In: Accounting
Question 1
Steel Restaurant Supply sells various equipment and supplies to
restaurants in the local and surrounding communities. The company’s
executive, Mr. Daniel, has requested your help in preparing a cash
budget for the month of May and June. Mr. Daniel accumulated the
following information for you.
1. The cash balance at May 1 was estimated to be RM120,000.
2. Actual sales of April and budgeted sales for May and June are as
follows:
April May June
Actual Budgeted
RM RM RM
Cash sales 53,000 58,000 65,000
Credit sales 73,000 90,000 100,000
Total sales 126,000 148,000 165,000
3. Credit sales are collected over a two-month period. With 60%
being collected in the first month and the remainder being
collected in the second month.
4. Inventory purchased are expected to be 70% of total sales every
month. The purchases are fully paid in the month of
purchased.
5. Selling and administrative expenses are budgeted to be RM42,000
every month. Of that amount, 20% is depreciation.
6. Equipment costing RM42,000 will be purchased in May for
cash.
7. Dividends in the amount of RM40,000 will be paid in the month of
June.
8. The company wants to maintain a minimum cash balance of RM50,000
and has set up a line of credit at the local bank that can be used
to cover any shortage. If the company must borrow, the loan will be
made at the beginning of the month (that not achieve the minimum
cash balance) and any repayment will be made on the following
month.
Required:
a) Prepare the Cash Collections Schedule for the month of May and
June.
b) Prepare the Cash Payments Schedule for the month of May and
June.
c) Prepare the Cash Budget for the month of May and
June.
d) Define the term “budget’. How are budget used in
planning?
Required d
Budget is an estimate of financial information relating to future period which is based on the financial information of the past. For Example future forcasted sales. expenses etc.
Budget is very useful in planning as it helps the managers to set up achievable targets based on estimated financial informations. It also helps the manager in achieving these targets.
For any clarification, please comment. Kindly Up Vote