4 CASH budget is required to enable the General Manager to decide what internal

Question

4 CASH budget is required to enable the General Manager to decide what internal finances are available towards the purchase of a new machine, and when to pay dividends. He also needs to determine whether bank accommodation (overdraft) is required around Christmas to meet the needs of January holiday salaries paid in advance in December Further it is necessary to check the effect of lack ofproduction in January on the expected cash flow for the following March and April. The current profit and loss projection is as follows: Sales (as detailed below) Expenditure $7,200,000 Materials Wages Factory O/H $2,215,000 $2,673,000 $1,380,000 (incl depreciation S30,000) S 430,000 $6,698,000 $502,000 Budgeted sales in successive months in thousands of dollars are: July 2018 August 640 530 520 600 650 650 January 2019 160 February March April May June 600 700 750 650 750 October November NOTES Terms of Trade Sales are received in cash two months after the month in which they are invoiced Materials are paid two months after delivery of the goods. Wages prompt pay (i.e. treat as though paid in moth in which obligation incurred) - one month in airears - one month in airears Factory overheads

Explanation / Answer

a) The cash budget monthly statement is as follows:

B)

Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Sales 640 530 520 600 650 650 160 600 700 750 650 750 Beginning OD 40 17.08 -45.83 -83.86 -35.73 -10.67 -41.01 -105.96 -170.91 133.40 138.06 68.49 Receipts 580 550 640 530 520 600 650 650 160 600 700 750 Loans Inward cash 580 550 640 530 520 600 650 650 160 600 700 750 Materials 122.00 112.00 196.89 163.05 159.97 184.58 199.97 199.97 49.22 184.58 215.35 230.73 Wages 222.75 222.75 222.75 222.75 222.75 222.75 222.75 222.75 222.75 222.75 222.75 222.75 Factory O/H 112.50 112.50 112.50 112.50 112.50 112.50 112.50 112.50 112.50 112.50 112.50 112.50 Admin 35.83 35.83 35.83 35.83 35.83 35.83 35.83 35.83 35.83 35.83 35.83 35.83 Repayment 4 4 4 4 4 4 4 4 4 4 4 4 Group tax 60 Removal costs 30 New machinery 40 Addnl interest 10 10 10 10 10 10 10 10 R&D 30 30 30 Contingent 5 Outflow 557.08 487.08 601.97 578.13 545.06 569.67 585.05 585.05 464.31 604.67 630.43 615.81 Net inflow/outflow 22.92 62.92 38.03 -48.13 -25.06 30.33 64.95 64.95 -304.31 -4.67 69.57 134.19 Closing OD 17.08 -45.83 -83.86 -35.73 -10.67 -41.01 -105.96 -170.91 133.40 138.06 68.49 -65.69 Closing OD abs 17.08 0.00 0.00 0.00 0.00 0.00 0.00 0.00 133.40 138.06 68.49 0.00

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