John Hush is in the process of preparing budgets for the period October to December 2013....

Transcribed Image Text:

John Hush is in the process of preparing budgets for the period October to December 2013. The following information has been provided to assist in the budgeting process: 1. Budgeted monthly sales revenue is as follows: K October 40,000 November 70,000 December 50,000 January 2014 45,000 Sales are 20% cash and 80% credit. Credit sales are collected over a three month period, 15% in the month of sale, 70% in the month following sale and 15% in the second month following sale. Bad debts of 5% are anticipated on all credit sales. Total sales revenue in August amounts to K30, 000 and Septembers total sales revenue amounts to K36, 000. 2. Cost of sales is expected to amount to 60% of sales revenue each month. 3. The business maintains its closing inventory levels at 75% of the following months cost of sales. Inventory at the beginning of October is expected to amount to K18, 000. 4. 50% of inventory purchased is paid in the month of purchase. The remaining 50% is paid for in the month following purchase. At the 30th September amounts owed for purchases are K11, 700. 5. A grant of K20, 000 is expected to be received in mid-October. 6. A van which cost K8, 000 when purchased second hand three years ago is expected to be sold in December 2013 for K3, 000. At this time the expected net book value of the van is K1, 800. 7. Equipment costing K4, 500 will be purchased and paid for in November. The equipment will be depreciated on a straight line basis over three years. 8. Operating expenses are paid as incurred. These have been estimated as follows: K October 12,800 November 18,900 December 14,600 The above figures include depreciation on existing assets of K2, 000 per month. 9. The cash balance on 1st October is expected to amount to K8, 000. Required: a. Calculate the purchases figure for each month from October 2013 to December 2013. (5 Marks) b. Prepare a cash budget on a monthly basis and in total for the period October 2013 to December 2013. (12 Marks) c. Outline any three potential benefits from the preparation of a cash budget as prepared in part (b). (3 Marks) John Hush is in the process of preparing budgets for the period October to December 2013. The following information has been provided to assist in the budgeting process: 1. Budgeted monthly sales revenue is as follows: K October 40,000 November 70,000 December 50,000 January 2014 45,000 Sales are 20% cash and 80% credit. Credit sales are collected over a three month period, 15% in the month of sale, 70% in the month following sale and 15% in the second month following sale. Bad debts of 5% are anticipated on all credit sales. Total sales revenue in August amounts to K30, 000 and Septembers total sales revenue amounts to K36, 000. 2. Cost of sales is expected to amount to 60% of sales revenue each month. 3. The business maintains its closing inventory levels at 75% of the following months cost of sales. Inventory at the beginning of October is expected to amount to K18, 000. 4. 50% of inventory purchased is paid in the month of purchase. The remaining 50% is paid for in the month following purchase. At the 30th September amounts owed for purchases are K11, 700. 5. A grant of K20, 000 is expected to be received in mid-October. 6. A van which cost K8, 000 when purchased second hand three years ago is expected to be sold in December 2013 for K3, 000. At this time the expected net book value of the van is K1, 800. 7. Equipment costing K4, 500 will be purchased and paid for in November. The equipment will be depreciated on a straight line basis over three years. 8. Operating expenses are paid as incurred. These have been estimated as follows: K October 12,800 November 18,900 December 14,600 The above figures include depreciation on existing assets of K2, 000 per month. 9. The cash balance on 1st October is expected to amount to K8, 000. Required: a. Calculate the purchases figure for each month from October 2013 to December 2013. (5 Marks) b. Prepare a cash budget on a monthly basis and in total for the period October 2013 to December 2013. (12 Marks) c. Outline any three potential benefits from the preparation of a cash budget as prepared in part (b). (3 Marks)

Answer rating: 100% (QA)

APurchase budget PARTICULARS OCT November December SALES 40000 70000 50000 COST OF SALES 60 24000 42... View the full answer