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    Sperrabuck Ltd

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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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    Three benefits which may be obtained from the preparation of budgets are:

    1) Budgets provide a means of communicating management's plans throughout the organization
    2) Budgets force managers to think and plan for the future. In the absence of budgets, managers would spend all of their time ...

    Solution Summary

    The solution includes a word file and an excel file that answer the questions relating to the problem: 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.

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