Sperrabuck Ltd

(See attached file for full problem description)

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The directors of Sperrabuck Ltd were concerned about the company's cash flows.They requested the account to prepare a cash budget for the four months ending 31 October 2005.

The following information was availabe:

Actual Sales2005 $
May 88000
June 110000

Budgeted Sales
July 82800
August 87400
September 89700
October 101250
November 120000
December 108000

Sales are made as folows
40% of sales are cash
50% of total sales are on credit and are paid for in the month after sale
10% of total sales are on credit and are paid for two months after sales

111) Customers purchasing on credit are allowed a discount of 2% if they pay with in one
month of purchase.
iv) Supplies are purchased two months before sale and paid for one month after purchase
V) The selling price is fixed by adding a mark-up of 40% the the cost of goods sold.
Vi) Wages of $8000 per month are paid in the month in which they are earned. It is expected
that wages will be increased bya pay award of 5% deom 1 September 2005. that wages will be increased by a pay award of 5% from 1 September 2005.
Viii) Staff are paid a bonus 4% on all sales in excess of $80,000 each month.The bounus is paid in the
following month.
Viii) Other expenses currently amount to $7000 per month and are paid in the month in which
the incurred.These expenses are expected to increase by 8% from 1 September 2005.
ix) The company will pay a final dividend of $30,000 in August 2005.
X) Sperrabuck Ltd will purchase fixed assets for $20,000 in September 2005.
Xi The balance at bank on 30 June 2005 is $12000.
Required
Prepare a cash budget for Sperrabuck Ltd for each of the four months July, August, September and October 2005. Prepare the budget in columnar form and make all calcualtions to the nearest $.

Prepare an extract from the budgeted Balance Sheet at 31 October 2005 showing the current assets and current liabilites as far as the informaion is available.

State three benefits which may be obtained from the preparation of budgets.

State three advantages that arise from preparing budgets from standard costs.
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