Question 3. Cash Budget Ebert Ltd sells about 20% of its product for cash. Ebert

Question

Question 3. Cash Budget Ebert Ltd sells about 20% of its product for cash. Ebert has the following payment experience for its credit sales: Paid in the month of sale Paid in the month after sale Paid in the second month after sale 30% 60% 8% Ebert's anticipated sales for the next few months are $240 000 $230 000 May Ebert purchased the following amounts of direct materials, all on account: $20 000 $25 000 Ebert pays 30% of its accounts payable in the month of purchase and the remaining 70% in the following month In July, direct labour cost was $57 000. August direct labour cost was $63 000 Typically the company pays 90% of direct labour cost in cash during the month, with the remainder paid in the following month August overhead amounted to $110 000, including $5 500 of depreciation. Ebert Company took out a loan of $10 000 on 1 May. Interest is 12% per year. The loan and all interest due will be repaid on 31 August. At the beginning of August the company had a bank balance of $3 500 Required Prepare a cash budget for August.

Explanation / Answer

Workings:

Payment for direct material purchases = (30% x $30000) + (70% x $25000) = $9000 + $17500 = $26500

Payment for direct labor = (90% x $63000) + (10% x $57000) = $56700 + $5700 = 62400

Payment for overheads = $110000 - $5500 = $104500

Payment of interest on loan = $10000 x 12% x 4/12 = $400

Ebert Ltd. Cash Budget For the Month of August Beginning cash balance 3500 Cash receipts from customers 242800 Total cash available 246300 Cash disbursements for: Direct material purchases 26500 Direct labor 62400 Overheads 104500 Repayment of loan 10000 Payment of interest on loan 400 Total cash disbursements 203800 Ending cash balance 42500

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