A. Brilliant Marketing Sdn Bhd, a glove product marketing company, is developing a cash budget for...

  
 

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A. Brilliant Marketing Sdn Bhd, a glove product marketing company, is developing a cash budget for October, November, and December. Brilliant Marketing Sdn Bhd's sales in August and September were RM200,000 and RM100,000, respectively. Brilliant Marketing forecasts sales of RM400,000, RM300,000, and RM200,000 for October, November, and December, respectively. Historically, 20% of the firm's sales each month have been for cash, 50% have generated accounts receivable collected after one month, and the remaining 30% have generated accounts receivable collected after two months. Bad-debt expenses (uncollectible accounts) have been negligible. In December, the firm will receive an RM20,000 dividend from stock in a subsidiary. The beginning balance for October is RM100,000. Additional Information: In December, Brilliant Marketing earns net cash inflows of RM45,000, which it uses to repay some of its short-term borrowings, reducing the outstanding short-term debt from RM70,000 to RM40,000. In summary, the financial activities for each month would be as follows: - 1. Forecast sales: Brilliant Marketing expects sales to rise from August to October before falling slightly in November and December. 2. Cash sales: The cash sales shown for each month represent 20% of the total sales for that month. 3. Collections of A/R: These entries represent the collection of accounts receivable (A/R) resulting from sales in earlier months. 4. Lagged one month: These figures represent credit sales made in the preceding month that was collected in the current month. For example, because 50% of the current month's sales are collected one month later, the collections of A/R with a one-month lag shown for September represent 50% of the sales in August. 5. Lagged two months: These figures represent credit sales made two months earlier that was collected in the current month. Because 30% of sales are collected two months later, the collections with a two-month lag shown for October represent 30% of the sales in August, and so on. 6. Other cash receipts: Cash receipts not tied to sales could include interest, dividends, proceeds from the sale of equipment, and stock and bond sale proceeds. The only receipt in this category is the RM20,000 dividend they expect to receive in December. Brilliant Marketing has also gathered the following data needed for preparing cash disbursements scheduled for October, November, and December:- 1. Purchases: Purchases equal 70% of sales. Of this amount, Brilliant Marketing pays 10% in cash upfront. It pays 70% the month after purchase. The company pays the remaining 20% two months after purchase. 2. Rent payments: Brilliant Marketing will pay rent of RM2,000 each month. 3. Wages and salaries: Fixed salaries are RM7,000 per month, and variable wages equal 10% of monthly sales. 4. Tax payments: Brilliant Marketing must pay taxes of RM20,000 in December. 5. Fixed-asset outlays: Brilliant Marketing will pay RM100,000 for new machinery in November. 6. Interest payments: Brilliant Marketing must pay RM10,000 in interest in December. 7. Cash dividend payments: Brilliant Marketing will pay cash dividends of RM20,000 in October. 8. Principal payments (loans): A RM20,000 principal payment is due in December. Required: a. Estimate the end-of-month closing cash balances for each month, October to December. (7 marks) b. The directors decide that the cash balance should be maintained at RM20,00 each month. Determine the required total financing or excess cash balance for each month, October to December. (7 marks) c. Analyze the results and suggest action to be taken by the manager. Do you think that Brilliant Marketing will need an overdraft facility for the period from October to December? (2 marks) A. Brilliant Marketing Sdn Bhd, a glove product marketing company, is developing a cash budget for October, November, and December. Brilliant Marketing Sdn Bhd's sales in August and September were RM200,000 and RM100,000, respectively. Brilliant Marketing forecasts sales of RM400,000, RM300,000, and RM200,000 for October, November, and December, respectively. Historically, 20% of the firm's sales each month have been for cash, 50% have generated accounts receivable collected after one month, and the remaining 30% have generated accounts receivable collected after two months. Bad-debt expenses (uncollectible accounts) have been negligible. In December, the firm will receive an RM20,000 dividend from stock in a subsidiary. The beginning balance for October is RM100,000. Additional Information: In December, Brilliant Marketing earns net cash inflows of RM45,000, which it uses to repay some of its short-term borrowings, reducing the outstanding short-term debt from RM70,000 to RM40,000. In summary, the financial activities for each month would be as follows: - 1. Forecast sales: Brilliant Marketing expects sales to rise from August to October before falling slightly in November and December. 2. Cash sales: The cash sales shown for each month represent 20% of the total sales for that month. 3. Collections of A/R: These entries represent the collection of accounts receivable (A/R) resulting from sales in earlier months. 4. Lagged one month: These figures represent credit sales made in the preceding month that was collected in the current month. For example, because 50% of the current month's sales are collected one month later, the collections of A/R with a one-month lag shown for September represent 50% of the sales in August. 5. Lagged two months: These figures represent credit sales made two months earlier that was collected in the current month. Because 30% of sales are collected two months later, the collections with a two-month lag shown for October represent 30% of the sales in August, and so on. 6. Other cash receipts: Cash receipts not tied to sales could include interest, dividends, proceeds from the sale of equipment, and stock and bond sale proceeds. The only receipt in this category is the RM20,000 dividend they expect to receive in December. Brilliant Marketing has also gathered the following data needed for preparing cash disbursements scheduled for October, November, and December:- 1. Purchases: Purchases equal 70% of sales. Of this amount, Brilliant Marketing pays 10% in cash upfront. It pays 70% the month after purchase. The company pays the remaining 20% two months after purchase. 2. Rent payments: Brilliant Marketing will pay rent of RM2,000 each month. 3. Wages and salaries: Fixed salaries are RM7,000 per month, and variable wages equal 10% of monthly sales. 4. Tax payments: Brilliant Marketing must pay taxes of RM20,000 in December. 5. Fixed-asset outlays: Brilliant Marketing will pay RM100,000 for new machinery in November. 6. Interest payments: Brilliant Marketing must pay RM10,000 in interest in December. 7. Cash dividend payments: Brilliant Marketing will pay cash dividends of RM20,000 in October. 8. Principal payments (loans): A RM20,000 principal payment is due in December. Required: a. Estimate the end-of-month closing cash balances for each month, October to December. (7 marks) b. The directors decide that the cash balance should be maintained at RM20,00 each month. Determine the required total financing or excess cash balance for each month, October to December. (7 marks) c. Analyze the results and suggest action to be taken by the manager. Do you think that Brilliant Marketing will need an overdraft facility for the period from October to December? (2 marks)

Answer rating: 100% (QA)

a EndofOctober cash balance RM22000 EndofNovember cash balance RM11000 EndofDecember cash balance RM29000 b October Excess cash balance RM10000 November Deficit RM8000 December Excess cash balance RM9... View the full answer