Grenoble Enterprises had sales of $50,000 in March and $60,000 in April. Forecas
ID: 2634032 • Letter: G
Question
Grenoble Enterprises had sales of $50,000 in March and
$60,000 in April. Forecast sales for May, June, and July are $70,000, $80,000, and
$100,000, respectively. The firm has a cash balance of $5,000 on May 1 and wishes
to maintain a minimum cash balance of $5,000. Given the following data, prepare
and interpret a cash budget for the months of May, June, and July.
(1) The firm makes 20% of sales for cash, 60% are collected in the next month,
and the remaining 20% are collected in the second month following sale.
(2) The firm receives other income of $2,000 per month.
(3) The firm
Explanation / Answer
Budget is an estimate of coming month. It is prepared for each areas of activities separately. Then the individual functional budgets are aggregated to get a masters budget. Her the problem requires preparation of cash balance. It will indicate opening and closing balance of cash monthwise. Details are shown below-
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Workings:
Calculation of collection from sales:
Table showing Cash Budget of the month May,June and July
(B) Payments:
Analysis: Opening cash balance and total collection are added to get total money available. From this figure total payments are deducted to get closing cash balance.
Closing cash balance should be at least $5,000. In May the closing balance is $8,000. But in June actual closing balance is negative. Therefore $18,000 cash introduced to bring the closing cash balance to $5,000. This closing balance of May is the opening balance of June. In June again actual closing cash balance was found to be negative. Thus $15,000 fresh cash introduced again to bring the closing balance to $5,000.
Salary and wages is 10% of the pervious month sales. In April sales was $60,000. Thus 10% of $60,000 i.e. $6,000 is the salary and wages of May. Similarly the figures are $7,000 and $8,000 in June and July.
Month Sales 20% sales 60% credit 20% credit Total March $50,000 $10,000 April $60,000 $12,000 $30,000 May $70,000 $14,000 $36,000 $10,000 $60,000 June $80,000 $16,000 $42,000 $12,000 $70,000 July $100,000 $20,000 $48,000 $14,000 $82,000Related Questions
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