Question

LFJ Manufacturing requested the company cost accountant to prepare a cash budget for the four months ending 30 April 2018.

The following sales figures are for the months of November 2017 to June 2018. The figures from January 2018 onward are estimated:

Actual Sales for 2017

November...............60,000

December................64,000

Sales Forecast for 2018

January.............65,000

February............70,000

March...................72,500

April..................76,250

May.................80,000

June................78,750

50% of the sales are usually paid for in the month in which they occur, while the remaining sales are paid for in the month following the sale.

Goods are sold at a mark-up of 25% on the goods purchased one month before sale. Half of the purchases are paid for in the month of purchase while the remainder is paid in full in the following month.

Wages of $12000 per month are paid in the month in which they are earned. It is expected that the wages will be increased by 10% from 1 March 2018.

Rent will cost $60000 per annum payable three monthly in advance in January, April, July and December each year.

The directors have arranged a bank loan of $60000 which would be credited to company’s current account in February 2018

The half-yearly interest on 200000, 8% debentures of $1 each is due to be paid on 15 January 2018.

The ordinary dividend of $12000 for the year 2017 will be paid in March 2018.

The bank balance at 31 December 2017 is $12000.

Required: Prepare a cash budget for the four months ended 30 April 2018.

Give your answers to the nearest dollar

Answer 1

Solution:

Schedule of Expected Cash Collection on sales - LFJ Manufacturing
Particulars	January	February	March	April	Total
Collection of December Sales	$32,000.00				$32,000.00
Collection of Januray Sales	$32,500.00	$32,500.00			$65,000.00
Collection of February Sales		$35,000.00	$35,000.00		$70,000.00
Collection of March Sales			$36,250.00	$36,250.00	$72,500.00
Collection of April Sales				$38,125.00	$38,125.00
Total Cash collections	$64,500.00	$67,500.00	$71,250.00	$74,375.00	$277,625.00

Schedule of Expected Cash disbursement for merchandise purchase - LFJ Manufacturing
Particulars	January	February	March	April	Total
Budgeted Purchases	$56,000.00	$58,000.00	$61,000.00	$64,000.00	$239,000.00
Payment of December purchases	$26,000.00				$26,000.00
Payment of January purchases	$28,000.00	$28,000.00			$56,000.00
Payment of February purchases		$29,000.00	$29,000.00		$58,000.00
Payment of March purchases			$30,500.00	$30,500.00	$61,000.00
Payment of April purchases				$32,000.00	$32,000.00
Total disbursements	$54,000.00	$57,000.00	$59,500.00	$62,500.00	$233,000.00

Cash Budget - LFJ Manufacturing
Particulars	January	February	March	April	Total
Beginning Cash balance	$12,000.00	-$12,500.00	$46,000.00	$32,550.00	$12,000.00
Total reciepts	$64,500.00	$67,500.00	$71,250.00	$74,375.00	$277,625.00
Total cash available (A)	$76,500.00	$55,000.00	$117,250.00	$106,925.00	$289,625.00
Cash Disbursements:
Purchase of merchandise	$54,000.00	$57,000.00	$59,500.00	$62,500.00	$233,000.00
Wages	$12,000.00	$12,000.00	$13,200.00	$13,200.00	$50,400.00
Rent	$15,000.00	$0.00	$0.00	$15,000.00	$30,000.00
Interest	$8,000.00	$0.00	$0.00	$0.00	$8,000.00
Dividend			$12,000.00		$12,000.00
Total cash disbursements (B)	$89,000.00	$69,000.00	$84,700.00	$90,700.00	$333,400.00
Excess of cash available over disbursement (A-B)	-$12,500.00	-$14,000.00	$32,550.00	$16,225.00	-$43,775.00
Financing:
Borrowings	$0.00	$60,000.00	$0.00	$0.00	$60,000.00
Loan principal repaid	$0.00	$0.00	$0.00	$0.00	$0.00
Loan interest paid	$0.00	$0.00	$0.00	$0.00	$0.00
Total financing	$0.00	$60,000.00	$0.00	$0.00	$60,000.00
Ending cash balance	-$12,500.00	$46,000.00	$32,550.00	$16,225.00	$16,225.00