This business/management problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.
ScanSolve AI Answer
a) A master budget is a comprehensive financial plan that integrates all individual budgets (such as sales, production, and cash budgets) of an organization into a single, cohesive framework for a specific period, typically a fiscal year. It provides an overall picture of the company's expected financial performance and position. b) Cash Budget for the three months ending 30 November 2026 Step 1: Calculate cash receipts from sales. Cash sales: 30% of total sales, received in the month of sale. Credit sales (70% of total sales): 80% of credit sales (i.e., 0.70 × 0.80 = 56\% of total sales) collected one month after sale, with a 5% discount (0.56 × 0.95 = 53.2\% of total sales). 20% of credit sales (i.e., 0.70 × 0.20 = 14\% of total sales) collected two months after sale. | Month | Total Sales (\) | Cash Sales (30%) (\) | 1-Month Credit (53.2%) (\) | 2-Month Credit (14%) (\) | | :---------- | :--------------- | :-------------------- | :-------------------------- | :------------------------ | | July | 120,000 | - | - | - | | August | 160,000 | - | 85,120 (from Aug) | 16,800 (from Jul) | | September | 180,000 | 54,000 | 95,760 (from Sep) | 22,400 (from Aug) | | October | 260,000 | 78,000 | 138,320 (from Oct) | 25,200 (from Sep) | | November | 200,000 | 60,000 | - | - | | Receipts | | | | | | September | | 54,000 | 85,120 | 16,800 | | October | | 78,000 | 95,760 | 22,400 | | November | | 60,000 | 138,320 | 25,200 | September Receipts from Sales: 54,000 + 85,120 + 16,800 = 155,920 October Receipts from Sales: 78,000 + 95,760 + 22,400 = 196,160 November Receipts from Sales: 60,000 + 138,320 + 25,200 = 223,520 Step 2: Calculate payments for production cost. Production cost: 50% of next month's sales. Payments: 60% in the month of production, 40% one month later. | Month | Next Month's Sales (\) | Production Cost (50%) (\) | 60% Paid in Month (\) | 40% Paid Next Month (\) | | :---------- | :---------------------- | :------------------------- | :--------------------- | :----------------------- | | August | 180,000 (Sep sales) | 90,000 | - | 36,000 (from Aug) | | September | 260,000 (Oct sales) | 130,000 | 78,000 | 52,000 (from Sep) | | October | 200,000 (Nov sales) | 100,000 | 60,000 | 40,000 (from Oct) | | November | 240,000 (Dec sales) | 120,000 | 72,000 | - | | Payments | | | | | | September | | | 78,000 | 36,000 | | October | | | 60,000 | 52,000 | | November | | | 72,000 | 40,000 | September Payments for Production: 78,000 + 36,000 = 114,000 October Payments for Production: 60,000 + 52,000 = 112,000 November Payments for Production: 72,000 + 40,000 = 112,000 Step 3: Incorporate other receipts and payments. Opening Balance (1 Sep): (\6,000) overdraft. Issue of Ordinary Shares: 20,000 × \1.20 = \24,000 (October). Sale of Motor Vehicle: 18,000 (received in November). Sundry Expenses: 45,000 per month (September, October, November). Loan from FM Bank: 15,000 (September). Redemption of Preference Shares: 55,000 (October). Purchase of Equipment: 100,000 (November). Step 4: Construct the cash budget. |l|r|r|r| Particulars & September (\) & October (\) & November (\) \\ Opening Balance & (6,000) & 5,920 & 14,080 \\ Receipts: & & & \\ Cash from Sales & 155,920 & 196,160 & 223,520 \\ Issue of Ordinary Shares & - & 24,000 & - \\ Sale of Motor Vehicle & - & - & 18,000 \\ Loan from FM Bank & 15,000 & - & - \\ Total Receipts (A) & 170,920 & 220,160 & 241,520 \\ Payments: & & & \\ Production Cost & 114,000 & 112,000 & 112,000 \\ Sundry Expenses & 45,000 & 45,000 & 45,000 \\ Redemption of Preference Shares & - & 55,000 & - \\ Purchase of Equipment & - & - & 100,000 \\ Total Payments (B) & 159,000 & 212,000 & 257,000 \\ Net Cash Flow (A-B) & 11,920 & 8,160 & (15,480) \\ Closing Balance & 5,920 & 14,080 & (1,400) \\ What's next? Send 'em! 📸