Problem:
Preparation of cash budgets
The following data and estimates are available for ABC Limited for June, July and August.
|
June
|
July
|
August
|
|
(£)
|
(£)
|
(£)
|
|
Sales
|
45000
|
50000
|
60000
|
|
Wages
|
12000
|
13000
|
14500
|
|
Overheads
|
8500
|
9500
|
9000
|
The following information is available regarding direct materials:
|
June
|
July
|
August
|
September
|
|
(£)
|
(£)
|
(£)
|
(£)
|
|
Opening stock
|
5000
|
3500
|
6000
|
4000
|
|
Material usage
|
8000
|
9000
|
10000
|
|
Notes:
1. 10% of sales are for cash, the balance is received the following month. The amount received in June for May's sales is £29 500.
2. Wages are paid in the month they are incurred.
3. Overheads include £1500 per month for depreciation. Overheads are settled the month following. £6500 is to be paid in June for May's overheads.
4. Purchases of direct materials are paid for in the month purchased.
5. The opening cash balance in June is £11 750.
6. A tax bill of £25 000 is to be paid in July.
Required:
(a) Calculate the amount of direct material purchases in each of the months of June, July and August.
(b) Prepare cash budgets for June, July and August.
(c) Describe briefly the advantages of preparing cash budgets.