Question 4 (7 marks)

a) If the master budget for an advertising company is based on a single volume of activity, (e.g. expected number of clients), suggest how the company can evaluate its performance if the actual number of clients was different from the estimated figures? (2 marks)

ANSWER a):

b) JB Enterprises is a retail company and is preparing their budget for the coming year, commencing 1 July. The following information has been collected.

All sales are on credit. 60 per cent of customer accounts are collected in the month of the sale, 35 per cent in the following month, and 5 per cent are considered uncollectable. Management has estimated that of the $55 000 amount expected to be outstanding from customers at the end of the current year (30 June), only 20 per cent will be collected in July with the remainder being uncollectable.

70 per cent of the goods purchased are paid for in the month of purchase and the remaining 30 per cent is paid in the following month.

At the end of this year, the following balances are expected: cash $20 000; accounts receivable $55 000; and accounts payable $22 000.

Additional budget data:

	31 July	31 August	30 September
Sales revenue	$150 000	$180 000	$185 000
Purchases	90 000	100 000	140 000
Salaries	31 000	24 000	45 000

Salaries are paid before the end of each month.

Required:

i Prepare a schedule of budgeted cash receipts for the three-month period from July to September. (2 marks)

ii Prepare a schedule of budgeted cash disbursements for the three-month period from July to September. (3 marks)

SHOW YOUR WORKINGS

ANSWER b):