20 Question 2 DOO The Bush Co. began operations in January of 2001. The informat

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20 Question 2 DOO The Bush Co. began operations in January of 2001. The information below pertains to the operations of Bush for the 3 months from January to March (that is, the first quarter, Q1) of 2002 Expenses for Quarter 1" Amortization Factory overhead Income taxes Payroli Selling costs Administrative costs $40,000 10,000 15,000 30,000 8,000 (Commission: 2% of sales) 10,000 i Costs are assumed to be incurred evenly throughout the year with the exception of the following Amortization is taken on new assets starting in the quarter subscquent to the quarter purchased. Income taxes are payable in half-yearly instalments, on the first day of each 6-month period, based on last year's actual of $30,000. Other information: 1. Sales (made evenly throughout the quarter) (actual) (forecast) Q2 400,000 (forecast) Q3 800,000 Q1 $400,000 Collections from sales are as follows: 50% in the quarter ofsale, 45% in the quarter following 5% tncollectible Purchases (made evenly throughout the quarter) 2. (actual) Q1 $200,000 Q2 Notc The gross margin ratio is constant at 60% Cash payments for purchases are as follows: 50% in the quarter of purchase, 50% in the quarter thereafter. 2 Merchandise purchased during a quarter would include 25% of the next quarter's forecasted sales. 3. Other ) The company purchased capital equipment in the amount of $100,000 in February 2001. The estimated useful i) Dividends of $20,000 are declared on thc last day of each quarter, to be paid at the end of the next month. ii) Cash in the bank at the end of Q1 equals $25,000. life of this equipment is 10 years, estimated scrap value is $O. Required 15 a. Prepare a cash budget for Bush for Q2 of 2002. Show all your supporting calculations. b. List three advantages of budgeting.

Explanation / Answer

Notes

1: Cash collection from sale

2: Merchandise purchase budget

3: Cash disbursement for purchases

Cash budget

Advantages of budgeting:

1. Budgeting is a process which forces the management to consider in advance the outcomes of its planning and policies.

2. It makes a compelling factor for participation of everyone in the hierarchy from top managment to lower level management to get involved in the process

3. It helps in planning the future in the business, and setting out sound guidelines for the operations team to work well to achieve targets.

Q2 Collection from sale of: Q1 $180000 Q2 200000 Total collection $380000

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