The following information refers to the activities during the September and October months for LADIES Confectionery: 

• The business planned to sell 65 000 cupcakes in September and 98 000 in October.

• Each cupcake sells for R3.50 and on average 60% of all sales are in cash while the remainder are credit sales.

• The company expects to collect 75% of credit sales in the month of the sale, and 25% in the following month after the sale.

• All raw materials are purchased on account.

• Supplier terms require that 85% of the account is settled in the month of the purchase and 15% in the following month. Purchases for September are estimated to be R200 000 and R290 000 in October.

• Monthly expenses include:

Wages R10 000

Rent R4 000

Utilities R3 500

Insurance R2 500

Advertising R2 290

The cash balance on 1 September was R6 000. The company has a policy to maintain a minimum cash balance of R5 000. If necessary, the company will borrow to meet its short-term needs. All borrowings are made at the beginning of the month while all re-payments (principal and interest) are made at the end of the next month. The annual interest rate is 7%. The company must borrow in multiples of R1 000.

In August the business sold 43 000 cupcakes and purchased raw materials of R230 000.

Required: 

Prepare a cash budget for September and October months.

Answer rating: 100% (QA)

SOLUTION To prepare the cash budget for September and October months we need to calculate the cash i... View the full answer