Question

. Alpha Ltd has appointed you as a manager in the budgeting department. The company has provided the following information to prepare a cash flow budget for the six months from the 1 January 2021 to 30 June 2021.

1. Alpha Ltd produces only one type of product and the projected selling price of the product is £2 for January and February and after that will be fixed at £3 for the foreseeable future.      
2. For the first three months of the year, 2,000 units will be sold per month. For the following three months, 2,500 units will be sold per month. Sales income is to be received in the month of sale.
3. Insurance costs are £200 every two months. The company will pay for insurance on 1 December 2020.
4. The company is paying 20% of sales of each month as bonus to the employees in the following month. The total sales during December 2020 will be £5,000.
5. Alpha Ltd will pay overhead costs of £2,000 each month.
6. The opening cash balance at 1 January 2021 will be £1,000.
7. The monthly cost of direct material and direct labour is estimated to be £500 and the company will pay them during each month.

viii Fixed costs of production are £100 per month, payable in the month

Answer 1

Cash Budget	Jan	Feb	Mar	Apr	May	June	Total
1.Opening balance	1000	1400	1800	4400	7900	11300	1000
2.Sales revenue	4000	4000	6000	7500	7500	7500	36500
3.Total cash available(1+2)	5000	5400	7800	11900	15400	18800	37500
Less: Payments for:
4.Direct material & labor	500	500	500	500	500	500	3000
5.Fixed costs of production	100	100	100	100	100	100	600
6.Insurance costs		200		200		200	600
7.Bonus to employees	1000	800	800	1200	1500	1500	6800
8.OH costs	2000	2000	2000	2000	2000	2000	12000
9.Total payments(sum 4 to 8)	3600	3600	3400	4000	4100	4300	23000
10.Ending balance(3-9)	1400	1800	4400	7900	11300	14500	14500
Ending cash balance as at Jun 30=	14500

Workings:
	Jan	Feb	Mar	Apr	May	June	Total
1.Sales units	2000	2000	2000	2500	2500	2500	13500
2.Selling price/unit	2	2	3	3	3	3
3.Sales $(1*2)	4000	4000	6000	7500	7500	7500	36500
4.Bonus to employees(Prev.3*20%)	1000	800	800	1200	1500	1500	6800