QUESTION 1:
PART A
You are given with the following information relating to Rooney PLC. The accountant is currently developing the budget for the next three months ending 30 June 2010.
|
Month
|
Sales (Rs)
|
Materials (Rs)
|
Wages (Rs)
|
Overheads(Rs
|
|
February
|
14000
|
9600
|
3000
|
1 700
|
|
March
|
15000
|
9000
|
3000
|
1 900
|
|
April
|
16000
|
9200
|
3200
|
2000
|
|
May
|
17,000
|
10,000
|
3 600
|
2,200
|
|
June
|
18000
|
10400
|
4000
|
2300
|
(a) The credit terms are as given: 10% sales are cash, 50% of the cred it sales are collected next month and the balance in the following month,
(b) For the subsequent items of expenditure, the credit terms are as follows: Materials - 2 months, Wages - 1 month, Overheads - 1 month.
(c) Cash and bank balance on 1st April 2010 is expected to be $6 000
(d) Other relevant information:
(i) Machinery and Plant will be installed in February 2010 at a cost of $96,000. The monthly instalments of $2 000 is payable as from April onwards
(ii) A dividend of 5% on the ordinary share capital of $200 0 00 will be paid on 1st June.
(iii) An advance receipt of $9 000 is expected in June and will relate to the sale of vehicles.
(iv) Dividends from investments amounting to $1 000 are to be received in May.
(v) An advance payment of income tax is to be paid in June of $2 000.
Required:
Create cash budget for three months ending 30 June 2010.
PART B
Since cash is important for the survival of any business, it is often suggested to develope a cash budget, as it is no use budgeting for product ion and for sales if, during the budget period, the business runs out of cash funds.
Required:
Explain four advantages why cash budgets should be prepared?