A company’s estimated pattern of costs and revenues for the first four months of 20X7 is as follows:

1. One-quarter of the materials are paid for in the month of production and the remainder two months later: deliveries received in November 20X6 were £78,400, and in December 20X6 £74,800.

2. Customers are expected to pay one-third of their debts a month after the sale and the remainder after two months: sales expected for November 20X6 are £398,400, and for December 20X6, £402,600.

3. Old factory equipment is to be sold in February 20X7 for £9,600. Receipt of the money is expected in April 20X7. New equipment will be installed at a cost of £38,000. One-half of the amount is payable in March 20X7 and the remainder in August 20X7.

4. Two-thirds of the wages are payable in the month they fall due, and one-third a month later: wages for December 20X6 are estimated at £15,900.

5. £50,000 of total monthly overheads are payable in the month they occur, and the remainder one month later: total overheads for December 20X6 are expected to be £265,200.

6. The opening bank balance at 1 January 20X7 is expected to be an overdraft of £10,600.

Required:

(a) Using the information above, prepare the firm’s cash budget for the period January–April 20X7.

(b) Provide a statement to show those items in part (a) which would appear in a budgeted balance sheet as at 30 April 20X7.

Transcribed Image Text:

Month January February March April Cost and Revenues: January-April 20X7 (£000) Wages 16.2 16.8 18.3 18.6 Sales 410.4 423.6 460.8 456.3 Materials 81.6 84.8 93.6 91.2 Overheads 273.6 282.4 306.7 304.5