Question

“Diamond Company” is preparing a budget for the first quarter of year 2020. The following information is available:

• Total expected sales for last two months of 2019 and four months of 2020 are (in 000’s LE)

	November	December	January	February	March	April
Sales	200	200	160	160	180	180

• All sales are on credit and collections from sales are 60% in the month of sales, 30% in the next month, and 10% in the following month.
• Cost of goods sold is 70% of sales.
• The desired ending inventory every month is 30% of the next month's cost of goods sold.

• It is expected that ending inventory of December, 2019, will be valued at LE 33 600.
• All purchases are paid in the month of purchases.
• All cash operating expenses are paid when incurred and the following are the budgeted expenses per month:

Wages LE 31 000, Advertising LE 5 000, Depreciation LE 16 000, Rent 12 000.

• It is planned to pay, for other cash operating expenses, the amount of LE 16 000 in January and LE 43 800 in February 2020.

Answer 1

Cash Budget:

	January	February	March
Receipts:
Cash collections	176,000	164,000	172,000
Total cash receipts	176,000	184,000	172,000
Payments:
Cash purchases	112,000	116,200	126,000
Wages	31,000	31,000	31,000
Advertising	5,000	5,000	5,000
Rent	12,000	12,000	12,000
Other cash operating expenses	16,000	43,800
Total cash payments	176,000	208,000	174,000
Excess/(deficiency) of cash	LE 0	LE (24,000)	LE (2,000)

Cash Collections:

	January	February	March
November sales	20,000 (200,000*10%)
December sales	60,000 (200,000*30%)	20,000 (200,000*10%)
January sales	96,000 (160,000*60%)	48,000 (160,000*30%)	16,000 (160,000*10%)
February sales		96,000 (160,000*60%)	48,000 (160,000*30%)
March sales			108,000 (180,000*60%)
Total	176,000	164,000	172,000

Cash purchases:

	January	February	March
Cost of goods sold	112,000 (160,000*70%)	112,000 (160,000*70%)	126,000 (180,000*70%)
Add: Desired ending inventory	33,600 (112,000*30%)	37,800 (126,000*30%)	37,800 (180,000*70%*30%)
Less: Beginning inventory	33,600	33,600	37,800
Cost of purchases	112,000	116,200	126,000