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
Part (a): Define a master budget. A master budget is a comprehensive financial and operating plan for an organization, typically covering a fiscal year. It integrates all individual budgets, such as sales, production, cash, and capital expenditure budgets, into a unified framework to guide operations and financial performance. Part (b): Prepare a cash budget for the three months ending 30 November 2026. Step 1: Calculate Cash Receipts from Sales. Cash sales: 30\% of total sales, collected in the month of sale. Credit sales: 70\% of total sales. 80\% of credit sales (i.e., 0.80 × 0.70 = 0.56 of total sales) are collected one month after sale, with a 5\% discount. So, 0.56 × (1 - 0.05) = 0.532 of total sales. 20\% of credit sales (i.e., 0.20 × 0.70 = 0.14 of total sales) are collected two months after sale. Sales Data: July: \120,000 August: \160,000 September: \180,000 October: \260,000 November: \200,000 September Receipts: Cash sales: 0.30 × \180,000 = \54,000 Credit sales from August: 0.532 × \160,000 = \85,120 Credit sales from July: 0.14 × \120,000 = \16,800 Total September Receipts: \54,000 + \85,120 + \16,800 = \155,920 October Receipts: Cash sales: 0.30 × \260,000 = \78,000 Credit sales from September: 0.532 × \180,000 = \95,760 Credit sales from August: 0.14 × \160,000 = \22,400 Total October Receipts: \78,000 + \95,760 + \22,400 = \196,160 November Receipts: Cash sales: 0.30 × \200,000 = \60,000 Credit sales from October: 0.532 × \260,000 = \138,320 Credit sales from September: 0.14 × \180,000 = \25,200 Total November Receipts: \60,000 + \138,320 + \25,200 = \223,520 Step 2: Calculate Cash Payments for Production Costs. Production cost: 50\% of sales. Goods are produced one month before sale. 60\% of production cost is paid in the month of production, and 40\% one month later. Production Costs: August (for Sep sales): 0.50 × \180,000 = \90,000 September (for Oct sales): 0.50 × \260,000 = \130,000 October (for Nov sales): 0.50 × \200,000 = \100,000 November (for Dec sales): 0.50 × \240,000 = \120,000 September Payments: 40\% of August production cost: 0.40 × \90,000 = \36,000 60\% of September production cost: 0.60 × \130,000 = \78,000 Total September Payments: \36,000 + \78,000 = \114,000 October Payments: 40\% of September production cost: 0.40 × \130,000 = \52,000 60\% of October production cost: 0.60 × \100,000 = \60,000 Total October Payments: \52,000 + \60,000 = \112,000 November Payments: 40\% of October production cost: 0.40 × \100,000 = \40,000 60\% of November production cost: 0.60 × \120,000 = \72,000 Total November Payments: \40,000 + \72,000 = \112,000 Step 3: Incorporate other cash flows. Issue of Ordinary Shares: 20,000 shares × \1.20 = \24,000 (October receipt). Sale of Old Motor Vehicle: \18,000 (November receipt). Loan from FM Bank: \15,000 (September receipt). Sundry Expenses: \45,000 per month (payment). Redemption of Preference Shares: \55,000 (October payment). Purchase of Equipment: \100,000 (November payment). Beginning Bank Overdraft (1 September 2026): (\6,000). Step 4: Prepare the Cash Budget. |l|r|r|r| Cash Budget & September (\) & October (\) & November (\$) \\ Beginning Cash Balance & (6,000) & 5,920 & 14,080 \\ Cash Receipts: & & & \\ Cash Sales & 54,000 & 78,000 & 60,000 \\ Credit Sales (1 month, less discount) & 85,120 & 95,760 & 138,320 \\ Credit Sales (2 months) & 16,800 & 22,400 & 25,200 \\ Issue of Ordinary Shares & - & 24,000 & - \\ Sale of Old Motor Vehicle & - & - & 18,000 \\ Loan from FM Bank & 15,000 & - & - \\ Total Cash Receipts (A) & 170,920 & 220,160 & 241,520 \\ Cash Payments: & & & \\ Production Costs & 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 Cash Payments (B) & 159,000 & 212,000 & 257,000 \\ Net Cash Flow (A - B) & 11,920 & 8,160 & (15,480) \\ Ending Cash Balance & 5,920 & 14,080 & (1,400) \\ That's 2 down. 3 left today — send the next one.