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

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., $0.80 \times 0.70 = 0.56$ of total sales) are collected one month after sale, with a $5\%$ discount. So, $0.56 \times (1 - 0.05) = 0.532$ of total sales.
    • $20\%$ of credit sales (i.e., $0.20 \times 0.70 = 0.14$ 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 \times \180,000 = $54,000$
  • Credit sales from August: 0.532 \times \160,000 = $85,120$
  • Credit sales from July: 0.14 \times \120,000 = $16,800$
  • Total September Receipts: \54,000 + $85,120 + $16,800 = $155,920$

  October Receipts:

  • Cash sales: 0.30 \times \260,000 = $78,000$
  • Credit sales from September: 0.532 \times \180,000 = $95,760$
  • Credit sales from August: 0.14 \times \160,000 = $22,400$
  • Total October Receipts: \78,000 + $95,760 + $22,400 = $196,160$

  November Receipts:

  • Cash sales: 0.30 \times \200,000 = $60,000$
  • Credit sales from October: 0.532 \times \260,000 = $138,320$
  • Credit sales from September: 0.14 \times \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 \times \180,000 = $90,000$September (for Oct sales):$0.50 \times $260,000 = $130,000$October (for Nov sales):$0.50 \times $200,000 = $100,000$November (for Dec sales):$0.50 \times $240,000 = $120,000$

  September Payments:

  • $40\%$ of August production cost: 0.40 \times \90,000 = $36,000$
  • $60\%$ of September production cost: 0.60 \times \130,000 = $78,000$
  • Total September Payments: \36,000 + $78,000 = $114,000$

  October Payments:

  • $40\%$ of September production cost: 0.40 \times \130,000 = $52,000$
  • $60\%$ of October production cost: 0.60 \times \100,000 = $60,000$
  • Total October Payments: \52,000 + $60,000 = $112,000$

  November Payments:

  • $40\%$ of October production cost: 0.40 \times \100,000 = $40,000$
  • $60\%$ of November production cost: 0.60 \times \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 \text{ shares} \times \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.

$$\begin{array}{|l|r|r|r|} \hline \textbf{Cash Budget} & \textbf{September (\$)} & \textbf{October (\$)} & \textbf{November (\$)} \\ \hline \text{Beginning Cash Balance} & (6,000) & 5,920 & 14,080 \\ \hline \textbf{Cash Receipts:} & & & \\ \text{Cash Sales} & 54,000 & 78,000 & 60,000 \\ \text{Credit Sales (1 month, less discount)} & 85,120 & 95,760 & 138,320 \\ \text{Credit Sales (2 months)} & 16,800 & 22,400 & 25,200 \\ \text{Issue of Ordinary Shares} & - & 24,000 & - \\ \text{Sale of Old Motor Vehicle} & - & - & 18,000 \\ \text{Loan from FM Bank} & 15,000 & - & - \\ \hline \textbf{Total Cash Receipts (A)} & \textbf{170,920} & \textbf{220,160} & \textbf{241,520} \\ \hline \textbf{Cash Payments:} & & & \\ \text{Production Costs} & 114,000 & 112,000 & 112,000 \\ \text{Sundry Expenses} & 45,000 & 45,000 & 45,000 \\ \text{Redemption of Preference Shares} & - & 55,000 & - \\ \text{Purchase of Equipment} & - & - & 100,000 \\ \hline \textbf{Total Cash Payments (B)} & \textbf{159,000} & \textbf{212,000} & \textbf{257,000} \\ \hline \textbf{Net Cash Flow (A - B)} & 11,920 & 8,160 & (15,480) \\ \hline \textbf{Ending Cash Balance} & \boxed{\textbf{5,920}} & \boxed{\textbf{14,080}} & \boxed{\textbf{(1,400)}} \\ \hline \end{array}$$