HH Company is in the process of preparing the cash budget for the last four months of 2022 that is September to December. The following information has been made available.

	Sept	Oct	Nov	Dec
Projected sales quantity (units)	62,000	65,000	68,000	71,000

Additional information:

Selling price is ksh 120 per unit but expected to drop by 5% from 1st November.

Payment for goods sold is as follows;

20% in the month of sales,

70% the following month after sales and

The balance (excluding bad debts) in the second month after sales.

Bad debt is estimated at 3.5% of sales value.

Purchases of goods at ksh 65 per unit are as follows:

September 84,000 units,

October 80,000 units,

November 92,000 units and

December 78,000 units.

Goods purchased are paid for after the 15^th day from the date of purchase. Purchases accrue evenly throughout the month. Assume all the months have 30 days.

A 9 year redeemable loan of ksh 3,600,000 is due for redemption at a premium of 6% in September 2022.

Monthly expenses estimated at 13% on sales revenue are paid in the month of incurrence.

The company plans to buy a delivery van at ksh 2,700,000, 40% of the cost to be paid in October and the balance in January 2023.

The Director withdraws ksh 380,000 monthly for personal expenses.

Administration expenses incurred and paid for every month of ksh 450,000 does not include depreciation of ksh 150,000 per month.

An old truck which was originally acquired at a cost of ksh 4,000,000 in the year January 2018 is to be disposed of in December 2022 and a gain on disposal of ksh 1,300,000 will be made. The accumulated depreciation (for 4 years) on this truck is based on the 20% straight-line depreciation policy and has been accounted for properly.

The company has a minimum cash balance of ksh 1,500,000 per month and all arrangements for overdraft facility have been set with the banks if this limit is to be violated in any month. Overdrafts attract interest of 8% per month.

Extracts from August figures are as follows:

Debtors ksh 6,600,000 out of which ksh 1,600,000 is part of July sales before bad debt

Creditors for goods ksh 3,400,000

Cash ksh 1,650,000

Required:

Prepare Monthly cash budget for the four months ending December 2022 (10 Marks)

Answer rating: 100% (QA)

To prepare the monthly cash budget for the four months ending December 2022 we need to calculate the cash inflows and outflows for each month Heres th... View the full answer