Alex Ltd started its operations from 1 Jan 2013. Its budgeted sales for the next

Question

Alex Ltd started its operations from 1 Jan 2013. Its budgeted sales for the next 6 months are as follows: Sales Revenue (Units) January 2,000 February 2,200 March 2,300 April 2,400 May 2,600 June 2,800 The selling price per unit is expected to be £30 per unit. All sales will be made on credit. For each monthly sales, customers pay 30% in the same month and the remaining 70% in the following month. The direct labour cost is fixed at £12,000 per month and is paid in the same month. Overhead costs are planned to be £8,000 each month including £2,000 for depreciation. Overhead costs are paid in the same month. For raw material purchases, the cost of raw material is 10% of units sold every month and it is paid two month in arrears. Company bought the equipment for £150,000 in Jan and payment was made over April to June. Opening cash balance at the start of Jan (1st) is £70,000. Required: Draw up a cash budget for the 6 months from 1 January to 30 June, with a column for each month. The budget should, among other things, show each end-of-month cash balance. Total (10 marks

Explanation / Answer

collection from customer January February March April May June Sales revenue ( units) 2000 2200 2300 2400 2600 2800 sale price oer unit 30 30 30 30 30 30 Sales revenue 60000 66000 69000 72000 78000 84000 collection - same month - 30% 18000 19800 20700 21600 23400 25200 collection - following month - 70% 42000 46200 48300 50400 54600 Total collection 18000 61800 66900 69900 73800 79800 Payment for purchase of Raw material January February March April May June Cost of purchases - 10% of sales 6000 6600 6900 7200 7800 8400 Payment - 2 months in arrears 6000 6600 6900 7200 Cash Budget January February March April May June opening balance 70000 70000 113800 156700 152000 150900 Cash collected from customers 18000 61800 66900 69900 73800 79800 Total cash available 88000 131800 180700 226600 225800 230700 Less Payments for purchases 0 0 6000 6600 6900 7200 Direct labor cost 12000 12000 12000 12000 12000 12000 overhead cost ( 8000 - 2000) 6000 6000 6000 6000 6000 6000 equipment purchased 50000 50000 50000 Total cash payments 18000 18000 24000 74600 74900 75200 closing balance 70000 113800 156700 152000 150900 155500

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