Q2. Ocean Company has planned the following for the next two months: Jan 2021 Feb 2021...

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Q2. Ocean Company has planned the following for the next two months: Jan 2021 Feb 2021 Budgeted sales RM104,000 RM120,000 From experience, the company has learned that a month's sales are collected according to the following pattern: 55% 25% Month of sales First month following sales Second month following sales 18% 2% Uncollectible The beginning cash balance on 1* Jan 2021 is budgeted to be RM2,130. Additional information (i) Trade receivables as at 1* Jan 2021 are expected to be RM11,780 and is anticipated that the full amount will be collected in Jan 2021. (ii) Estimated purchases of products are Jan 2021: RM67,600 and February 2021: RM78,000. Seventy percent of the purchases are to be paid for in the month of purchasing and the remaining thirty percent of the purchases are to be paid for in the following month of purchase. The amount of outstanding in the trade payable accounts as at 31* December 2020 is expected to be RM1,340 and will be paid in full in Jan 2021. (iii) Labour costs: Jan 2021: RM5,250; Feb 2021: RM6,340. Labour costs are paid in the month incurred. (iv) Selling and administration overheads, including depreciation of RM4,120, are RM10,780 per month. All overheads, excluding depreciation, are paid for in the month incurred. (v) Investment of RM10,500 in equipment will be paid for in Feb 2021. REQUIRED: a) Prepare the cash budgets for each month (Jan 2021 and Feb 2021). b) Explain the reasons for preparing cash budget. Q2. Ocean Company has planned the following for the next two months: Jan 2021 Feb 2021 Budgeted sales RM104,000 RM120,000 From experience, the company has learned that a month's sales are collected according to the following pattern: 55% 25% Month of sales First month following sales Second month following sales 18% 2% Uncollectible The beginning cash balance on 1* Jan 2021 is budgeted to be RM2,130. Additional information (i) Trade receivables as at 1* Jan 2021 are expected to be RM11,780 and is anticipated that the full amount will be collected in Jan 2021. (ii) Estimated purchases of products are Jan 2021: RM67,600 and February 2021: RM78,000. Seventy percent of the purchases are to be paid for in the month of purchasing and the remaining thirty percent of the purchases are to be paid for in the following month of purchase. The amount of outstanding in the trade payable accounts as at 31* December 2020 is expected to be RM1,340 and will be paid in full in Jan 2021. (iii) Labour costs: Jan 2021: RM5,250; Feb 2021: RM6,340. Labour costs are paid in the month incurred. (iv) Selling and administration overheads, including depreciation of RM4,120, are RM10,780 per month. All overheads, excluding depreciation, are paid for in the month incurred. (v) Investment of RM10,500 in equipment will be paid for in Feb 2021. REQUIRED: a) Prepare the cash budgets for each month (Jan 2021 and Feb 2021). b) Explain the reasons for preparing cash budget.

Answer rating: 100% (QA)

Answer Explanation iThe main purpose of preparing a cash budget is to allow management teams to cond... View the full answer