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Define a master budget and prepare a cash budget for the three months ending 30 November 2026.

Business/Management

ScanSolve AI Answer

Answer

b

5,920\textbf{5,920}

14,080\textbf{14,080}

(1,400)\textbf{(1,400)}

Step-by-step solution

4 steps

Part 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.

Part b

5,920\textbf{5,920}

Cash Budget for the three months ending 30 November 2026

  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%0.70 \times 0.80 = 56\% of total sales) collected one month after sale, with a 5% discount (0.56×0.95=53.2%0.56 \times 0.95 = 53.2\% of total sales).
      • 20% of credit sales (i.e., 0.70×0.20=14%0.70 \times 0.20 = 14\% of total sales) collected two months after sale.
    MonthTotal Sales ($)Cash Sales (30%) ($)1-Month Credit (53.2%) ($)2-Month Credit (14%) ($)
    July120,000---
    August160,000-85,120 (from Aug)16,800 (from Jul)
    September180,00054,00095,760 (from Sep)22,400 (from Aug)
    October260,00078,000138,320 (from Oct)25,200 (from Sep)
    November200,00060,000--
    Receipts
    September54,00085,12016,800
    October78,00095,76022,400
    November60,000138,32025,200
    • September Receipts from Sales: 54,000+54,000 + 85,120 + 16,800=16,800 = 155,920
    • October Receipts from Sales: 78,000+78,000 + 95,760 + 22,400=22,400 = 196,160
    • November Receipts from Sales: 60,000+60,000 + 138,320 + 25,200=25,200 = 223,520

  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.
    MonthNext Month's Sales ($)Production Cost (50%) ($)60% Paid in Month ($)40% Paid Next Month ($)
    August180,000 (Sep sales)90,000-36,000 (from Aug)
    September260,000 (Oct sales)130,00078,00052,000 (from Sep)
    October200,000 (Nov sales)100,00060,00040,000 (from Oct)
    November240,000 (Dec sales)120,00072,000-
    Payments
    September78,00036,000
    October60,00052,000
    November72,00040,000
    • September Payments for Production: 78,000+78,000 + 36,000 = $114,000
    • October Payments for Production: 60,000+60,000 + 52,000 = $112,000
    • November Payments for Production: 72,000+72,000 + 40,000 = $112,000

  3. Incorporate other receipts and payments.

    • Opening Balance (1 Sep): (\6,000)$ overdraft.
    • Issue of Ordinary Shares: 20,000 \times \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).

  4. Construct the cash budget.

    ParticularsSeptember ($)October ($)November ($)Opening Balance(6,000)5,92014,080Receipts:Cash from Sales155,920196,160223,520Issue of Ordinary Shares−24,000−Sale of Motor Vehicle−−18,000Loan from FM Bank15,000−−Total Receipts (A)170,920220,160241,520Payments:Production Cost114,000112,000112,000Sundry Expenses45,00045,00045,000Redemption of Preference Shares−55,000−Purchase of Equipment−−100,000Total Payments (B)159,000212,000257,000Net Cash Flow (A-B)11,9208,160(15,480)Closing Balance5,92014,080(1,400)\begin{array}{|l|r|r|r|} \hline \textbf{Particulars} & \textbf{September (\$)} & \textbf{October (\$)} & \textbf{November (\$)} \\ \hline \textbf{Opening Balance} & (6,000) & 5,920 & 14,080 \\ \textbf{Receipts:} & & & \\ \text{Cash from Sales} & 155,920 & 196,160 & 223,520 \\ \text{Issue of Ordinary Shares} & - & 24,000 & - \\ \text{Sale of Motor Vehicle} & - & - & 18,000 \\ \text{Loan from FM Bank} & 15,000 & - & - \\ \textbf{Total Receipts (A)} & \textbf{170,920} & \textbf{220,160} & \textbf{241,520} \\ \textbf{Payments:} & & & \\ \text{Production Cost} & 114,000 & 112,000 & 112,000 \\ \text{Sundry Expenses} & 45,000 & 45,000 & 45,000 \\ \text{Redemption of Preference Shares} & - & 55,000 & - \\ \text{Purchase of Equipment} & - & - & 100,000 \\ \textbf{Total Payments (B)} & \textbf{159,000} & \textbf{212,000} & \textbf{257,000} \\ \textbf{Net Cash Flow (A-B)} & 11,920 & 8,160 & (15,480) \\ \textbf{Closing Balance} & \boxed{\textbf{5,920}} & \boxed{\textbf{14,080}} & \boxed{\textbf{(1,400)}} \\ \hline \end{array}
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