From the following information which relates to Chinhamo Ltd you are required to prepare a month-by-month cash budget for the second half of 2021 and to append such brief comments as you consider might be helpful to management. (a) The company’s only product, a calfskin vest, sells at $40 and has a variable cost of $26 made up as follows: Materials $20 Labour $4 Overhead $2 (b) Fixed cost of $6 000 per month are paid on the 28th of each month. (c) Quantities sold/ to be sold on credit are: May June July August Sept Oct Nov Dec 1 000 1 200 1 400 1 600 1 800 2 000 2 200 2 600 (d) Production quantities: May June July August Sept Oct Nov Dec 1 200 1 400 1 600 2 000 2 400 2 600 2 400 2 200 (e) Cash sales, at a discount of 5% are expected to average 100 units a month. (e) Customers are expected to settle their accounts by the end of the second month following sale. (f) Suppliers of material paid two months after the materials in used in production. (g) Wages are paid in the same month as they are incurred. (h) 70% of the variable overhead is paid in the month of production, the remainder in the following month. (i) Corporation Tax of $18 000 is to be paid in October. (j) A new delivery vehicle was bought in June, the cost of which, $8 000 is to be paid in August. The old vehicle was sold for $600 the buyer undertaking to pay in July. (k) The company is expected to be $3 000 overdrawn at the bank at 30 June 2021. (l) The opening and closing stocks of raw materials, work in progress and finished goods are budgeted to be the same.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
From the following information which relates to Chinhamo Ltd you are required to prepare a month-by-month
(a) The company’s only product, a calfskin vest, sells at $40 and has a variable cost of $26 made up as follows:
Materials $20
Labour $4
Overhead $2
(b) Fixed cost of $6 000 per month are paid on the 28th of each month.
(c) Quantities sold/ to be sold on credit are:
May June July August Sept Oct Nov Dec
1 000 1 200 1 400 1 600 1 800 2 000 2 200 2 600
(d) Production quantities:
May June July August Sept Oct Nov Dec
1 200 1 400 1 600 2 000 2 400 2 600 2 400 2 200
(e) Cash sales, at a discount of 5% are expected to average 100 units a month.
(e) Customers are expected to settle their accounts by the end of the second month following sale.
(f) Suppliers of material paid two months after the materials in used in production.
(g) Wages are paid in the same month as they are incurred.
(h) 70% of the variable overhead is paid in the month of production, the remainder in the following month.
(i) Corporation Tax of $18 000 is to be paid in October.
(j) A new delivery vehicle was bought in June, the cost of which, $8 000 is to be paid in August. The old vehicle was sold for $600 the buyer undertaking to pay in July.
(k) The company is expected to be $3 000 overdrawn at the bank at 30 June 2021.
(l) The opening and closing stocks of raw materials, work in progress and finished goods are budgeted to be the same.
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