000.00	435,600.00	1,302,600.00
Ending cash balance	88,800.00	81,800.00	142,300.00	142,300.00