processes perform calculations to prepare budgets explain how financial controls fit into the management control system link budgets and budgeting to a company's strategy. 13.12 Sample examination questions 1. Although this is not the only (or necessarily always the best) way of planning a budgeting process, there is a strong logic in stating that the budgeting process will usually start from the budget for sales. Explain this logic. 2. Greaves Led asks you to prepare a cash budget for the company for the first three months (January, February and March) of next year. 158why have discovered the following information relating to fest year opening balance sheet at 31 December Not current assets Inventory Recellables 176,DO0 4142.500 Total nosets share capital and reserves 6161.000 Current liabilities (310.000 Trade payables Corporation tax 120.000 Rotal current liabilities $31.090 Total capital and liabilities $5LOCO 1361,000 Estimates from some budgets for next year Revenues E January February Sales revenue estimates March 20% probability 140.00 70% probability 180,000 10% increase on 5%6 increase on 10%% probability 200,000 January February Fixed costs E January February March Wages 20,000 23,000 26,000 Advertising 20,000 10.900 10,00D Administrative overheads 14,900 16, 100 Selling overheads 9,400 5.050 10,850 Cous: Direct material represents 40 per cent of the sales revenue and is purchased in quantities that allow for the existing inventory value to be maintained. The capital expenditure budget shows cash payments of C103,060 In February and E50,000 in March. In January, sale of a capital naser with a written down value of C1,000 will realise $2 000 in cash. Corporation tax of E31,000 in respect of last year's net income will be payable in March. = 10 per cent of sales are paid in cash. Of the credit customen, 70 per cent pay in the first month after sale and 30 per cent pay two months after sale. Receivables shown in the opening balance sheet are expected to pay 70 per cent in January and 30 per cent in February * 50 per cent of materials are paid for in the month of purchase. while the remainder is paid for in the mouth after purchase. Trade creditors at the beginning of the year will be paid in JanuaryChapter 13: Strategic by " Wages, administrative and selling overheads are paid in the month in which they are incurred. Administrative overhead estimates shown above include the following amounts for depreciation: . January: E5,000 . February: E6,800 . March: 18,000. Overdraft interest is 12 per cent per annum, and is charged each month based on the previous monthly balance. a. Prepare a monthly cash budget for the first three months of the year, indicating: i. the bank balance at the end of each month il an income statement for each month of the three-month period ili. a total for the three months iv the statement of financial position for 31 March (to the extent that the information allows). b. Comment on the information provided by the cash budget