1. Gerry Limited manufactures and sells furniture. You have been asked by the CEO to prepare a monthly budget for the four months ending 31 May 2023. 
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3. You have been given the following information:
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5. I. Inventory is expected to be stable over the four month period.

II. Sales are expected to be €90,000 per month. Cash sales are 50% of sales with a 2% discount given to customers with cash sales.
III. Credit sales are 50% of sales and these customers are expected to take one month to pay off the sales. On average, 5% of credit sales each month are expected to go unpaid and this will lead to bad debt. You must assume that the receivables on 1 February 2023 will amount to €42,500 and that 95% of this amount will be received in February 2023, with the remaining 5% being bad debts.
IV. The materials are expected to be €13,200 per month and the supplier allows the company to pay one month after the purchase date. You must assume that payables on 1 February 2023 will amount to €14,400. This amount will be paid in February 2023.
V. Direct labor costs are expected to amount to €29,700 per month, of which 60% is paid in the month of expenses while the remaining 40% is paid one month after the month of expenses.
VI. Manufacturing overhead is estimated at €7,000 per month for February and March and €8,000 per month for April and May.
VII. Selling expenses are expected to be 5% of total sales expected to be paid in the month of sales.
VIII. The company is expected to purchase equipment in March for €65,000 and is expected to pay in April.
IX. On February 1, 2023, it is expected that the bank balance will reach €52,000.

You are asking for:
(a)Make the cash budget for the four months ending 31 May 2023.
(b) Interpret the results.

Answer rating: 100% (QA)

To prepare the cash budget for the four months ending 31 May 2023 we need to consider the cash inflows and cash outflows during this period Based on t... View the full answer