Question

Nana Adom Company Limited is a wholesale company that deals in general goods. The following information relates to the next budget period.

1. Expenses: (in $)

	October	November	December
Selling & distribution	20,000	30,000	34,000
General & administration	15,000	18,000	12,000
Bad debts	21,000	15,000	20,000
Rate	8,000	6,000	10,000
Interest charges	1,600	2,000	2,400
Depreciation expenses	30,000	10,000	10,000

Expenses are payable in the month of incurrence.

2. A contingent liability of $10,000 is expected to mature in November
3. Estimated cash balance at the end of September will be $5000. Cash balances should not be less than $10,000. Cash can be borrowed in multiples of $10,000 to finance any deficit at an interest rate of 15% per annum.
4. The sales manager's salary, which is $ 7000 per month is expected to increase by $1000 every month after June.
5. Motor vehicle will be purchased in November at $240,000. Depreciation for motor van should be calculated at 10% in December.
6. Credit purchases have been made as follows:

September      $200,000

October          $240,000

November      $200,000

December                    $300,000

75% of purchases are paid for in the month of purchase and the remainder in the month after purchase.

7. Details of expected sales (in units) are given below:

August             20,000

September       18,000

October          21,000

November       15,000

December       20,000

Sales are likely to be made at a unit price of $ 30.

8. Cash sales is expected to be made as follows: August $140,000

September                   $100,000

October                      $200,000

November                   $120,000

December                    $140,000

The pattern for the collection of debts from customers is expected to be as follows:

1. 60% in the month of sales (3% cash discount allowed).
2. 20% in the first month after the month of sale.
3. 15% in the second month after the month of sale.
4. 5% is usually regarded as bas debt

9. Excess funds are invested (in multiples of $10,000) in short term securities, at an interest rate of 20% per annum.
10. Borrowing must be paid together with any accrued interest whenever funds are available.

Required

Prepare cash budget, for the three month from October to December showing cash balance at the end of December. [15 Marks]

Answer 1

Cash Budget For October, November, December
				October		November	December
Beginning cash balance				$ 5,000		17,660	10,720
Add: Cash Receipts				607,260		464,060	538,220
Total Cash Available				612,260		481,720	548,940
Less: Cash Disbursements for
Merchandise Purchases				230,000		210,000	275,000
Selling and Distribution				20,000		30,000	34,000
General and Administration				15,000		18,000	12,000
Rates				8,000		6,000	10,000
Interest charges				1,600		2,000	2,400
Purchase of Motor Vehicle				-		240,000	-
Contingent Liability				-		10,000	-
Total Cash Disbursements				274,600		516,000	333,400
Preliminary Cash Balance				337,660		(34,280)	215,540
Borrowings required				0		45,000	0
Excess funds invested				(320,000)	-
Repayment of Loan							(45,563)
Ending cash balance				17,660		10,720	169,977

Workings:

a.

Sales Budget
	October	November	December
Budgeted Sales in Units	21,000	15,000	20,000
Selling proce per unit	$ 30	$ 30	$ 30
Budgeted Sales Revenue	$ 630,000	$ 450,000	$ 600,000

b.

Schedule of Cash Receipts from Sales
	October	November	December
Cash Sales	$ 200,000	$ 120,000	$ 140,000
Collection of credit sales
August	69,000
September	88,000	66,000
October	250,260	86,000	64,500
November		192,060	66,000
December			267,720
Total Cash Receipts	607,260	464,060	538,220